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SAP Third Party – Indirect Usage Licensing Part 2

December 3rd, 2012 by
SAP Indirect Usage Licensing

SAP Software License

For those who may not be aware, SAP is not the first company to require user licenses for third party or “indirect usage.”  It is becoming more commonplace and some companies are quite aggressive with it.  This follow up to last week’s post on SAP Third Party – Indirect Usage Licensing Part 1 will address real opportunities here.

Over the years SAP has set itself apart by aggressively pursuing sales while generally maintaining good customer relations.  It is a balancing act that has served SAP well.  Over the years SAP has avoided the market perception of a ruthless, do anything to get the sale, software vendor. 

This whole third party, indirect software usage can undermine that. 

But there IS an answer!

SAP Are You Listening?  There IS a Third Party / Indirect Usage WIN-WIN Here!

Like any other company, revenue growth is a primary focus.  For software companies, directly related to revenue growth there is also expanding the software footprint within the customer base. 

SAP as a company wants to grow revenue and expand their software footprint. What if there IS a way to achieve this AND satisfy your customers too. 

Would you agree this would be a WIN-WIN?

Customer Perception of the SAP Third Party Indirect Usage Licensing

Purchasing licenses for “indirect usage” feels to a customer like they are paying for something and not receiving any benefit.  There is no “value” in this approach from a customer perspective.  Yes SAP, you have your Intellectual Property (“IP”) to protect, and yes, you developed that IP. 

I am not talking about a legal issue with your IP, instead I am referring to a sales, marketing, and customer relations issue.

Add a customer’s lack of awareness to the perception of “no value” and you have a recipe for difficult customer relationships.  SAP third party or indirect software usage presents an unbudgeted “pure expense” from a customer viewpoint.  Most customers really are not aware of the indirect usage requirement so they don’t budget for it

SAP, Your Third Party or Indirect Usage Answer

Provide your customers a value added alternative to indirect usage or third party compliance issues.  Give them an option to substitute the third party or indirect usage cost they would have incurred in the form of other SAP applications or solutions.  In this way your customers are receiving something of value, you are expanding your software footprint, and you are still gaining the revenue you were looking for without the nasty reputation.  If necessary, give them a deferred payment window so they can plan for and budget the change.

Provide your customers a value added alternative to indirect usage or third party compliance issues.

You can gain a HUGE advantage by targeting certain application deployments–, for example if you want to expand your Cloud sales, HANA, or mobile, you could pick the various products you will allow as a substitute for the indirect usage fees.  This in turn boosts your sales of these newer products and provides your customers with something that is meaningful.  This has huge strategic benefits, for example, each HANA sale potentially displaces Oracle.  Each CRM sale substitute (for the indirect usage) potentially displaces Salesforce. 

Expand Application Footprint and Increase Revenue

ALWAYS be ready to trade the 3rd party integration for a deeper footprint which keeps a competitor out of the client.  Clients benefit from new software capabilities and SAP benefits from a revenue stream WITHOUT the negative relationship consequences of “forcing” the 3rd party maintenance issue.  This also becomes a differentiator with Oracle and other vendors who will push the 3rd party issue.  SAP STILL gains the additional revenue.

ALWAYS be ready to trade the 3rd party integration for a deeper footprint which keeps a competitor out of the client

You could structure contracts to defer 3rd party usage fees by adding some tradeoff in contracts like “as long as annual license revenue is at least ‘x’ no 3rd party licenses.” By doing this you are taking a “gentler” approach in preparing customers for a possible future license event.  This takes the surprise, frustration, and shock out of the equation while keeping your revenue stream more predictable and giving them a chance to budget for the spend.

Conclusion on SAP Indirect Usage or Third Party Usage Sales and Marketing Options

Seriously SAP, you have a LOT of options here.  You can be less adversarial and note that you will defer indirect usage or third party fees as long as a customer’s annual, net new license spend is “X” amount a year.  If they need new licenses for additional users the customer perceives this as a benefit and they can gain additional time to budget for an eventual indirect usage fee.  You are still satisfying your CORE requirement to grow revenue while increasing your solution footprint within your customer base AND in a way that is less offensive than the customer perception of a cost for no benefit.  Many customers look at this as a penalty for choosing SAP solutions.  While the IP is yours SAP, it is offensive to a customer because the data and business are theirs.

This creates a more open environment and many more customers may be willing to “come clean” about indirect usage.  By providing some kind of perceived benefit they are more likely to address the compliance (rather than hiding it) AND the customer AND SAP gain something of value.  Talk about a “Win-Win”!

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SAP Third Party – Indirect Usage Licensing Part 1

November 26th, 2012 by
SAP Software License Guide

SAP Software Licensing

Many SAP customer license contracts contain either a direct or an indirect reference to SAP’s third party usage licensing requirements.  That requirement is referred to as “indirect usage” and carries a hefty potential financial penalty.  The basic idea is that if you use any non-SAP system to access SAP data the user of that external system must acquire an SAP Named User License.

While I understand SAP’s argument that if you use portions of the SAP software (BAPIs, RFCs, Function Modules, etc.) that you are using their Intellectual Property (“IP”) then they should be paid for that–, it still frustrates many customers.

Where is the Reference to Indirect Usage?

Unless you have explicitly negotiated OUT (or around) the indirect usage it is most commonly contained in SAP contracts in 1 of 2 ways.  It is either explicitly spelled out in the contract language, OR it is buried in some boilerplate language related to the order in which any contract confusion (or dispute) is to be resolved.  Frequently that language lists a hierarchy which references the SAP Price List. 

The SAP price list (in its January 2012 form) is currently over 120 pages AND contains detailed language related to indirect usage.  When it comes time to Untangle SAP Software Licensing your organization should become very familiar with its various provisions.  Like it or not most contracts do subject you to the price list’s terms.  You might as well consider that 120+ pages part of your contract.

