SAP responds to Diageo indirect licensing case with 'modern pricing' approach
Software & Web Development

SAP responds to Diageo indirect licensing case with 'modern pricing' approach

SAP has moved to reassure customers amidst concerns over indirect licensing fees, which came to light recently as UK customer Diageo was hit with a £50 million bill.

The German software maker announced a range of changes to its pricing policies at its annual Sapphire conference in Orlando, Florida this week, including reassuring customers that it won't charge or be seeking back licensing fees for customers using SAP data in third party applications.

In a press release titled "modern pricing for modern times", Hala Zeine, SAP corporate development officer wrote: "As we spoke to our user groups about how to specifically address this, the topic of indirect access repeatedly came upWe decided to tackle this topic first through the lens of pricing modernisation."

CEO Bill McDernott addressed the issue early on in his opening keynote at Sapphire, saying: "Indirect access is causing some anxiety out there. So let's tell it like it is. Protecting [intellectual property] and accommodating ease of doing business is a delicate balance. But even as we maintain that balance we can still show greater empathy to you."

The indirect access issue came about when a UK court ruled in February that SAP's named-user licence fees apply, even when related applications that only offer users indirect, or read-only, access to SAP data.

The verdict saw UK alcoholic beverage giant Diageo told to pay £54,503,578 in licensing fees after its sales staff were running Salesforce applications on top of SAP data.

Indirect access changes

McDermott insists that SAP listened to the customer anxiety around indirect access and responded by saying: "Static read access in third party systems is your data. Competitors charge you for static read in third party systems, SAP will not. This is another example of where we can listen, we can evolve and we can improve, we will."

In the press release Zeine goes into more detail, saying: "Just because the data was in the SAP system, does not mean you should pay to view it when it is outside the SAP system."

SAP looked to clarify that "indirect static read is read-only that is not related to a real-time system inquiry or request and requires no processing or computing in SAP system". This static read data will now be included in customer's underlying software license.

So, SAP says that if you are "fully licensed, there's no action for you". However, if customers do have concerns they can contact SAP to discuss the issue. And for customers worried that they may get hit with a Diageo-sized bill if they do, SAP says it won't be seeking to collect back maintenance payments for anyone that is under-licensed.

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This doesn't appear to have got Diageo off of the hook though. Responding to a question regarding the specific case from Computerworld UK during an executive Q&A session, McDermott said it is "separate and private but I am confident that all that stuff will work its way out".

More generally though he stated that "clearly we want great relations with our customers. We don't want them to have questions, so we will publish the policy, it will be extremely clear and well spelled out. It will be as fair as it possibly can be." The exact release date for this new policy isn't known yet.

Modernised pricing

This change comes as part of a wider rationalisation push for pricing at SAP, and this is very much a work in progress. Zeine wrote: "In an agile world where digital reigns supreme, licensing complexity is getting in the way of innovationOur objective was to make pricing predictable, linked to unit of value, transparent, and consistently applied."

SAP has responded initially by changing some core pricing processes for new and existing customers. "We believe value is measured by outcomes," Zeine wrote. "Therefore, our pricing model for the Procure-to-Pay and Order-to-Cash scenarios in ERP (ECC or SAP S/4HANA) will now be based on orders, a measurable business outcome for any business."

Read next: SAP takes steps to ensure IoT security is top priority: the future of IoT in business

Sensors and IoT use cases, although clearly central to SAP's future direction, create a myriad of pricing issues, many of which hinge on the indirect access issue.

Zeine wrote of the new pricing policies: "Does this address every indirect access scenario in the age of devices, IoT, and collaborative networks? Not yet. There is much more to do and we are eager to keep updating pricing scenarios to bring you greater value. It is, however, a step in the right direct toward pricing modernisation."

Admittedly these are issues that none of the big vendors in the market have managed to solve yet. McDermott clearly doesn't have the answer either, but his thinking on the subject goes: "To make everyone comfortable that in an environment where you do have the internet of everything and the idea of connecting people and the idea of connecting our businesses and things, you have to be very thoughtful and ensure that you are being fair with the customer base."

Geoff Scott, CEO of the Americas' SAP User Group (ASUG) added: "The licensing terms we have all operated under for the past thirty years just aren't working in the digitised world, so there is a need to modernise that and that is exactly what is happening."

Paul Cooper, chairman of the UK and Ireland SAP User Group said: "We are pleased that SAP is finally taking action, as we have raised the issue of indirect licensing for a number of years.

"It has become a critical topic for many of our members and we are sure the new licensing model will be met with interest. Broadly speaking, moving from a named user to business metric based model should make life simpler for most customers."

Conclusion

In short: SAP will try to be as fair and transparent as possible with its pricing as it moves into this new era, and if it doesn't get it right it will be willing to hold its hands up and change, like it has with the indirect access issue.

As Zeine wrote, discussing corporate pricing and licensing is something "we don't talk too publicly about", with the SAP price book being a closely guarded secret for decades. Now it looks like things will have to become more transparent in the cloud-era.

How the new pricing is laid out to customers and by the SAP sales team, and the potential impact this will have on existing customers, will be the proof that SAP is in fact listening to customers, instead of taking them to court.

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