Should Customers Charge Indirect Access Fees to SAP?

Executive Summary

  • SAP charges customers indirect access for connecting to their systems.
  • If SAP can charge customer’s indirect access, then can SAP be charged indirect access for connecting to the customer’s legacy?

Introduction

Indirect access is when a software vendor charges to access the data that is stored in their system. The concept is still relatively new and tends to only apply to very powerful software companies that have products already installed at companies. SAP customers do not typically find out about indirect access restrictions during the sales process.

Indirect access is presented as if it is copyright protection, but the way it is often treated by SAP, it is an enlargement of copyright protection. Moreover, almost undiscussed in a published form, indirect access is used by large vendors to block out smaller vendors. Indirect access is, therefore, a kind of account control. Moreover, like any technique of account, control, indirect access is designed to point as many IT expenditures as possible back to the large IT vendor.

SAP Charges for Access

I was recently sent this comment from someone that works for SAP.

“If I am connecting to the SAP ERP system and extracting data that the ERP system’s application logic has captured, manipulated and stored then am I not using the fruits of the IP that SAP have developed? I nice, ‘clean’, structured repository of customer data. That data would not exist if SAP IP was not there. If that is the case then I am still using the result of SAP’s IP. If that is the case then shouldn’t SAP be compensated for that use?”

This is from an employee of SAP who in no way sets policy. This is a very good representation of how SAP views the right to charge customer for accessing their data when it is managed by a SAP application.

SAP, the Zsa Zsa Gabor of Software Vendors!

SAP is the Zsa Zsa Gabor of software companies. Zsa Zsa Gabor was a Hollywood starlet and a highly accomplished gold digger.

Zsa Zsa Gabor was one to have famously remarked that.

I am a marvelous housekeeper. Every time I leave a man, I keep his house.
I never hated a man enough to give him his diamonds back.
A man in love is incomplete until he has married. Then he’s finished.

The reason I bring this up is understanding the mind of an entitled gold digger is excellent background to understanding the psychology of SAP. If you speak with many people that work for SAP, you get the distinct impression that they feel they are owed a certain amount of revenues from their customers. SAP is now in the legacy stage of its lifecycle. However, through one mechanism or another, SAP expects its customers to maintain them in the “lifestyle to which they have become accustomed.”

SAP is Successful Because of Good Software?

People who work for SAP tend to be quite confused as to nature or reasons for SAP’s financial success. SAP is in large part successful because of all the software vendors; it was the most successful in corrupting the advisement function of the large consulting companies. SAP figured out early on.

This insulates SAP from competition. This means that now matter how uncompetitive SAP’s applications, IBM, Deloitte, Accenture and many others will fall all over themselves to recommend SAP’s applications to customers. This is because SAP allows their consulting partners to do virtually all of the consulting. SAP’s consulting division represents only around 3% of the company’s revenues.

And it should be noted that no other software vendor is close in this regard.

Oracle is another mega-vendor.

But Oracle does not have anything near the lock in from the major consulting companies than does SAP. Each of the major consulting companies has Oracle practices. However, they are much smaller in revenues and headcount than the SAP divisions within these same companies. For consulting companies generally, there is no other software vendor that you can make as much money on as specializing in SAP.

Charging SAP for Indirect Access

SAP increasingly believes that its customers owe it license revenue for only connecting another application to SAP’s applications. Sap does not pay its clients a fee for connecting to its legacy applications. This seems unfair. So what needs to be added to future SAP contracts is indirect access fees to client legacy applications.

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References

https://www.constellationr.com/blog-news/insights/sap-wins-major-court-victory-over-indirect-access-customers-should-pay-attention

http://www.computerweekly.com/news/450413224/High-Court-rules-for-SAP-against-Diageo-in-indirect-licensing-case

*https://www.amazon.com/SAP-Nation-2-0-empire-disarray-ebook/dp/B013F5BKJQ

 

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Information Sources

Mastering Software Selection

Software selection is a form of forecasting, just as any another purchase decision is a forecast of how successfully the purchased item will meet expectations. Forecasting is necessary because it is not feasible to implement each application under consideration before it is purchased to see how it works in the business.

The Importance of Software Selection

Software selection is the most important part of any software implementation because it is the best opportunity to match the software with the business requirements, which is the most important factor in determining the success of the project. This book explains how to get the right information from the right sources to perform software selection correctly.

What You Can Expect from the Book

Essential reading for success in your next software selection and implementation. Software selection is the most important tasks in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software the software that matches the business requirements is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues, and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that much like purchasing decisions for consumer products the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision and gives the reader an insider’s understanding of the enterprise software market. By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to interpret information from consulting companies correctly.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process
  • Chapter 8: Conclusion
  • Appendix a: How to Use Independent Consultants for Software Selection

How To Best Understand SAP as Legacy for SAP Customers

What This Article  Covers

  • How SAP Will Deal With its Customers that do Not Comply
  • Inappropriate Constructs in IT Decision Making for Companies Using SAP
  • How Much do You Know About SAP’s Practices?

Introduction

In a previous article, I laid out why I think that SAP has reached an inflection point in its history and show now be treated by companies as selling legacy systems. For decades now SAP has been seen as a software vendor with a broad suite of applications which are competitive, and that SAP would bring out improvements in functionality that was important to its customers.

This way of viewing SAP, which became increasingly out of sync with the reality of SAP drove everything from SAP software purchases to companies paying what is now 23% in support. Yet, under the construct of SAP as legacy, the question becomes how other software vendors can take advantage of the new phase that SAP is now in.

How SAP Will Deal With its Customers that do Not Comply

If you do not show interest in buying SAP, you will be most likely subject to an audit.

This is described by Ray Wang.

  1. “Open up dormant accounts. After pleasant introductions, new sales reps will use this technique to further deals.  Former sales reps agree this is a shake-down for cash technique.
  2. Drive sales through fear of audits. Audits are used to start the discussion.  Unsuspecting customers who no longer have context about the original contract may fear breach of contract.
  3. Scare customers into making additional purchases. Threats are used to set expectations.  The vendors often waives the issue if the customer buys additional licenses as a “compromise”
  4. Force compliance into new licensing policies. Vendors use this as a way to drive conformity to new license models.  The move from concurrent usage to named users was one example.
  5. Meet territory sales goals. Unscrupulous sales managers suggest this technique to meet their numbers.  Sales reps are told they are defending the vendors license rights.” – Ray Wang, Constellation Research

Inappropriate Constructs in IT Decision Making for Companies Using SAP

Every SAP shop in the world is now following a faulty construct. It is a construct somewhat based upon the past, but which was always exaggerated, and it goes something like this.

SAP is a leading software vendor. We rely upon SAP’s new products to improve our IT capability. SAP’s applications are not always the best, but they connect back to the “mothership,” the ERP system. Therefore, whenever possible we will buy SAP.

This construct has been leading to bad IT software decisions at companies using SAP for over twenty years. The downsides of relying upon this construct are about to get worse. Here is why: 

  1. Post-ERP Applications: SAP’s non-ERP applications have not been value added to companies that implemented them. And we have several decades of data points on this fact.
  2. S/4HANA and HANA: SAPs new ERP system S4 is not compelling and its new database, HANA is not differentiated from the competition.
  3. SAP Support Decline: SAP support has dramatically declined in the past ten years and is now mostly outsourced to the lowest cost countries, pushing the maintenance burden to SAP customers. SAP now expects a 90% margin on the 23% basic support that it charges customers.
  4. Indirect Access and Other Trickery: Lacking the ability to meet Wall Street growth demands, existing SAP investments are increasingly a liability. This is because SAP intends to use its power, size and legal muscle to use indirect access to either receive monies for ERP licenses or arm twist purchases of uncompetitive applications.

This construct that is reinforced by companies using SAP by both the IT department within the company. And the consulting company without. In fact, as the best decision becomes to migrate or diversify away from SAP, the IT department and the IT consulting companies push in the opposite direction from this.

