- SAP has specific motivations for enforcing the fallacious concept of indirect access.
- SAP intends to use indirect access as a toll booth for customers locked into SAP.
Introduction to Indirect Access License Charges
This article will focus on an issue that is very much under the radar: license audits.
So what are license audits, many may ask? A license audit is when a software vendor goes into a company post-sale and reviews if the agreement uses the licenses in the contract between the customer and the vendor. A simple example of this will be if a customer has 200 users using the system only for 150 seats.
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Notice of Lack of Financial Bias: We have no financial ties to SAP or any other entity mentioned in this article.
- This is published by a research entity, not some lowbrow entity that is part of the SAP ecosystem.
- Second, no one paid for this article to be written, and it is not pretending to inform you while being rigged to sell you software or consulting services. Unlike nearly every other article you will find from Google on this topic, it has had no input from any company's marketing or sales department. As you are reading this article, consider how rare this is. The vast majority of information on the Internet on SAP is provided by SAP, which is filled with false claims and sleazy consulting companies and SAP consultants who will tell any lie for personal benefit. Furthermore, SAP pays off all IT analysts -- who have the same concern for accuracy as SAP. Not one of these entities will disclose their pro-SAP financial bias to their readers.
How License Audits Are Used to Enhanced Revenues
License audits are important revenue enhancers for SAP. I will not simply take the buyers’ side, as not all license audits are underhanded attempts by SAP to raise revenue. And a perfect example of this is virtualization. One of the primary drivers for the virtualization craze of a few years ago was the idea that buyers could reduce their payments to software vendors by using virtualization software. Virtualization could never have been simply about saving money on hardware. Virtualization became less popular when software vendors adjusted pricing to account for virtualization.
Therefore, companies could no longer keep the same money through virtualization. This is one reason, along with the saturation of the market, that the growth of VMWare has stalled and why I have them listed as a problem child on the top 23 global software vendor list. Without the ability to audit accounts, SAP customers would have gotten away with paying less than was agreed upon for SAP software.
Indeed, software vendors do have the right to determine if their software is being used in line with the rules set out in the license agreement. License audits, when used honestly, prevent the software buyer from using more of the software than what they paid for.
However, some areas I will cover today demonstrate what I believe are misuses of license agreements and audits on SAP.
What is Indirect Access?
One of the most controversial areas of SAP’s audit enforcement is indirect access. Indirect access is where the customer accesses data within the SAP database without using SAP. That is, SAP proposes that if an SAP application accesses or writes to an SAP database, that is kosher, but if a non-SAP application accesses or writes to an SAP database, that is not.
This issue is only set to grow with the rise of apps that are currently becoming more popular. SAP does have some logical points in its favor on indirect access in that it is becoming more common than ever for companies to access systems’ data. And not just SAP systems, which applies to all systems without using the SAPGUI or the SAP UI. Fiori (which I cover in the LinkedIn articles What is Actually in the Fiori Box? and How Gartner Got Fiori so Wrong) can access SAP data. As Fiori is an SAP product, this is not a problem for SAP. SAP does not charge for Fiori.
However, what if an SAP customer wants to use another vendor’s apps to access the SAP data? Well, this is when it becomes a thorny topic.
This is an issue that has flown under the radar. But it is pretty remarkable and a perfect example of how an entrenched software vendor can use its position of power within its customers to block out other vendors.
SAP’s Motivations and Enforcement
SAP has problems migrating customers to its HANA database and HANA applications like S/4. In articles like Which is Faster, HANA, or Oracle 12c, I cover the argument that HANA, outside of analytics applications, is weak. The case for HANA as a differentiated or unique database, often stated by SAP and then reflexively repeated by SAP partners, is now apparently false.
The pressures placed upon account executives at SAP push for creative ways to get more customer revenues. Imagine you are an SAP sales executive that has a big quota. But you don’t have the territory or other factors to make your quota and the new things SAP offers. S4 and HANA are not all that compelling to customers.
At this point, you have to begin to get creative.
Interviews with different people indicate that a variable standard is applied with independent access.
- This changing standard depends upon whether the customer has recently purchased SAP applications or is seen as a potential customer for SAP products.
- The indirect access audit is far more likely if the client shows lower revenue potential. SAP realizes that engaging in this is a turn-off to customers. Some clients SAP can “more afford” to turn off than others.
