Are SAP Customers Actually Under Licensed After Indirect Access?

Executive Summary

  • SAP has introduced the term “under licensed” to try to describe situations where companies have not paid indirect access fees.
  • We evaluate how accurate this term actually is.

Introduction

SAP has written a great deal about customers that are “under licensed” with respect to indirect access. This is a quotation from their announcement at SAPPHIRE on indirect access.

“If you’re fully licensed, there’s no action for you. However, if you’re questioning whether you are under-licensed, let’s talk about it. We want customers to proactively engage us on this topic. SAP assures customers who proactively engage with SAP to resolve such under-licensing of SAP software that we will not collect back maintenance payments for such under-licensing.  We will look at your specific circumstances when resetting your licensing agreement, including providing you the opportunity to receive credit for certain products you may have already licensed so you can update to the new metrics.”

SAP loves to pitch the narrative of being under licensed. A full analysis of this announcement can be found at the article An Analysis of SAP’s Faux Policy Change on Indirect Access.

Being Overlicenced

SAP will never speak about customers that are over licensed. However, being over licensed is quite common. There are several reasons for this. Users are created, but then sometimes abandoned. People leave the company but their users are still in the system. Consultants come and go. In fact, in most instances, over licensing is more common than under licensing. SAP will not give back money to a company, so being over licensed means having a “bank” of unused licenses that can be used in the future.

Being Overlicensed and Indirect Access

Over the past 4 years, SAP has greatly ramped up the concept of Type 2 indirect access. SAP has been promoting customers to reach out to them, as is shown in the following quotation also from their SAPPHIRE announcement.

“However, if you’re questioning whether you are under- licensed, let’s talk about it. We want customers to proactively engage us on this topic. SAP assures customers who proactively engage with SAP to resolve such under-licensing of SAP software that we will not collect back maintenance payments for such under-licensing.”

Once again, SAP uses the term under licensed. SAP wants customers to proactively engage us, and to share information with them so that SAP can place an indirect access charge upon them. One may not have to pay back maintenance, but they will be paying forward maintenance of course.

What SAP does not address, and will not address is whether a SAM software analysis by an independent entity would show that the customer is actually over-licensed and if that over-licensing would cover even the faux or Type 2 indirect access that SAP has become known for. SAP has no interest in any customer purchasing SAM software. Instead, they want to present their interpretation of how “under licensed” their customers are, without independent verification.

Conclusion

Companies should never accept SAP’s self-serving analysis of their licensing state. Companies should not simply accept the assumption regarding Type 2 indirect access. However, even if SAP does bring an indirect access claim against a company, the company may be able to cover that claim (if it intends to not fight the claim through other means) with the licenses that it already owns. But the only way to know for sure is to have the information in hand that can only come from using SAM software and performing the analysis.

Financial Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

Indirect Access Contact

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References

https://news.sap.com/sappire-now-modern-pricing-modern-times/

How Accurate Was Snow Software on Ways to Cut Spending on SAP

Executive Summary

  • Snow Software wrote an article about ways to cut spending on SAP.
  • We analyze this article for accuracy.

Introduction

Snow Software wrote a paper titled 5 Ways to Cut Spending on SAP Software. In this article, we will analyze this paper.

Quotes from Snow Software’s Article

SAP has more than 40 named user license types in its standard definitions, ranging in price from $60 to $7,000 per license. These license types determine what transactions the user is permitted to perform in the environment. SAP puts the onus on its customers to assign the appropriately named user license type to each user account. Without the right data upfront, the only way to do this is to generalize and attempt a best-fit. The work that individuals perform can change year on-year. This means that a license type which once fit well beforehand is no longer compliant

It is in fact quite interesting that SAP has such a broad continuum of user license prices.

Organizations typically end up overspending because they do one or both of the following:

  1. Purchase unnecessarily costly named user license types to ensure coverage of user’s requirements, but also cover them for use of transactions that they do not need.
  2. Keep user-license assignments static until the next SAPmandated system measurement, and then pay the fees that SAP requests for any shortfall.