Many IT departments place SAP above the interests of the business of the company they work for. This observation has come from many years of interacting with IT departments at companies using SAP. I have presented to numerous IT organizations over the years the problems with various SAP applications that they purchased, and I am invariably told that.

“The thing is Shaun, we are an SAP shop.”

Therefore, SAP customers should be on notice that your IT department will in most cases lack sufficient independence from SAP to represent the interest of the company they work for, and by the way, that pays their salary. How this was accomplished, at least the full story, is still a mystery to me.

  • The IT Department: The IT department and IT consulting companies had somewhat of a role, will now increasingly serve as a barrier as the reduction in investment from SAP begins.
  • Large IT Consultancies: As for the large IT consulting companies. They have hundreds of thousands of SAP consultants and investments in SAP and revenues from SAP. For a large IT consulting company the only advice they provide is to invest more in SAP implementation. The large IT consultancies have a business model to protect, and it will be protected. These companies are a major liability. Given this environment, what is the value of that advice exactly?

How Much do You Know About SAP’s Practices?

SAP History Quiz

This quiz will test your knowledge of SAP's history as a software vendor.

Our Work With the New SAP Construct

We are one of the few entities that focus on SAP but also tells the truth about SAP. If you want to be provided biased information on SAP there are many choices in the market. We can recommend Deloitte, Accenture, KPMG, E&Y, Infosys, IBM and Gartner among others. However, for unbiased information on SAP, the options narrow considerably.

If you are interested in our advice on how to deal with SAP, and how to manage to diversify away from SAP, reach out to us. We offer a wide variety of advisement all focused around getting a better value from your SAP investment.

References

https://www.constellationr.com/blog-news/insights/sap-wins-major-court-victory-over-indirect-access-customers-should-pay-attention

http://www.computerweekly.com/news/450413224/High-Court-rules-for-SAP-against-Diageo-in-indirect-licensing-case

 

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Information Sources

Mastering Software Selection

Software selection is a form of forecasting, just as any another purchase decision is a forecast of how successfully the purchased item will meet expectations. Forecasting is necessary because it is not feasible to implement each application under consideration before it is purchased to see how it works in the business.

The Importance of Software Selection

Software selection is the most important part of any software implementation because it is the best opportunity to match the software with the business requirements, which is the most important factor in determining the success of the project. This book explains how to get the right information from the right sources to perform software selection correctly.

What You Can Expect from the Book

Essential reading for success in your next software selection and implementation. Software selection is the most important tasks in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software the software that matches the business requirements is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues, and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that much like purchasing decisions for consumer products the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision and gives the reader an insider’s understanding of the enterprise software market. By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to interpret information from consulting companies correctly.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process
  • Chapter 8: Conclusion
  • Appendix a: How to Use Independent Consultants for Software Selection

How To Best Understand SAP as Legacy for Software Companies

Executive Summary

  • It is increasingly obvious that SAP has a very high maintenance overhead, and that the new products from SAP are worse than SAP’s ERP system.
  • The new concept for getting value from SAP is to use non-SAP applications with non-SAP infrastructures like AWS and Google Cloud.

Introduction to SAP as Legacy

In a previous article titled SAP is Now Strip Mining its Customers, I laid out why I think that SAP has reached an inflection point in its history and should now be treated by companies as selling legacy systems. In short form, the most accurate way of thinking is that SAP is legacy. There is a lot of background that is necessary to cover to understand why I have come to this conclusion, so I won’t retrace the evidence in this article, but please go back to the original article link above if you have not read it.

The Flaw in the Current Interpretation of SAP

For decades now SAP has been seen as a software vendor with a broad suite of applications which are at least somewhat competitive. The concept was that SAP would bring out improvements in functionality that was important to its customers.

This way of viewing SAP, which has become increasingly out of sync with the reality of SAP, drove everything from SAP software purchases to companies paying what is now a minimum 23% in support. Yet, under the construct of SAP as legacy, the question other software vendors have asked me is how they can take advantage of SAP’s new phase. This article is for them.

How Other Software Companies React

For other vendors, you now face a crack in the facade or an opening. Brightwork Research & Analysis is early in this analysis. My article on SAP is Now is Strip Mining its Customers is the first article that presented SAP as legacy, or even associates SAP with being a legacy system or a set of legacy systems.

Almost all the media entities that cover SAP take money from SAP, Therefore, they cannot bring up this point even if they wanted to.

Software Vendors Effectively Following the Wedge

If you are a software vendor reading this, this reality of SAP as legacy does present considerable opportunities.

Yet does your company have the knowledge of SAP to widen that crack?

Let us review two areas to see how software companies that compete with SAP can follow the wedge.

  1. The Software Company’s Understanding of SAP
  2. The SAP Partner Program

The Software Company’s Understanding of SAP

I have spoken to many vendors that compete in my time, and in my view, only a small minority understand how to compete against SAP. Most software vendors are very good at focusing on and presenting their value proposition. But they do so often without any consideration to how the chessboard has already been set by SAP before you get to make your case. SAP sets the chessboard that the other software vendors work on in the following ways:

  • Through Conferences
  • Through SAP Partners
  • Through SAP Marketing Literature
  • Through the Incentives of the IT departments

All of these things are present before these vendors even begin to present their value proposition.

It should be noted that much of the information presented through the mechanisms listed above are false. Yet, they are still effective in shaping the views of the buyers. I can come up with example after example of how SAP stopped competitors by pitting immature products against established and effective applications through promising future growth in what the application could do.

One example of this is in the service parts planning space.

The MCA Solutions Story

Back in 2006 a vendor called MCA Solutions had one of the highest rated applications I had ever tested called SPO. SPO focused on the most difficult problem in supply planning called service parts planning. SPO performed services parts planning using two sets of advanced mathematics called inventory optimization and multi-echelon planning.

  • *I have an article here which provides an overview of this category of software.
  • *See my book on this topic if you have the interest.

SAP developed a partnership with MCA Solutions, and developed an xApp that worked with MCA Solutions. But they eventually dropped MCA as a partner. SAP took a significant amount of knowledge about service parts from MCA and launching their SPP product which was a stand alone application. (For more detail on the xApp program, see the note at the end of this article.)

For years SAP customers were lulled into going with SPP over MCA SPO because it had the SAP name, would integrate better, etc..

So where are we close to 10 years later?

  • MCA Solutions was eventually purchased by Servigistics, which subordinated SPO to their own services parts planning application, and they were in turn, themselves acquired by PTC. I believe SPO has been all but erased from the marketplace.
  • SPP has bombed at every account it has been implemented, wasting enormous amounts of resources. I published on SPP’s implementation problems back in 2010 as you can see in this article. I paid to attend both the one week SPP classes at the SAP in 2008. Yet, when I tested SPP back in 2008 I found numerous areas of the application that simply did not work. The application had a weak design and even if its functionality had worked, it still would not have been a competitive application with MCA SPO. Millions and millions of dollars spent and virtually no improvement to the planning of service parts. More money has been spent to keep SPP applications on life support so that the company can cover up the fact that the application does not work and to protect themselves from the political consequences of being seen as responsible for the error.
  • I currently categorize SPP as one of SAP’s dead applications. At a recent client, SPP was introduced as a potential solution by a member of the client’s IT department with extremely low standards of evidence. He showed me a PPT with around 10 customer “references.” I was able to recognize at least 5 of the 10 references that had already failed with SPP. I was able to find out the real story on 2 of the others on the list, and it turned out they had implemented SPP, but few people were using it. I was not able to verify the other three.

The MCA Application

The end result is that one of the best applications I have ever tested in MCA lost market share to one of the worst I have ever tested in SPP. And here is an important point for vendors that compete with SAP to consider.

SAP never demonstrated any competence with SPP.

They future sold gullible clients who decided to not do the basic research into the application that I did do.

For competing vendors, you cannot rely upon prospects to do their research on SAP’s products or on the overall usage of the SAP products in the marketplace.