As with pricing, different customers have varying degrees of leverage in their relationship with SAP.
Paying SAP When A Customer Buys Something Other Than Fiori
SAP believes its license contract allows it to charge as many Fiori licenses are purchased from a non-SAP user interface. So if you buy 100 seats for the XYZ user interface.
Generally, SAP uses its “use policy” to prevent 3rd party purchases. And this is the logic that is used to do it. This is the essential part of the article, so let us give this the necessary attention.
- Per SAP’s interpretation of its use policy, since the customer uses SAP’s processing power, any data generated from SAP cannot be consumed by other 3rd party systems. (e.g., another user interface, app, BI tool, etc.).
- If any 3rd party system consumes the SAP data, all 3rd party users are considered SAP users, and the customer has to pay each as a user. SAP usually does not directly tell customers to use Fiori, but the natural implication is that there are no out-of-pocket expenses if a client chooses to use Fiori.
- If the same client uses a 3rd party system, then SAP makes it so expensive with this clause that it is unlikely most consumers will pay twice for the exact requirements.
Purchasing Fiori Licenses
This forces the customer to obtain one Fiori license for every license they buy a competitor’s product. SAP may tell the client before they purchase, and they may also choose to do so after they make the purchase. This is when it becomes part of a license audit.
- It stops or has a high potential to halt the purchase and potentially redirect the investment to Fiori licenses (which most SAP customers don’t want, which I cover in What is Actually in the Fiori Box?).
- It may stop the sale of any product as the client often won’t buy Fiori. In the second instance, it naturally raises money for SAP that the customer must pay as they already purchased the other app provider.
US Anti-Trust Law
The behavior is particularly brazen on SAP when operating in the US because it contradicts US Anti-Trust Law.
One of the areas of the law is this quotation.
“The willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”
SAP is using this policy to interfere with purchases for a competitor.
The following quotation is from one SAP customer.
“SAP is using its USE policy to dictate & control our destiny. They first ask us to share what product we would be buying, for what would we use and ask us to include price details. Then they will come back and say what & how much the impact will be of additional SAP licenses.
When we push back, they ask us to buy a SAP product, which does not fit our requirements in the first place.”
This is textbook anti-trust behavior. The entity uses its ability to interfere with a competitive purchase to push its product onto the client. Microsoft did the same thing for years, albeit using different tactics.
The Implications of Indirect Access
SAP uses costly law firms. I worked for one on a contractual basis out of Washington, D.C. This was probably the most generous office space I have ever been to. SAP is informed by these law firms how much they can push or even violate laws as they are entirely up to date on which laws are enforced and which are not.
This is why regulation items should be managed by regulation rather than asking small vendors who do not have the resources to litigate against entities like SAP. It is also why people who think things can only be sorted out by “the market” have no idea what they are discussing. Barriers can be constructed through market size or other factors; regulation is required for a functioning market. SAP does not have 13,000 partners to participate in the market but to (or “intends to”) build monopoly power to maximize its revenues and profits.
Take an example of an apple stand at a farmer’s market. Suppose the larger Apple stand lowers its prices for several months to drive its competitors away from the farmer’s market. In that case, regulation is required to stop this, or the farmer’s market will monopolize Apple stand providers. And in fact, this is a relatively poor example, as there are few barriers to erecting an apple stand. In sectors with high entry barriers, acquiring monopoly power is challenging for “the market” to correct without some interference.
How Indirect Access Sets Up SAP as a Toll Booth
The orientation of SAP is to increasingly view its systems as a toll booth that requires payment if a non-SAP system accesses its data.
Almost all companies buy SAP products on the company’s flagship ERP system. And ERP systems concentrate a lot on the business’s data. ERP systems were undoubtedly not sold on the premise of being a toll road, but now that SAP has such a large installed base, it can ask for this.
I obtained the following quotes from real customers adversely affected by SAP’s actions described in the previous paragraphs.
Here are some interesting quotes that are taken from some companies:
“Basically SAP is asking to get paid for all non-SAP users that might be touching SAP data indirectly.. For e.g. if a company integrates Salesforce with SAP, then SAP can ask to pay for all Salesforce users, even though they may not be SAP users..”
This quotation was exciting because it applies to another large software company, Salesforce.
