Demystifying the new SAP ERP pricing model

The issue of indirect access to SAP's underlying enterprise resource planning (ERP) system and the impact it has on licensing has caused no end of headaches for organisations running the popular software over the past couple of years.

Scott Carey Jun 12th 2018
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The issue of indirect access to SAP's underlying enterprise resource planning (ERP) system and the impact it has on licensing has caused no end of headaches for organisations running the popular software over the past couple of years.

The issue hinges on indirect or digital access to the underlying ERP system, incurring an additional charge for customers when third party applications indirectly access data held in SAP systems, without directly logging in. This differs from the traditional licence methodology of 'hands on keyboard' where a named user is physically using the system.

This outdated pricing methodology reared its head in February 2017 when the alcoholic drinks giant Diageo was taken to court over millions of pounds of indirect access fees.

Read next: Indirect access explained

As a result SAP announced its most thorough response to the issue in April 2018 with a new "transparent approach to indirect licensing", which encompasses a new sales, audit and pricing model.

The new pricing model is based on usage and outcomes. SAP refers to this model as 'document-based' where the "use of the ERP system through indirect digital access will be licensed based on the initial creation of these documents, and the document licence value is based on the total number of documents created," the vendor said.

This means "no more counting users or trying to define what constitutes a user via indirect access. It doesn't matter how many users are accessing the ERP system via a third-party application."

Read next: SAP announces new "transparent approach to indirect licensing"

Speaking during SAP's Sapphire conference in Orlando this week, head of pricing and commercialisation at SAP Sonya Swann attempted to further demystify the new ERP pricing model, which became optional for users in April.

"Historically SAP licensed ERP on users, and many of our competitors and vendors still use the same methodology, but we are taking steps to modernise the pricing approach," she explained.

"This model worked well when ERP became a major product and most customers used it hands on keyboard. Fast forward and times have changed and we realise the way ERP is consumed has changed dramatically, now there are multiple different ways ERP is used, both on keyboard and through a variety of interfaces and applications."

"What is changing is only the way we monetise indirect access to ERP. Hands on keyboard is the same as always," she said.

SAP also will never charge users for SAP to SAP integration, which may prove a crucial selling point for promoting its new C/4HANA CRM product suite over the likes of Salesforce, which was the system responsible for the Diageo indirect access issues.

Swann continued: "For indirect digital access we have a new model to monetise this, which is optional, and instead of it being based on users we are moving towards monetising indirect access based on the number of transactions, which we call documents, being processes in SAP ERP. So when it is working for you to process transactions you pay and when it is not there will be no charge."

Under the new licensing model Swann and her team identified nine key business outcomes associated with an ERP system, each of which generates what SAP calls a 'document' and therefore generates a charge for the customers.

For example, an order-to-cash process, which creates a sales document, or a plan-to-produce process generates a manufacturing document.

Seven of these generate a simple pricing multiplier of 1, but to make matters more complicated 'financial' and 'material' processes are deemed less valuable and are assigned a 0.2 multiplier.

Swann said she likes to think of document-based pricing as a 'prepaid card'.

"You buy an allotment of documents, and we don't ask which type you process, you just estimate annual average usage and that is what your licence is," she said.

Crucially, all read, updates, and delete actions to that initial document via indirect access do not incur an additional charge.

"We will only count the number of documents created from external system and from SAP ERP, anything else like a read or a transaction update is included and not charged again," Swann said.

SAP has also provided some benchmarks for customers with no historical data so that they may estimate the number of documents needed for the 12-month licensing period. For existing customers an estimate of needed documents can be calculated using historical data.

With this model being optional there are now three options for SAP ERP customers: Do nothing if you are happy with how you are licensed; perform a licence exchange to the new model by adding an addendum outlining the new modern ERP pricing; and a contract conversion, where existing SAP ERP customers licensing SAP S/4HANA can consolidate old contracts.

For more in-depth content on SAP licensing the best place to go is the Americas' SAP Users' Group (ASUG) licensing resource centre, or contact your local user group.

Audit

As part of this shift SAP also looked to separate its licence sales departments from auditing departments.

"Customers and SAP have sometimes struggled to reconcile older commercial agreements with the requirements and outputs of modern digital activity levels," the vendor admitted in a statement. "Combined with ongoing discussions regarding the procurement of new software, this can sometimes cause frustration."

This means that sales teams will no longer be able to approve or cancel licensing audits, which has historically given them leverage in negotiations.

Speaking on the same panel as Swann during Sapphire this week, Matthias Medert, VP global licence audit and compliance at SAP spoke about changing the "perception of some customers that audit was pushing licence sales, which is something we wanted to change."

Medert also spoke about creating a consistent audit capability across geographies, and opening up the tools to allow customers to self-serve their auditing more easily.

"Sometimes an audit leads into tension and we see that everything is smoother if the audit doesn't end with a surprise," he said. "So our intention is to allow you to monitor your licence usage as good as possible yourself by giving you the same tools my auditors are using anytime you want."