SAP’s Problematic or Dead Applications

I have already listed SAP’s dead or problematic applications in the strip mining article. But as a software vendor, you have to raise the issue of the overall success (or lack of success) of the SAP application. This is because most SAP customers tend to assume that other customers are having success with the application, and they just did not have success because of an implementation failing, poorly trained users, etc.. I am amazed how often I go to clients and they tell me they would like me to fix an issue that is actually a well-known software bug, but which SAP support has hidden from them. There are SAP customers that are repeatedly attempting to bring functionality online that I have already tested and have determined should not be activated and it is not useful.

  • Dynamic Safety Stock (called Enhanced Safety Stock by SAP): SAP’s dynamic safety stock is one example of this.
  • Deployment Optimizer: Companies are still trying to use SAP’s deployment optimizer in SNP (it is a procedure that moves inventory through the supply network) and paying SAP above the standard 23% support to try to get benefit out of it. I have already tested and published on being unable to produce logical and useful output under any circumstances.
  • Best Fit Procedure in SAP DP: The best fit procedure, where a forecast system selects the appropriate statistical forecasting model is not reliable enough in SAP DP to use in a production environment. Yet consulting companies continue to bill clients for using and tuning problematic functionality that can be accessed far more robustly outside of SAP, with the results ported back to SAP DP.

This is how bad the information sharing is on issues is in the SAP space.

The Problem with SAP’s Flexibility

SAP systems greatly reduce the flexibility of their customers. With indirect access, SAP can control which applications are connected to SAP applications. This dawning awareness of SAP’s inflexibility is highlighted in the following quote from the book SAP Nation 2.0.

“When ERP was in its heyday, CEOs and business executives wanted reliable and integrated solutions, so they seized upon ERP as the way to provide….Business stakeholders still want these same qualities, but now they assume that these qualities will be present in any software solution, and their requirements have switched to the twin concerns of lowering IT costs and seeking increased flexibility. A system that is not sufficiently flexible to meet changing business demands is an anchor, not a sail, holding the business back, not driving it forward.”

How the SAP Partner Program Censors Partners and Reduced Competition

A major part of SAP’s success, probably the most important part, in fact, is its partner network. There are over 10,000 SAP partners. SAP will partner with just about anyone.

Software vendors that are part of the SAP partner program are themselves guilty of promoting partnerships with SAP as being far more significant than it is in terms of how it benefits customers. Here are the most important characteristics of the SAP partnership program.

  • The SAP partner program is a primary way that SAP reduces the competition that it faces in the marketplace. The SAP partnership program is never mentioned in the same sentence as competition limiting, but the way that SAP uses it, it certainly qualifies. There are too many dimensions to discuss to fit in this article, as SAP’s partnership program is really its own detailed subject. But a lot of underhanded things happen in the SAP partnership program. The partnership program also changes for small market countries, and it differs based upon the size of the software vendor, and along many other dimensions.
  • The SAP partner program is how SAP controls the marketing output of companies that compete against it. Software vendors start off thinking that they will benefit from the agreement, and before they know it, they are being played like a piano by SAP.

SAP’s Leverage Over SAP Partners

SAP has considerable leverage over SAP partners, as the partners often need or believe they need their certification or partnership credentials to sell into SAP accounts.

  • In most cases, the actual certifications are falsified. It is common for a single field to be sent across to SAP and for that to essentially certify the software company.
  • SAP puts extremely little effort into testing the technical validity of a certification, say of an adapter.
  • Simply put, SAP certification is much more about marketing hoopla than engineering.

There are a variety of SAP certification logos that companies that have “become certified” can place on their websites.

This certification can be found on the websites of many software vendors. The SAP Partner program for software vendors is more of a marketing construct. Every software vendor likes to state that they are a certified partner. 

The following are important characteristics of the partner program.

  • Who Are Partners?: Most vendors that complete with SAP are partners with SAP.
  • SAP Censorship: They are limited in what they can say by their partner agreements.
  • No Referrals: SAP only very rarely refers business to their partners.
  • Second Banana: Most SAP software partners feel they are mistreated by SAP. SAP regularly stabs their partners in the back to push sales over to their own applications, even when the fit between the requirement of their customers and the SAP application is either terrible or if the SAP application is not even ready to be implemented.
  • Lowering Competition: SAP has partnered with any software vendors (almost) that competed with them, and then uses controls gained from the partnership agreement to reduce that vendor’s ability to compete with them. The software vendor becomes normalized to presenting their solution as complementary to SAP rather than competitive with SAP so as not to ruffle any SAP feathers.

There is in fact, no real partnership. It is a false construct. It is a marketing construct that exists primarily in the minds of buyers. The SAP partnership, with its effect on competition, is an interesting curiosity because it is not willingly entered into by software vendors. It is enthusiastically entered into by these software vendors.

I can’t tell you how many software vendors became partners in part because they thought SAP would bring them deals.

The Importance of Software Vendors Knowing The Limits of Their Knowledge

If you are in senior management at a software vendor, who believed this, you then you did not have enough exposure to or information about SAP to compete against them. And its good to know this, so that you can address the issue because addressing the issue has good potential to lead to higher sales.

SAP is a complex beast and cannot be understood with light or occasional exposure. It often surprises me that SAP marketing works not only on customers but works almost as well on competing software vendors. They will often come to assume that many of the fanciful items presented by SAP marketing are in fact true.

Conclusion

SAP has passed into a new phase of its existence. SAP’s marketing machine is intense. The term reality distortion field seems appropriate.

The fact remains that outside of SAP ERP, the returns from SAP’s other applications have been extremely weak (something I have covered in my previous articles). Of all software companies, SAP has the most implementations of applications that add little value to their customers. This makes sense as for decades SAP has had all of the major SIs mindlessly shilling for them. Therefore the SAP “garden” is overgrown with “weeds” and various applications with serious problems. The IT departments in these customers often try to defend these bad applications by pointing out the stupidity of the users, or denying the problems.

This information comes from two decades of evaluating SAP installations at many accounts. However, you don’t hear this information because the people that now have a financial incentive not to publish this. This is the real story, not the paid off story offered by SAP consulting companies. These SAP applications are vulnerable, particularly after it can be explained that each of them has little in the way of a future. You can only promise the future for so long until it eventually arrives. Well, the future is now here.

Brightwork Research & Analysis published the first article to call out SAP applications as legacy. Although if you read SAP Nation by Vinnie Mirchandani he says essentially the same thing, without using the terminology of “SAP as legacy.” Realistically, there is no likelihood of SAP bringing out future products that do anything special. SAP still has its ERP system. But outside of that, there is not much to be concerned about, in real, rather than perceptual terms.

But now the question turns to what software vendors can do to take advantage of this opportunity.

Note on the SAP xApps Program

Back in 2010, I called for the SAP xApp program to be terminated as it was resulting in a large amount of intellectual property being extracted from software vendors and transferred to SAP. And that companies that were engaging in the xApp partnership were naive to how SAP operated. In my article, I stated it is a program that should have been reviewed by the US Federal Trade Commission. Larger software companies are not supposed to have a program where they promise improved sales that largely never materialize in order to Hoover up their IP.

I also covered how SAP used a partnership with i2 Technologies to extract intellectual property from them in the 1990s to use as the basis of SAP APO, and covered this story in the early drafts of my book on Discover SAP SCM. This material was censored from the book by the publisher SAP Press, and so it never appeared in the published version. My experience with SAP Press promoted me to not publish books through traditional publishers.

There are no publishers in the SAP space who will publish 100% truthful information on SAP. But unfortunately for me, that is the only information I was or am interested in writing or publishing. SCM Focus Press is my publishing company, where all the books are uncensored.

SAP Contact Form

  • Want More Infomation on SAP?