So basically customers have a hard time optimizing their licenses. I think there is a common misimpression that the company’s contract or purchasing arm will perform license optimization. This is not the case. And one does require software to provide the necessary information. This also keeps SAP from leading the discussion, which will, of course, lead to more of what SAP wants, rather than what the customer needs.

During a proof of concept, Snow typically discovers around 20% of licensed users in an organization who have been inactive for more than 90 days. Users who have been inactive for more than 90 days (or whatever date is deemed appropriate) can have their license returned to a pool (re-harvested) for reassignment as and when they are required.

This was quite interesting. This means that many customers are over licensed. This is also interesting because SAP only ever discusses the potential of being “under licensed.”

This environment evolves over time as new systems are added. Users must be licensed to access these systems and so they are often provided with a new account, the username of which may be different from the username they have for other systems.

Another issue where SAM software can assist.

Indirect Usage is, in simple terms, where an SAP system is accessed or queried through a third-party application. The way in which that application interacts with the SAP system and underlying data can have a significant impact on licensing requirements and financial exposure at the point of audit. If any individuals are accessing SAP-stored data through third-party software, organizations must ensure that they have an SAP named user license of the right type provisioned for them.

Why this is true. The assumption presented here is that all integrations to SAP applications mean that the customer needs to have licenses. This is an endorsement of SAP’s Type 2 indirect access. However, Brightwork has repeatedly questioned whether this type of indirect access is even valid. This is the concerning feature of SAP, that they can make a proposal which breaks with the legal precedent in licensing, and pretty soon everyone from consulting companies to SAM vendors is repeating it.

Organizations should build up an architectural diagram of Indirect Usage across the SAP environment. This places them in a strong position when SAP audits because any additional fees are based upon real usage, not an estimated and perhaps overinflated value which is indefensible because of lack of visibility.

Yes, this is true, SAP sets about to cheat its customers whenever possible. So SAM software is necessary because the customer must have access to usage information that is independent of SAP.

SAP licensing is not only based on per-user metrics, but includes software engines as well. SAP engines (aka packages, modules and add-ons) are optional applications for which additional licenses must be purchased. The metric used for licensing differs by engine, and is based upon the objects that exist within that application or its total CPU consumption. For example, the metric for SAP Payroll Processing is number of master records, while the metric for SAP E-Recruiting is number of employees.

This is apparent from reading the SAP Price List. It is so complex to price many of SAP’s applications, that even account executives rely on a professional pricing expert that does nothing but pricing within SAP. What Snow software is saying is that this pricing is built into their software. We are not validating this, but if true it is an impressive accomplishment given SAP’s pricing complexity.

SAP licensing is both complex and open to interpretation. Typically, environments have been running for many years, so it is difficult to get a handle on which licenses are assigned to which users, whether those licenses are correct for the user and indeed whether a license is required at all.

This quotation highlights how licensing must be run occasionally as the usage of the SAP system changes over time.

Conclusion

Snow Software’s paper was quite helpful and educational. The indirect access quotations are a concern for reasons already listed in this article.

Financial Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

Indirect Access Contact

  • Questions About This Area?

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References

https://go.snowsoftware.com/rs/377-PWR-208/images/5Ways_To_Cut_Spending_On_SAP_Software_en_aug.pdf?aliId=12824339

What is Type One Versus Type Two Indirect Access?

Executive Summary

  • Indirect access is frequently covered without drawing a distinction between type 1 and type 2 indirect access.
  • No coverage of SAP’s indirect access is complete without this distinction as it differentiates legitimate indirect access from SAP’s indirect access.

Introduction

Often in discussions around indirect access, I have the person I am discussing the topic with bringing up the point around the advice that one receives to check the contracts.

This is also a concept that is promoted by those that work on contracts for a living. The idea is that all that is necessary to protect oneself is to have the sentence taken out of the SAP contract that states that the customer can only access SAP software either “directly or indirectly” through a license.

The problem with this approach to dealing with the issue is not the existence of this clause. And this is why statements regarding taking an entire contract focused approach to indirect access will not work. It is also why it is inaccurate to state that in the SAP v. Diageo case was due to Diageo not paying close enough attention to the contract. This falls into the same category of misinformation and misunderstanding that SaaS was responsible for the game-changing on indirect access.