SAP Indirect Usage or Third Party Usage Enforcement

Recently SAP has gotten more aggressive about customers paying for third party system connections to SAP applications.  The current push is that you must have a Named User License for any user who gains access to SAP data – even from external systems.  While there are some narrow exceptions the push is to just license any user who acquires the data.

From a customer standpoint Indirect Usage or Third Party Usage creates no value.  It only creates friction, frustration, and mistrust between SAP and their customer base.

In a recent license and contract negotiation with SAP and a fair sized customer, with a significant annual license and maintenance spend rate, this issue came up.  It became a major hurdle to reaching a reasonable agreement that everyone could be happy with.  While SAP was willing to concede special Named User licenses for the Indirect Usage (at a very low cost) it was still a problem.  The customer perspective is that if they decide to use another vendor’s product, and are not engaged in some unethical means of SAP software use to avoid paying SAP licenses there shouldn’t be any fee.  This is becoming a serious issue because from a customer standpoint Indirect Usage or Third Party Usage creates absolutely no value.  It only serves to create friction between SAP and their customer base.

The current focus seems to be on going after third party applications such as Salesforce.com which serve to displace SAP’s own CRM solution.   The SAP User Experience has become a big part of the reason many customers choose alternative solutions and SAP has got to do a better job of addressing that.  Because of SAP’s CRM application shortfalls I have also suggested SAP consider SugarCRM as The PERFECT SAP Acquisition Target, but the real issue is that sales people and customer facing processes want “pretty.”  The SAP CRM option comes up short in the “pretty” and usability category.

There are options for SAP customers, and there are better options for SAP as a software vendor.  Yes SAP, there actually is a way to grow your revenue, increase your software footprint AND have happy customers too!  There really is a way to “have it all” if you will consider it!

The discussion next week is around an SAP Sales and Marketing option which can significantly change this customer pain point.  It will help set SAP further apart from competitors while still growing the application footprint AND increasing revenue.  SAP, if you’re reading this, you don’t want to miss next week’s post!




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Untangle SAP Software Licensing

July 9th, 2012 by
SAP Software License Guide

SAP Software Licensing

Recently I read a self-serving post on LinkedIn from a company who promotes how “wonderful” Oracle is for having a public price list and how terrible it is that SAP and others do not.  While it may be true that SAP does not publicly publish a price list there is one, it is regularly updated, and it is quite thorough. 

The main complaint was that SAP lacks “transparency,” whatever that means.  There was no mention in the post about how Oracle sales tactics include virtually giving their software away and then after a company finally gets stable they hammer them with massively increasing maintenance fees and costs.  Think about that, once you become dependent they more than make up for the software license with the forced maintenance march.  That really makes their price list completely worthless.  My response about SAP’s lack of “transparency” was:

On this point I completely disagree.  It is not that SAP does not have transparency, it is that their solution and license portfolio, as well as dependencies reflect their size.  Unfortunately it does make it complex.

So, I will absolutely guarantee you that if you do NOT have deep SAP application experience you will be completely baffled.  Not because anyone is trying to trick anyone, but because the solution portfolio and its capabilities are huge. 

SAP is like an “erector set” both in how you set up the various applications to meet business needs AND how you deal with multiple application integration issues to address a particular need.

Just concluded an SAP software licensing negotiation.  Significant solution portfolio, significant application landscape, typical fragmented multi-national who grew by M&A.  If you do not know the SAP landscape you will become completely LOST in their price list and in understanding the solutions.  You almost need to be a solution architect to really be able to help customers navigate the solution footprint.

———————-

I can absolutely guarantee you that if you do not have deep SAP solution exposure you WILL be lost.  However that is NOT a function of some nefarious scheme to hide pricing.

I reviewed a recent copy of SAP’s price list I have from January 2012 and found there are roughly 18 spreadsheet type pages, with a little over 50 price list entries on each page, for around 900 total entries.

One Reason Why SAP Doesn’t Publicly Publish Their Price List

I have heard from some SAP insiders that one reason for not publishing their price list is the sheer amount of confusion it would create.  Solution architecture can be difficult enough –, even as an SAP veteran since 1994, with a deep and diverse SAP background, the substantial size of the SAP solution portfolio can be overwhelming.  Then combine that with the dependencies or requirements for each solution and you have a recipe for more confusion rather than clarity by publishing a large price list.  Then you have the “sales model” of “give it away” and make it up by crushing dependent customers after they finally stabilize.  Add to this the natural tendency of competitors to seize on any single item and deliberately take it out of context to “land a deal” and it is understandable why SAP doesn’t publish their price lists publicly.

Where To Get SAP Licensing and Pricing Information

Probably as a result of the licensing confusion SAP publishes a public license guide and has a price list which is also available.  Both of them are designed to help clarify licensing with SAP products and solutions.  Keep in mind that between the “introduction” guide and the actual price list document we are approaching 200 pages (Into Guide about 40 pages, full price list around 140+).

The introductory guide helps customers understand the SAP licensing approach and options.  It is freely available and I have included a recent version on my site here:

While this license guide provides you the key principles you need to understand there is also an actual, detailed price list as well.  That price list includes roughly 120 pages of explanations and examples for licensing the various specific SAP products, and then another 20 pages of the roughly 900 price list items.  THAT guide should be obtained through your SAP sales rep.  I can assure you that they will generally provide this if you ask. 

Out of respect for SAP’s decision not to openly publish their price list to the public I will not place any versions of their price list online.  However if you are a customer and are confused with the price list I will be happy to walk you through it if you contact me.

Good luck on your SAP journey!




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