    Our unbiased experts can deliver accurate research and honest advice on SAP.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

References

https://www.constellationr.com/blog-news/insights/sap-wins-major-court-victory-over-indirect-access-customers-should-pay-attention

http://www.computerweekly.com/news/450413224/High-Court-rules-for-SAP-against-Diageo-in-indirect-licensing-case

*https://www.amazon.com/SAP-Nation-2-0-empire-disarray-ebook/dp/B013F5BKJQ

 

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Information Sources

Mastering Software Selection

Software selection is a form of forecasting, just as any another purchase decision is a forecast of how successfully the purchased item will meet expectations. Forecasting is necessary because it is not feasible to implement each application under consideration before it is purchased to see how it works in the business.

The Importance of Software Selection

Software selection is the most important part of any software implementation because it is the best opportunity to match the software with the business requirements, which is the most important factor in determining the success of the project. This book explains how to get the right information from the right sources to perform software selection correctly.

What You Can Expect from the Book

Essential reading for success in your next software selection and implementation. Software selection is the most important tasks in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software the software that matches the business requirements is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues, and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that much like purchasing decisions for consumer products the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision and gives the reader an insider’s understanding of the enterprise software market. By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to interpret information from consulting companies correctly.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process
  • Chapter 8: Conclusion
  • Appendix a: How to Use Independent Consultants for Software Selection

SAP Indirect Access and Tying Arrangement Law

What This Article Covers

  • What is Indirect Access?
  • When Do SAP Customers Learn of Indirect Access Exposure?
  • Is Indirect Access Really About Copyright Protection?
  • Is SAP’s Version of Indirect Access About Account Control?
  • How SAP Has Traditionally Sold Software
  • How Software Works
  • The Tying Agreement or Tying Arrangement
  • How SAP Uses Barriers to Sell More Software Than it Ordinarily Could
  • Apple and Microsoft and Tying Agreements
  • The Tying Arrangement, Tying Agreement, and US Law
  • Tying Agreement and The Rule of Reason
  • What is SAP ERP’s Marketshare?
  • How Much do You Know About SAP’s Practices?

Introduction

There has been quite a lot of discussion about indirect access due to a case of Diageo v. SAP. In this previous article, I covered the Diageo v. SAP case and stated that I disagreed with the UK judge in this case. The proponents of SAP’s position on the case have pointed to language in SAP’s contracts that state the following:

  • “Only named users are authorized to use or access the mySAP ERP software directly or indirectly (emphasis added)
  • Named user pricing is the only basis on which the mySAP ERP software was licensed to Diageo.”

There are several problems with this clause. First, SAP has imposed its expansive version of the definition of indirect access that does not have any historical basis. That is one of the most critical points. However, I won’t get into that topic in this article. In this article, I would like to cover a different issue.

What if this clause or at least one dimension of the clause, related to indirect access is inconsistent with US law?

Companies enjoy placing items into contracts that are in contradiction to the laws of a country.

  • One of the problem, with combating indirect access is the few entities that help companies defend it, keep their information private. Their main approach seems to be to focus on one contract at a time rather than develop and published overarching strategy.
  • SAP, on the other hand, can internally coordinate and then share its information internally. This puts every customer at a disadvantage. While customers can coordinate through user groups, this has not yet lead to a coordinated approach on indirect access.

In this article, we will discuss this issue and look into the history of something called a tying arrangement or tying agreement.

What is Indirect Access?

This will be a brief review for those initiated, but I do need to level set for those that are new to this topic.

Indirect access is when a software vendor charges to access the data that is stored in their system. The concept is still relatively new and tends to only apply to very large software companies that have products already installed at companies.

When Do SAP Customers Learn of Indirect Access Exposure?

SAP customers do not typically learn about indirect access restrictions during the sales process. But they may learn of it from a SAP audit, or when SAP believes that a sale of a competing product is imminent, which I will cover a little further into this article.

Is Indirect Access Really About Copyright Protection?

Indirect access is presented as if it is copyright protection, but the way it is often treated by SAP, it is more accurately defined as an enlargement of copyright protection. And it is an imperative question as to who is accepts SAP’s definition of indirect access. Clearly, the judge in the UK court did accept SAP’s definition. If I were to take a poll of software vendors, and I have in a way taken an informal poll as I have spoken to so many about the topic, I can’t find other software vendors that accept SAP’s definition. And it goes beyond simply not being amenable to SAP’s definition of indirect access. Nearly all the vendors I have spoken to seem to think it is illogical. One representative from Sage (predominantly an ERP vendor) commented very enthusiastically in support of SAP’s definition. Many pro-SAP commenters on the last article stated that either most or all the other software vendors use SAP’s definition of indirect access as well. I have found no evidence that that is true, and no SAP source brought forward any evidence to support that claim.

Is SAP’s Version of Indirect Access About Account Control?

Indirect access is, also, a kind of account control. Moreover, like any technique of account, control, indirect access is designed to point as many IT expenditures as possible back to the large IT vendor. Moreover, almost undiscussed in a published form, indirect access is used by SAP to block out smaller vendors from sales that they would ordinarily receive. I know of many examples where a non-SAP software vendor begins getting close to getting a sale, and when the SAP account manager learns of it, they will inform the customer that if they make the purchase, they will need to purchase licenses from SAP as well. If the customer agrees

I know of many examples where a non-SAP software vendor begins getting close to getting a sale, and when the SAP account manager learns of it, they will inform the customer that if they make the purchase, they will need to purchase licenses from SAP as well. If the customer agrees

If the customer agrees to purchase and SAP product, the customer will not be charged the indirect access licenses. In many cases, the customer will not buy the completing application or SAP’s application. But that is still a win for SAP. This not only preserves the budget of the IT department to spend on other SAP products in the future, but it prevents another software vendor from getting into the account. And the more SAP can stop other software vendors from makes sales into their accounts, the lower the probability that the customer will observe benefits from non-SAP applications that it purchases.

For those that doubt that SAP performs “strategic control” over its accounts in the manner need only review the history of SAP HANA. SAP HANA is sold on inflated performance claims, but a primary driver for the introduction of HANA has been that SAP thinks that Oracle has too much of the database market on what are really “SAP’s accounts.” The real business problem HANA is solving is SAP’s business problem of not having more database market share. And I say this as the analyst who has in my estimation performed the most analysis of HANA (although I am open to taking second place if someone can recommend another analyst who has performed more).

I cover some of these details about HANA in the article How to Deflect That You Were Wrong About HANA.

Wrapping up this section, it should also be pointed out that in the many examples that I have of this occurring are with software vendors that are in fact SAP partners.

How SAP Has Traditionally Sold Software

It should be easy to establish a foundational principle of a competitive market that no software company should be permitted to direct customers to do the following:  

  • To purchase other software from a software vendor that is unwanted.
  • Or to be required to pay the penalty for buying software from a competing software vendor.

Before the issue of indirect access ever reared it’s ugly head from SAP, for decades customers have purchased low capability SAP applications because they used the SAP ERP system and they wanted easier connectivity, etc. SAP sold all of the following post-ERP applications.

Here is my evaluation of these applications that SAP brought out. This list is copied from my previous article. However, it is important to include this to establish this point for those readers who did not read this previous article. 

  • SAP BW – Business Warehouse: A lagging BI application with famously high operating and maintenance costs.
  • SAP CRM: Very close to a dead application.
  • SAP PLM – Product Life Cycle Management: Never actually existed.
  • SAP Netweaver: Never actually existed (a container or marketing construct for a hodgepodge of mostly infrastructure tools)
  • SAP SRM – Supplier Relationship Management: A dead application (supposedly replaced with Ariba)
  • SAP APO – Advanced Planner and Optimizer: A lagging set of supply chain planning applications.
  • SAP MDM – Master Data Management: A dead application.
  • SAP Solution Manager: A dead application.

SAP and the consulting partners (IBM, Deloitte, etc..) mislead many companies about the benefits of how their systems being integrated would lower costs. They still do this to this day. It is not only the US but globally.

As a consequence SAP customers ended up wasting enormous amounts of money implementing both the applications above as well as many other non-ERP applications. 