I received this anonymous quote, which supports some indirect access that SAP enforces.
“You can’t argue that SAP customers know what they are signing on – most of them have large legal departments that inspect any word in the contracts. Furthermore, let’s look at the “classical” business case for indirect access: an SAP customer who has 1,000 salesforce users that use only 1 SAP username to access SAP. You will probably agree that in this case SAP is entitled to charge some kind of license for these 1,000 users who indirectly access SAP and use information from SAP.”
In return, one topic I would bring up is if the customer purchased 1000 licenses of SAP CRM, would SAP charge for another 1000 licenses of SAP ERP?
- If the answer is no, then SAP’s policy creates a barrier to buying other applications, and this stance is hypocritical and a red herring.
- If a barrier is created, this is anti-competitive behavior.
Secondly, if SAP ERP is being connected to Salesforce and if a sales order is created in Salesforce that goes into SAP ERP and then a person opens that sales order in SAP ERP without having a Salesforce license, then doesn’t the company owe Salesforce a user license as well? We seem to be graduating into a different pricing environment if every software vendor must be paid for double, triple, or quadruple charges because some other system uses its data.
This is another quotation from an SAP customer hit with indirect access issues by SAP.
“We tried arguing saying we will use file downloads instead of remote function calls or IDocs (that is ways of pulling data from SAP). That way its not a direct interface to SAP. Their argument is – it does not matter how you interface. You are using SAP’s processing power to generate output and use it in other places, hence liable to pay SAP, anytime, anyone uses the output generated by SAP”
I think SAP’s comment here is wrong. If followed through, this statement or logic would allow SAP to charge a company licenses for any application that was connected to SAP and to any data that were exported from SAP (say for use in a spreadsheet) or for any data that were extracted to a report within a non-SAP system.
The following quotation is similar to what I mentioned earlier regarding the US anti-trust laws.
“SAP will invite US Anti-Trust laws against itself, if it tries to do too much in the US. The data is our IP and SAP cannot ask for licenses if I stage the data, (even on a temporary basis), Enhance it by using some other software and post it back into SAP.”
I agree with the quote in principle but not in practice because I know how little anti-trust laws are enforced in the US.
SAP is doing this precisely because its attorneys have analyzed the playing field and have no fear of the US Federal Trade Commission taking any action.
The Implications for the Competitive Landscape
Suppose large companies can beat smaller companies not based on their products or service but on coercing buyers through various techniques. In that case, the market becomes less competitive. Here is a hint that larger companies will attempt to use these techniques without regulation because there are no repercussions.
The Implications Beyond SAP
The issue is that SAP is setting norms in the enterprise software industry. Other software vendors, those with a growing market share or who have a “tight” hold on the customer, are (or will be) pushing re-licensing. Oracle, Salesforce, and Microsoft were specially mentioned, and they are all waiting and watching how SAP is doing this.
If SAP successfully defines indirect access, then these players will most likely be (or already are) making a move to enforce indirect access. Other enterprise players looking to grow the market share or do not have the “tight” hold on the customer are not looking to do this.
Some of the indirect access claims made by SAP are used to unfairly limit competition, making them illegal under the Sherman Anti-Trust Act. However, what is legal and criminal has less to do with what is on the books and more with what is enforced. The FTC does little to implement the US’s anti-trust legislation, and US citizens have no idea what it is or why it is necessary. However, there are techniques for dealing with SAP’s use of indirect access.
Some companies specialize in SAP and Oracle audit management. One company I found when doing research with unique content is UpperEdge.
Getting specialists is essential because consulting companies will not want to stand up to SAP. Their primary objective is to increase the SAP services they sell, and supporting their clients or giving them information to help against SAP is not where the consulting company wants to be. ConsultSAP can quickly retaliate against consulting companies, therefore, and they won’t risk offending SAP. SAP’s consulting partners should be viewed as merely adjunct sales arms of SAP itself with an ingrained inability to present a non-SAP biased perspective to their clients. Their role is to repeat SAP was messaging and till the registers specialized knowledge necessary for developing the data to determine the correct numbers of the different types of licenses to purchase and how to prepare for an SAP audit.
- Most companies do not have the internal knowledge to do an excellent job at this.
- On the other hand, SAP is a specialist in auditing companies, and they have a dedicated team that does nothing but audits.