THE BOTTOM LINE –
“SAP’s new indirect access model gets rid of Named User licenses for indirect access and is fully based on documents created. This raises the choice between staying with your old model, or going with the new model.”
Depending on your contract and your scenarios, the cost difference between the two choices can be substantial and it can fall either way. You can make an informed decision by reviewing your indirect access use cases against both models. SAP is developing a measurement tool for indirect access, so they are serious about compliance on this topic.
What’s new, What’s the fuss?
April 10th, SAP has finally come out with a new licensing and pricing model for indirect/digital access. The move addresses long-standing confusion among SAP customers on this topic. SAP also aims to calm their customer base after their successful high profile €60M court case against Diageo, and the settled $600M claim against Anheuser-Busch InBev.
There have been lots of reactions to the news and the accompanying organisational changes, mainly on a high level and to the extent that it’s a step in the right direction but much remains to be worked out. Now the dust has settled, I will dive a little deeper into the practicalities and argue that all SAP customers will have a complicated and impactful choice to make between staying with the old model or going with the new.
First, what has changed in the new model?
Named User licensing for indirect access is out the window. So far, human access has been the basis for licensing, at least in a large majority of indirect use cases. Not anymore, welcome to Document-based licensing. It is very similar to the latest licensing of Order-to-cash (O2C) and Procure-to-Pay (P2P), which are based on the sales order and purchase order documents when entered indirectly into S/4HANA.
SAP customers will have a complicated and impactful choice to make between staying with the old model or going with the new.
O2C and P2P will be morphed into one new Document-based model, together with 7 further functional areas (e.g. manufacturing and financial) which were previously licensed by Named Users. Documents in any other area will be free-of-charge. Also new is that the 9 areas will count towards one single license type, the Digital Access Document. There is still some pricing differentiation between the 9 areas in how they are counted.
The next big change is that only the initial creation of documents is counted. Subsequent reads, updates and deletes are included. High impact! I have assessed many hundreds of indirect access cases and of those which needed a license, a very large portion had to do with users changing or reading existing documents. Those would be free-of-charge in the new model.
SAP highlighted many times that automatically created follow-up documents are free-of-charge. For example, you would pay for an initial sales order, but not for the following invoice if this was created automatically without more external input. This may sound good, but you will still need a second license when a follow-up document is triggered by external input. Whereas in the old model you can recycle a Named User license over multiple use cases.
Do I like the new model? Well, I like that it’s an outcome-oriented model, counting actual business value. Also, the concept is simplified.
The new indirect access measurement functionality will have many complications, but SAP will use it to chase revenue nonetheless.
On the other hand, I am worried about the vital practicality of counting the beans. It will have to be determined which documents have been created via an external interface (new Document licensing), versus those created in SAP (Named User licensing). For the 7 years, I spent as a licence auditor at SAP, the sales order processing measurement was declared ˝unreliable”. Then about 2 years ago, the long-awaited and by SAP sales execs much-anticipated new functionality finally became available – only to be downgraded by SAP to “unreliable” a few months later… This serious difficulty will now be extended to all 9 indirect access areas. Be prepared that as a customer, you will end up having to do the work of counting correctly. Still, you can rely on SAP to use the measurement to start a discussion on indirect use, even if you remain on the old model.
Also, SAP have not published the list price of the Document license, but I expect it to be rather high. We’ve seen in the indirect use roll-out of May 2017 that the prices for sales orders skyrocketed by a factor of 6 to 300 for B2B and 2 to 10 for B2C, and purchase orders by a factor 5 to 25, depending on which volume tier you’re looking at. The fact that sales and purchase orders will be counted per line item in each order must result in some reduction of the unit price. I expect the Documents to be priced a few times higher than the pre-2017 sales orders.
How about the old model?
SAP have stated the obvious in that customers can choose to stay with their current contract and user-based licensing for indirect use. Given the complications outlined above, aren’t you better off just staying with the old model? Well, you would continue to pay for scenarios where documents are indirectly changed, read or deleted, unlike under the new model. As said, this affects a large portion of indirect scenarios, so this aspect has the potential for very substantial savings when changing to the new model.
Another point is that your indirect use may have been under the radar for a long time, but with the new measurement functionality planned for release in November 2018, this will likely change. It won’t matter if the indirect use will be measured in the metric of the new model or that it’s inaccurate, if there’s a lot of smoke then SAP will start looking for fires. Currently, if you review your indirect access cases and proactively approach SAP to solve compliance gaps- any back maintenance will be waived; whereas this is unlikely if gaps are uncovered in the annual audit via the new measurement.
SAP has also published an indirect access audit practice for the old model. The aspect I find most interesting is that SAP will not pursue licenses for creating and changing non-transactional data – that’s any data which is not business-process centric, rapidly changing or event-driven. A substantial concession!
As part of the audit practice, SAP have formulated an indirect access assessment decision tree. I am skeptical of its accuracy. If you follow it for the example of automated writing of sensor data to SAP, the tree would tell you that you need a dedicated license. In my opinion, such fully-automated use cases do not need an indirect use license under the old model, as a Named User is for human individuals (though great care is needed in assessing such scenarios). So on this aspect, the new model is worse as it requires a Document license.
Coming to the crux of the matter, SAP has outlined 2 options for moving to the new model: 1) license exchange within your current contract and 2) contract conversion. License exchange means that you will get a credit (of up to 100%) of licenses you no longer need for indirect access (users, sales orders and purchase orders). Contract conversion is quite drastic and means moving to S/4HANA with a whole new contract.
In a webcast by the Americas’ SAP Users’ Group, I heard that SAP are not unwilling to consider mixed legacy/new licensing on a case-by-case basis. Very interesting! I see how this could be very advantageous depending on the customer situation and I think it can be done without adding much complexity.
I envisage a few tricky scenarios as customers sign new agreements. For example, what happens if you stay with the old model and at some stage sign a new agreement for unrelated products? We advise SAP customers to read all the fine print, to ensure that they don’t inadvertently sign up to the new model, especially regarding indirect use scenarios with a go-live after April 2018.
The third option is to do nothing. Decision time!
Should I stay, or should I go?
An informed decision whether to stay with the old or go with the new will require careful review of all scenarios against both the old and the new model. Even if you are compliant now, you may uncover more surplus assets and take the one-time opportunity of trading this in for a new roll-out, e.g. a new cloud application. Normally this opportunity only exists when you make a substantial new investment.
Summarising the main benefits and drawbacks, I currently see that the old model performs better on fully-automated indirect access scenarios, price per document (O2C, P2P), and multi-scenario double-licensing. The new model scores better on the scope of licensable activities (document creation only), the scope of functional areas, simplicity of concept and measurement functionality (however poor it may be).
Both models have grey areas in assessing if (and how) indirect access needs to be licensed, but in my opinion, the new model is in this aspect.
How this all pans out for you will depend heavily on your system architecture and your current contract. It will also depend on the list price and on which discount can be negotiated. Your appetite for S/4HANA and your roadmap may make the difference.
Some attention points
1. The old model: Keep paying for changing and reading data, mainly via user licenses. Writing of non-transactional data will be waived.
2. The new model: Document-based licensing. Limited to 9 functional areas. Creation of documents only.
3. New measurement functionality for indirect access is planned for Nov 2018. Back maintenance probably won’t be waived if discovered in the annual audit.
Take away message
Ignoring the new indirect/digital access model is not a good idea – the new measurement functionality may uncover pre-existing indirect use you were not even aware of, whereas compliant customers may miss out on an attractive opportunity.
Evaluate your indirect use cases against both the old and the new model.