  • However, none of this was illegal because while based upon false pretenses, companies willingly made these purchases.
  • It is perfectly legal for consulting companies to lie to their prospects and it is legal for software companies to promote consulting companies to do this by offering them the consulting business.  So there is nothing unusual here this is considered standard practice in the IT industry. 

Quite the contrary. The unusual IT consulting company is one that puts its clients ahead of its interests.

Now that we have reviewed this history, we can now jump into the non-willful purchase of software, which is a different subject legally. But before we get into that, let us first expand into how software works. 

How Software Works

First, technically speaking, all software is stand alone.

  1. It can be used with other applications from the same vendor, or be combined with applications from another vendor.
  2. It can be connected to other applications with an adapter sold by the same software company or by a different software company.
  3. Any application can be connected to any database, and any database can be connected to any other database.

None of this to propose that any specific application should be connected to a specific application, or a specific application should be connected to another specific database, etc… It is only to say that it is all possible and just requires integration work to be performed.

The Tying Agreement or Tying Arrangement

Under US anti-trust law there is something called a tying agreement or tying arrangement. A tying arrangement or tying agreement is a technique employed by those that seek to erect anti-competitive barriers, and they are extremely well understood as they are part of US anti-trust law and have a vast amount of case law around them that goes back in time in the US courts for over 100 years.

If a SAP customer is compelled to purchase a SAP application because it already owns another SAP application, this should be considered under US law as a tying agreement or tying arrangement. 

This is the first time that I can tell that this proposal has ever been proposed in a published form.

Indirect Access

Indirect access pushes the boundaries into a tying arrangement or tying agreement. Under indirect access, SAP will often ask for a customer that purchase ERP licenses when a non-SAP system is connected to the system. Let us review an example.

Let us take a look at say the workflow involved in production planning and scheduling. Production planning and scheduling is cannot efficiently be performed in any ERP system, as covered in my article, Why do Companies Keep Using ERP/MRP Systems for Production Planning and Scheduling? Therefore it is a common application to connect to ERP systems.

  • If a non-SAP production planning system were connected to SAP ERP, then planned production orders would be sent back to SAP ERP. Then the planned production order could become an actual production order in SAP ERP. So is the external system leveraging the functionality in SAP ERP? Well sort of, it depends on what we mean.
  • One person may have a license to create planned production orders in the non-SAP system.
  • Another person may have a license to adjusted production orders in SAP ERP.
  • The production order may be changed ten times by the person with the SAP ERP license. However, it was created in SAP ERP using the external production planning system.
  • Both the ERP system and the production planning and scheduling system are kept in sync. That means that the updates to the production order, have to be sent back to the production planning and scheduling system. In this case, a change or update was made in SAP ERP, that was then reflected in the date (say for instance) on the production order.
  • By doing that in SAP ERP, and having the change reflected in the production planning system, didn’t the customer just cheat the production planning vendor by not buying an extra license for the person in the ERP system? Under this logic, every system must be paid on licenses for transactions that are created by any other system that eventually finds their way into a different system. That means that every adapter must be evaluated to see what data is coming across to the application.

If that is the new standard for the industry, then I guess it is not for me to oppose it. But imagine the implications.

“40 percent of SAP shops have 20-50 systems interfacing with their ERP (emphasis added). Of these, less than 10 are SAP systems. Each of these systems have dozens of interfaces to the ERP system. This amounts to hundreds of integration points!” – Panaya

And the problem is that only SAP is proposing this new reality.

Moreover, SAP has demonstrated that they will drop all indirect access concerns if you just purchase more of their software.

The Tying Arrangement and Tying Agreement and US Law

Now let us review some important history around the tying arrangement or the tying agreement.

A tying arrangement occurs when, through a contractual or technological requirement, a seller conditions the sale or lease of one product or service on the customer’s agreement to take a second product or service.(2) The term “tying” is most often used by economists when the proportion in which the customer purchases the two products is not fixed or specified at the time of purchase, as in a “requirements tie-in” sale.(3) A bundled sale typically refers to a sale in which the products are sold only in fixed proportions (e.g., one pair of shoes and one pair of shoe laces or a newspaper, which can be viewed as a bundle of sections, some of which may not be read at all by the customers). Bundling may also be referred to as a “package tie-in.”(4) Case law in the United States sometimes uses the terms “tying” and “bundling” interchangeably.(5)

Ever since the late 1940s, when the Supreme Court stated in International Salt Co. v. The United States that

“it is unreasonable, per se, to foreclose competitors from any substantial market,”(15) and in Standard Oil Co. v. The United States that “[t]ying agreements serve hardly any purpose beyond the suppression of competition,”(16) U.S. courts have found tying to be per se unlawful.(17) Although the Court’s 1984 Jefferson Parish opinion confirmed the continued role of a per se analysis,(18) it emphasized that market power in the tying product be a requirement for per se illegality.(19) “

What that means, that is what tying arrangements are illegal per se, is that they are inherently illegal. No other proof needs to be presented. The argument for per se illegality can be found at this article.

However, this perspective has altered over time.

Once thought to be worthy of per se condemnation(8) without examination of any actual competitive effects, tying currently is deemed per se illegal under U.S. Supreme Court rulings only if specific conditions are met, including proof that the defendant has market power over the tying product.(9)

So the proof is that the defendant has marketing power over a tying product.

As discussed below, panelists generally doubted that tying and bundling involving intellectual property are likely enough to harm consumer welfare to justify per se treatment, and therefore advocated a rule of reason approach that would require proof of likely or actual anticompetitive effects and allow consideration of the efficiencies that such arrangements may generate.(13)

Well, in this case, the anti-competitive effect is clear. SAP will charge a customer for ERP licenses only if the customer selects an application from another vendor. So in the case of a customer purchasing a CRM system, if a company purchases SAP CRM, then they do not charge the customer for SAP ERP licenses.

If the customer purchases Salesforce CRM, then SAP will often request indirect access charges for SAP ERP licenses. This pushes the customer to select SAP CRM rather than an alternative application. And this is entirely based upon a pre-existing application, SAP ERP, being in the customer.

If in the example of Diageo v SAP, Diageo did not use SAP PI before implementing Salesforce, then they implemented SAP PI to alleviate indirect access concerns. However, this required use of SAP PI is a tying arrangement if it was only used for this reason. However, the main observation is that no company should be compelled to purchase more software from a company because it already owns a different software application from that company.

Apple and Microsoft and Tying Agreements

Both Apple and Microsoft have been found guilty of violating tying agreement clauses to US anti-trust law. The famous case against Microsoft for its tying of its Internet Explorer to the Windows operating system was a case that was based upon the laws on tying agreements.

“A tying arrangement is an agreement between a seller and a buyer under which the seller agrees to sell a product or service (the tying product) to the buyer only on the condition that the buyer also purchases a different (or tied) product from the seller or the buyer agrees not to purchase the tied product from any other seller.” – American Bar

This is not that said SAP and CRM are sold together. But that in the case of Diageo v. SAP, indirect access rules require the customer to purchase more SAP ERP licenses, only if the customer purchases a non-SAP CRM system.

“Tying arrangements may be challenged under Section 1 of the Sherman Act, which prohibits “contracts in restraint of trade,” Section 3 of the Clayton Act, which prohibits exclusivity arrangements that may “substantially lessen competition,” and Section 5 of the FTC Act, which prohibits “[u]nfair methods of competition.” Tying may also constitute conduct supporting a monopolization claim under Section 2 of the Sherman Act.” – American Bar

“Thus, the most important factor in determining whether two distinct products are being tied together is whether customers want to purchase the products separately. If customers are not interested in purchasing the products separately, there is little risk the tie could foreclose any separate sales of the products.” – American Bar

This is certainly the case. Many, although not all customers want to purchase different CRM and other systems separate from their ERP system.

“In principle, there are three ways to tie products: (1) Contractual tying, which, as the name implies, takes place when the monopolistic firm requires the buyer in the purchase agreement to purchase the tied product as well; (2) Technical tying, which occurs when the monopolistic firm technically links the tying product and the tied product together so that the consumer is forced to purchase both of them;3 and (3) Tying through “economic coercion,” which takes place when the monopolistic firm offers both products, the tying and the tied, together, at a discount so significant that it negates the consumer’s economic freedom not to purchase the tied product.4” – Seattle Universtiy Law Review

Therefore, SAP’s tying would fall under the third type or tie through economic coercion. In fact, indirect access is a textbook case of this.

“What distinguishes illegal tying from legal bundling is the seller’s exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all or might have preferred to purchase elsewhere on different terms.” – American Bar

“However, the party seeking to defend a tying arrangement on the basis of competitive justifications bears a heavy burden of proof; the defense is difficult to establish and has been successful only under limited circumstances.” – American Bar

“For many years tying arrangements were thought worthy of per se condemnation without examination of any actual competitive effects. But strong disapproval of tying claims has waned over the past few decades, as courts have recognized that tying arrangements may have procompetitive benefits. Tying currently is deemed per se unlawful only if:

  1. Separate Products: Two separate products or services are involved;
  2. Coercion: The sale or agreement to sell one product or service is conditioned on the buyer’s agreement to purchase another product or service;
  3. Market Power: The seller has sufficient power in the market for the tying product to enable it to restrain competition in the market for the tied product; and
  4. Not Insubstantial Amount of Commerce Affected: The tying arrangement affects a “not insubstantial” amount of commerce.[1]” – American Bar.org

So let us review how this applies to SAP:

  1. Separate Products: Yes
  2. Coercion: When SAP demands indirect access fees, this is coercive. Most companies hit with indirect access fee requests are unaware that this was even a possibility and their attorneys do review the contracts.
  3. Market Power: Yes, obviously SAP has the market power for the tying product (SAP ERP in most cases). However, this point requires elaboration, and I will elaborate below.
  4. Not Insubstantial Amount of Commerce Affected: Obviously yes

Therefore, SAP’s application of indirect access fees when a customer chooses another non-SAP application, fees that are immediately waived if the customer purchases a SAP product instead meet the four requirements of being a tying arrangement or tying agreement.

On the third point of Market Power, the Supreme Court takes the following position.

“The Supreme Court’s position is that tying arrangements carried out by monopolistic firms, which affect a “not insubstantial” amount of interstate commerce, are illegal per se. The Court requires proof of the existence of market power and rejects the possibility of deducing the existence of market power from the very fact that the tying product is patent protected, or from the very fact that the consumer agreed to the tying arrangement. ” – University of Seattle Law Review

What is SAP ERP’s Marketshare?

If SAP can be demonstrated to be a monopolistic software vendor, then SAP’s indirect access, and how it treats its pricing (not charging for ERP licenses when a SAP product is purchased) would qualify as being illegal “per se.” This means without any other evidence. Let us review the degree to which SAP qualifies.

SAP is the 4rth largest software vendor in the world.

However, that by itself does not prove that SAP has monopoly power. Typically the court would require evidence of monopoly power in the market segment where the indirect access is applied. In most cases, this is the ERP system. But here is the illustration of SAP’s market share in ERP.

*From Apps Run the World

This shows SAP having only 6% of the overall market share of the ERP market. However, this is not an accurate way to represent the SAP’s ERP market share. This is because SAP R/3 – ECC – Business All in One (that is SAP’s ERP that is not the BusinessOne product) has a much higher market share in what is called the Tier 1 ERP market as the following quotation attests.

“While there have been several Tier I vendors earlier, mergers and consolidations have shrunk the list considerably. The list of Tier I ERP vendors is now very small and consists of just two entries – SAP and Oracle.” – Enterprise Innovation

I do not have the exact numbers for SAP’s market concentration in Tier one, but SAP has a higher market share than Oracle, and there are only two competitors. And there is simply no doubt that SAP does have a dominant market share in this category and that it is a monopoly provider in the tier 1 ERP market.

ERP market share concentration is also dependent upon the sector. Here is a comment from a person on my previous article.

“While SAP may be “legacy,” it’s position is so completely & utterly entrenched within the underpinnings of most major Energy & Manufacturing companies.” – Richard Crounse

This is not a specific declaration of market share but is an acknowledgment that SAP is, in fact, dominant in this sector. But it is also dominant in other sectors as well.

Therefore, if SAP uses indirect access as it does in the tier 1 market, it should qualify as a violation of tying agreement or tying arrangement anti-trust law. If SAP uses indirect access in tier 2 or tier 3 ERP market, then more evidence would have to be presented that it limits competition as it is not illegal “per se.”

“The historical concern regarding tying arrangements was that a firm holding monopoly power would charge a monopolistic price for the tied product as well as for the tying product, thus leveraging its power into an additional market.5 Another concern was that the tying arrangement would create a significant barrier to entry into the markets of both products, since potential competitors might, due to the tying, be required to enter both markets in parallel.6”

This is exactly what happened with vendors like Infor, Epicor and Sage engaging in ERP acquisitions to better “compete against SAP.”

Tying Agreement and The Rule of Reason

One last item that I found interesting in my research into the tying agreement and tying arrangement is the “rule of reason.” The rule of reason is described as follows:

“According to the rule of reason, the plaintiff at first must prove that the defendant’s conduct harms competition. For this purpose, the plaintiff must present the theory that shows that competition could be harmed as a result of the tested behavior; demonstrate that the theory suits the circumstances of the case at hand; and prove that the threat to competition is significant. Should the plaintiff succeed in this onus, then in the second stage, the defendant must prove an efficiency justification for its” – University of Seattle Law Review

In all cases of SAP using indirect access, the rule of reason is quite simple to demonstrate. Every time that a SAP redirects a purchase that would go to a non-SAP software vendor back to SAP, the non-SAP software vendor is harmed. Even this standard is typically used under scenario where certain behavior can be beneficial and competitive in certain circumstances. However, there are simply no examples where indirect access is pro-competitive.

Conclusion

If the case of indirect access were marginal, I would bring up this fact. However, the more I read about tying agreement or the tying arrangement, the more I was struck at what a perfect match indirect access is for being a tying arrangement. I am also confused as to why I could not find any articles that specifically linked tying agreements to indirect access. If you perform a search on the two terms, the only match you will find is an earlier version of this same article at Brightwork Research & Analysis, which is my research entity. Therefore, I believe Brightwork is the first to make this connection in a published form.

Tying agreement or tying arrangement law in the US is powerful. Although this source is dated by nearly 40 years the following is stated.

“With the exception of Fortner Enterprises, Inc. v. United States Steel Corp.71 and Times-Picayune Publishing Co. v. United States, 72 the Supreme Court has sustained challenges to tying arrangements in all cases decided by full opinion. 73” – Vanderbilt Law Review

One thing that struck me is the depth and breadth of research that is required for this topic. In includes reviewing the previous tying agreement cases, which go back many decades. I have covered many, but nowhere near all of the topics that are part of this subject. Also, while SAP customers have internal legal departments, these departments are not going to be up to date on tying agreements or anti-trust law.

At one time the tying arrangement or tying agreement were considered illegal per se. However, over time the perspective of the US courts softened to require evidence that the tying arrangement or the tying agreement…

including proof that the defendant has market power over the tying product.

It is clear that SAP does have market power of the tying product. It is clear that SAP uses indirect access to push SAP customers to purchase SAP products. SAP has used its account control over customers to push companies to purchase SAP products based upon false pretenses. But with indirect access, SAP moves into riding the line against competitive markets into directly contradicting an important area of anti-trust law in the US.

How Much do You Know SAP’s Treatment on Indirect Access?

SAP Indirect Access Quiz

The following quiz asks a series of questions on SAP indirect access.

Our Work With the New SAP Construct

We are one of the few entities that focus on SAP but also tells the truth about SAP. If you want to be provided biased information on SAP, there are many choices in the market. We can recommend Deloitte, Accenture, KPMG, E&Y, Infosys, IBM and Gartner among others. However, for unbiased information on SAP, the options narrow considerably.

If you are interested in our advice on how to deal with SAP, and how to manage to diversify away from SAP, reach out to us. We offer a wide variety of advisement all focused around getting a better value from your SAP investment.

References

The University of Chicago and Harvard

I found both UC and Harvard to jointly propose illogical arguments for accepting a tying agreement or tying arrangement. Both UC and Harvard deliberately overestimate the degree of competitiveness in markets. I cover the bias of UC and Harvard in this article.

https://www.constellationr.com/blog-news/insights/sap-wins-major-court-victory-over-indirect-access-customers-should-pay-attention

http://www.computerweekly.com/news/450413224/High-Court-rules-for-SAP-against-Diageo-in-indirect-licensing-case

https://www.justice.gov/atr/chapter-5-antitrust-issues-tying-and-bundling-intellectual-property-rights

http://www.americanbar.org/groups/young_lawyers/publications/the_101_201_practice_series/the_wonderful_world_of_tying.html

https://en.wikipedia.org/wiki/Tying_(commerce)

http://scholarship.law.nd.edu/law_faculty_scholarship/430/

http://digitalcommons.law.seattleu.edu/cgi/viewcontent.cgi?article=2233&context=sulr

https://www.appsruntheworld.com/top-10-erp-software-vendors-and-market-forecast-2015-2020/A&bvm=bv.148073327,d.eWE

http://www.enterpriseinnovation.net/files/whitepapers/top_10_erp_vendors.pdfhttp://panorama-consulting.com/erp-vendors/tier-i-erp-vendors/

http://www.panaya.com/sap/s4hana/

 

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Information Sources

Mastering Software Selection

Software selection is a form of forecasting, just as any another purchase decision is a forecast of how successfully the purchased item will meet expectations. Forecasting is necessary because it is not feasible to implement each application under consideration before it is purchased to see how it works in the business.

The Importance of Software Selection

Software selection is the most important part of any software implementation because it is the best opportunity to match the software with the business requirements, which is the most important factor in determining the success of the project. This book explains how to get the right information from the right sources to perform software selection correctly.

What You Can Expect from the Book

Essential reading for success in your next software selection and implementation. Software selection is the most important tasks in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software the software that matches the business requirements is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues, and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that much like purchasing decisions for consumer products the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision and gives the reader an insider’s understanding of the enterprise software market. By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to interpret information from consulting companies correctly.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process
  • Chapter 8: Conclusion
  • Appendix a: How to Use Independent Consultants for Software Selection

How SAP is Now Strip Mining its Customers

Executive Summary

  • There are facts of the Diageo vs. SAP case that bring up important questions regarding SAP’s logic and what a poor job Diageo did in this case.
  • To understand indirect access as enforced by SAP, it is necessary to connect the topic to CRM and SAP’s concern with Salesforce.
  • The judgment in the UK does not necessarily apply to the US, and the UK judge appeared out of her depth in judging and evaluating the cases.
  • Why SAP needs indirect access to extract income from customers as SAP’s applications created after R/3 have been of such low quality and fail so frequently when implemented.

Introduction

  • In this article, I will cover a change I observed that I think needs to occur on how to properly interpret SAP.
  • This change will not be accepted by many, particularly those with a financial bias towards SAP. An analysis of multiple data points, observed over a number of years support this conclusion presented in this article. I have included quite a bit of evidence, as well as links that provide more support into specific details.

Let us being with the recent Diageo vs. SAP case.

The Facts of The Diageo vs. SAP Case

In the case that was tried in a UK court, SAP just recently won its case against its longtime customer, Diageo. The following quotation provides a nice synopsis.

“Diageo also licenses SAP Process Integration, which it has used to connect Gen2 and Connect with its core SAP system. Although the applications’ end users don’t directly interact with SAP, the company contended that it was also entitled to named user licenses for those end customers—all 5,800 of them.”Constellation Research

This is a highly controversial case as it deals with indirect access. I covered indirect access as it pertains to HANA in my last article, however right after that article was written, the judgment was announced in this case in the UK. The case has left a lot of people scratching their heads. I followed the judge’s logic, and she tried to get to an equitable judgment, but I believe the judge made an error regarding the basic interpretation of the legitimacy of indirect access.

The liability for Diageo is substantial. If the judgment stands, they will owe SAP roughly $70 million.

The Connection of ERP to a CRM System

I do not know exactly how Salesforce (the CRM system) was connected to the SAP ERP system at Diageo. However, I have spent a significant amount of time in application integration, and in the vast majority of cases, a CRM system integrates with the SAP ERP system in two primary areas of data. One is the customer data, and the other is the sales history. The CRM system does not need to access any application logic in the ERP system. Application logic was applied to sales order process in SAP ERP to create the data that sits in the SAP ERP system database.

All of this is a normal integration between systems. Something that, up until a few years ago, did not require the purchase of extra ERP licenses from SAP.

SAP proposed in its lawsuit that this was “indirect access” to its SAP ERP system software. Diageo proposed that it wasn’t, and the judge sided with SAP, although in a strange outcome, the judge was not able to find the appropriate SAP license that applied to the usage.

The quote below from Computer Weekly:

“In my judgment, there is no applicable named user category for the Connect customers… They do not have access to source or object code. They do not have access to the functionality provided by SAP ERP in support of the wider operation of Diageo’s business. They access business process functions and information from the database for the purpose of ordering products and managing their own personal accounts only.”

This is quite confusing. How can Diageo be responsible for paying a SAP license that even after litigation it is unclear as to which SAP user license applies?

Interestingly, SAP wanted, even more, money from Diageo than was granted.

“..she (the judge) resisted SAP’s full demands, declaring that such usage did not need to be licensed at professional user level – £9,400 per user including VAT, as demanded by SAP – but rather as other types of users that could not be identified and were not listed in SAP’s price lists.”

Again, SAP has a large number of SAP user / SAP license types on its price list.

The following questions naturally arise.

  • How can the way that Diageo users used Salesforce not fall into one of these categories? What occurs to me is that the SAP users definitions were created before indirect access was initiated as a concept.
  • How can any SAP customer figure out the appropriate SAP license if a litigated court case cannot make that determination?

My View on the Diageo Case

The only type of indirect access definition that I find reasonable is when an entity essentially duplicates the functionality or a part of the functionality of a software vendor and then uses that functionality to circumvent the intent of the application which it purchased from that software vendor. The Diageo case is not even close to meeting that definition because SAP ERP does not have CRM functionality. SAP has its CRM software which is purchased as a separate product from the SAP ERP system. Salesforce CRM relies on data in the SAP ERP system, but there is no duplication of functionality and no circumvention of functionality that is possible by using Salesforce CRM when connected to the SAP ERP system.

For people that don’t work in IT for a living, there is, in fact, a very simple way of testing whether SAP should have had a valid case of indirect access against Diageo. And it is this.

If Diageo had purchased SAP CRM instead of Salesforce CRM, would SAP still have demanded that Diageo pay them for the same number of SAP ERP licenses?

If the answer is “no,” then this is anti-competitive protection. If the answer is “yes,” then the Diageo case was correctly determined in the UK.

However, the answer is in fact “no.” There is in my view, no way that SAP would have made a claim against Diageo if Diageo had purchased SAP CRM instead of Salesforce CRM.

Now many people know the terms offered to SAP customers that will read this article. If anyone disagrees with my statement, then comment on this article. I am very interested in learning how what I proposed is not the case, or under what conditions it would not be the case.

SAP as Legacy

This case, along with a buildup of performing many years of research on SAP, ranging from SAP technology to SAP business practices, has lead me to conclude something I think is quite significant.

SAP is now legacy.

Back in the 80s SAP marketed against legacy systems. SAP, along with Gartner and all of the major and most the minor IT consulting companies told potential customers the following: 

  • ERP systems would eliminate all homegrown legacy systems with a single system.
  • ERP systems would be the only systems that these companies would ever need.

As this period predates my career, I learned of this in what I can only describe as hidden history from my research for the book The Real Story Behind ERP. All of these entities (SAP, Gartner, the consulting companies) were amazing inaccurate in their predictions on ERP. And, each of these entities communicated these unproven messaging without worrying about compiling a shred of evidence.

  • In fact, my review of all the research into the productivity of ERP systems revealed that there was never any evidence for ERP having any return on investment.
  • While fabulously wrong, the biggest proponents of ERP, were also its major beneficiaries.

SAP has used its ERP system to push customers to buy more systems from SAP. However, after customers purchased the ERP system, they faced a diminishing marginal utility from each additional SAP purchase. There is a strong trend at play here, and it has been largely ignored. But the more the company invests in SAP, the less they incrementally get out. That has been the reality for the past few decades. And now, there are now increasing liabilities to maintaining or growing one’s SAP footprint. Costs continually rise, and any company is now potentially subject to an audit, and to indirect access fees that in most cases would never have been actionable at the time, the SAP software was purchased.

SAP’s Problematic Sustainability

As with the companies from the 1980s who had become overwhelmed with the maintenance of so many home-grown legacy systems, SAP’s unsustainability is now ever more apparent. 

Let us talk about just a few of the reasons why. “Why” could probably be the subject of a lengthy paper, but we can review a few of the most important factors in a less comprehensive form. 

  • The Casual Strip Mining of Customers Using Constructs like Indirect Access
  • The Decline of Post ERP products
  • The Failure on SAP’s Big Bets like S/4HANA and HANA

I have covered the use of indirect access to extract from a customer. Something which is missed by just about every analyst that covers SAP is that most of its post ERP applications have not been successful.

With its top-selling ERP system, SAP embarked on diversification into other application categories in the 1990s. Let us now discuss those applications.

Post SAP ERP System Applications

If we review these applications, while they have certainly generated sales, none of them can be considered successful technically.

Here is a brief overview of post ERP applications that SAP released.

  • SAP BW – Business Warehouse: A lagging BI application with famously high operating and maintenance costs.
  • SAP CRM: Very close to a dead application.
  • SAP PLM – Product Life Cycle Management: Never actually existed.
  • SAP Netweaver: Never actually existed (a container or marketing construct for a hodgepodge of mostly infrastructure tools)
  • SAP SRM – Supplier Relationship Management: A dead application (supposedly replaced with Ariba)
  • SAP APO – Advanced Planner and Optimizer: A lagging set of supply chain planning applications.
  • SAP MDM – Master Data Management: A dead application.
  • SAP Solution Manager: A dead application.

These were all home grown applications. SAP customers invested enormously in these applications, and what was the payoff? Each of the applications above either does not work or is limping along in companies. Each of the applications has declined in prominence since released. Imagine how many resources were wasted in buying, implemented and maintaining these applications?

SAP APO

One of the more successful product suites was APO (my area of expertise, and a suite of applications for which I have authored five books). While consulting with them has paid the bills, I can’t say that companies see much business value from APO. The maintenance overhead on APO is quite large, and customers tend not to like using the APO modules. So again, the waste involved with here is overwhelming when we consider all implementations of these products globally. Now Deloitte or Accenture see this list, and a big smile comes over their faces, but it is hard to look at this list as an implementing company and have many good feelings. Mostly these applications are just a bunch of bad memories for those that bought them.

I should also bring up; I am one of the only SAP consultants who will write this. It is the case that SAP consultants will come up with any excuse they can to support the reasonableness of using the list of products listed above. It is accepted that as an SAP consultant you both only say and write positive things about SAP, and most SAP consultants I have met have no knowledge of applications outside of SAP.

I chalk this up to financial bias, it is impossible for me to believe that the inherent limitations of the list above are not self-evident to many SAP consultants. However, it should be remembered that most SAP consultants work for a SAP consulting company, and writing what I have written, or any real criticism would be an excellent way to get fired from a consulting company. SAP consultancies are about profit maximization, not truth-telling or following an evidence-based approach to coming to conclusions.

Other Problematic SAP Applications

And of course there were more applications, but none of them stand out much differently than what I listed above. SAP also has acquired some applications, from Business Objects to SuccessFactors to many others.

However, none of the acquired applications are even as prominent now as when they were purchased. In fact, most are considerably less prominent, and as development lags, they follow a trajectory very similar to IBM’s software acquisitions where they become out of date and less relevant as time passes. SAP has quite a lot in common with IBM. IBM is doing reasonably well financially, but IBM has lost its ability to innovate or even to provide much value. They now rely upon acquisition, labor exploitation, lawyers, and contracts. IBM is no longer even a desirable employer.

The Failure on the Big Bets like S/4HANA and HANA

The next topic is that the big bets SAP has placed on HANA, and S/4HANA have not worked out anywhere near expectations. HANA is a moderately selling super premium priced database. S/4HANA has very little traction in the marketplace.

For those that know my writing, I have extensively covered both HANA and S/4HANA, and there is far less actual fire than smoke on these products. See my other articles on these products on my LinkedIn article page. The sales for both do not contribute very much to SAP’s revenues.

And now we get to why SAP has to employ something like indirect access. It is broadly known that SAP cannot meet growth goals. If we look at the applications released after ERP, the growth story is not there. The growth is not there with the big bets. HANA, S4, etc.

Indirect access is simply strip-mining their customers. Under that analysis, it is a marker or leading indicator of the decline of SAP. SAP is using indirect access, so it does not have actually to compete. This is textbook monopoly behavior. Textbook as in going way back. Going to back to Standard Oil in the US.

SAP CRM

SAP’s CRM application is simply not competitive. How can SAP compete in the CRM space with Salesforce or BaseCRM with what SAP CRM has to offer?

It can’t.

  • My research entity reviewed SAP CRM which you can see at this link.
  • Notice SAP CRM earned a 65% chance of project failure, higher than any other CRM system reviewed. (The risk estimate is an average, and not customized for any one SAP customer)

And after reviewing all of these different data points is when I realized, that SAP is the legacy system!

What is a legacy system? Well, it is a system you have relied upon historically, but which you are trying to minimize the investment into as you migrate to something more to “your liking.” No company can replace everything at once. Legacy is the portion of your systems that you rely upon, but which may be replaced at some later date.

The question now is not whether to grow your SAP investment but how to shrink it.

Who Figured This Out First?

Who had the best bead on this? I nominate Vinnie Mirchandani. He laid out in his book SAP Nation and SAP Nation 2.0 how unsustainable the whole SAP industry was. And there are very few candidates for this title, as very few people were willing to write accurately about SAP.

The degree of groupthink on SAP has been awe-inspiring. 

Future Articles on SAP as Legacy

In my upcoming articles, I will cover what SAP as legacy means for customers, SAP partners and software companies that compete with SAP.

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References

https://www.constellationr.com/blog-news/insights/sap-wins-major-court-victory-over-indirect-access-customers-should-pay-attention

http://www.computerweekly.com/news/450413224/High-Court-rules-for-SAP-against-Diageo-in-indirect-licensing-case

*https://www.amazon.com/SAP-Nation-2-0-empire-disarray-ebook/dp/B013F5BKJQ

Software Selection Book

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Information Sources

Mastering Software Selection

Software selection is a form of forecasting, just as any another purchase decision is a forecast of how successfully the purchased item will meet expectations. Forecasting is necessary because it is not feasible to implement each application under consideration before it is purchased to see how it works in the business.

The Importance of Software Selection

Software selection is the most important part of any software implementation because it is the best opportunity to match the software with the business requirements, which is the most important factor in determining the success of the project. This book explains how to get the right information from the right sources to perform software selection correctly.

What You Can Expect from the Book

Essential reading for success in your next software selection and implementation. Software selection is the most important tasks in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software the software that matches the business requirements is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues, and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that much like purchasing decisions for consumer products the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision and gives the reader an insider’s understanding of the enterprise software market. By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to interpret information from consulting companies correctly.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process
  • Chapter 8: Conclusion
  • Appendix a: How to Use Independent Consultants for Software Selection