To see why, and hopefully, to increase the knowledge in this area, I decided to cover what I am calling two different types of indirect access. In all of my reading on this topic, I don’t recall anyone proposing this. But it makes logical sense.

Using this terminology will help mitigate confusion on this topic.

Two Types of Indirect Access

There are two basic types of indirect access.

  • One of these types is a legitimate complaint on the part of the vendor.
  • The other is not a legitimate complaint and is an attempt by one vendor, SAP, to expand the definition of indirect access in such a broad way that if it were accepted it would change the landscape in the enterprise software market. It would give the largest software vendors, even more, leverage than they already possess.

In fact, we/Brightwork are now getting reports of other software vendors copying SAP and at least trying to invoke SAP’s definition of indirect access.

Type One Indirect Access

Type one Indirect access is when a company develops a user interface or uses a third-party user interface to connect to an application. By using a user interface to access the data and functionality within the system, type one indirect access cheats software vendors out of rightful revenue.

Type one indirect access is entirely well-founded and is difficult to argue with. However how common is this type of behavior on the part of customers? It isn’t. It has been the historical reason that software vendors have gone after customers for extra licenses.

Type Two Indirect Access

SAP has the following definition of indirect access, which I took from JNC’s article on this topic.

“Indirect access is user or third party application creating, manipulating or viewing data in the SAP systems via an interface.”

Well congratulations, SAP is describing any system to system interaction. Therefore SAP deserves a license sale for any system that is connected to SAP. So if a customer purchased 1000 licenses of Salesforce, it now owes SAP 1000 of ECC. SAP created its definition which is an amazingly self-serving manner for a company that already has its software installed at so many customers, changes the game to its benefit.

I quote from Dave Blake of UpperEdge

“The most challenging aspect of SAP’s claim of a license grant violation here lies in the very definition of use itself. The definition fails to specifically identify the concept of indirect use which leaves it completely up to SAP to determine when a violation has occurred and to what magnitude. In the past, SAP briefly nipped at its customers’ heels on the issue of indirect access, but recently, SAP has shocked some of its loyal customers by going for the jugular. Through our customers, we have observed SAP use indirect access violations as an excuse for predatorily squeezing fees from their customers, and worse, seizing the opportunity to reduce flexibility and promote an anticompetitive environment.”

That is correct.

The part that hits home is that SAP has created its definition of indirect access that no one outside of SAP seems to agree with. However, indirect access is a legally enforceable construct. Without the force of law, neither type 1 nor type 2 indirect access exist. And SAP cannot have its own laws around indirect access.

Checking the License Contract?

Dave Blake goes on to explain the following:

“Although they can educate themselves about SAP’s behavior and negotiate accordingly from the get-go, SAP’s new definition of how their software cannot be used will handcuff even its new, informed customers into agreements which expose their company and now also include ludicrous restrictions on data extraction.”

Once again, this contradicts the commonly presented idea that all one needs to do is to check the license contract. I also like the term ludicrous. I think I previously used the term lunacy to describe SAP’s new “interpretation” of indirect access, so ridiculous and lunacy seem kissing cousins as words, so Dave and I seem to agree on adjectives to use.

Tricking Customers into Thinking SAP’s Type 2 Indirect Access is “Kosher”

If SAP can convince some companies into thinking that its clauses are consistent with US law, then the evidence shows that they will do this. If the customer knows more about indirect access, then they are always in a better position to get a better deal and to be treated better.

SAP is mostly looking for soft targets. Companies that have not done their research on indirect access, and where SAP can trick them into accepting SAP’s interpretation of the law. The customer’s internal council can be queried, but they should be expected to have much expertise in indirect access.

Remember that in some cases the information about indirect access is coming from SAP account executives, who are briefed by SAP. They are merely repeating what they have been told in the SAP sales training material. They would not have any idea as to its legality and are not trained or incentivized to question any information they are provided by SAP.

Therefore, it is more likely than not that the account executive will present details on indirect access with high confidence, But this does not necessarily relate to the actual legal support for SAP’s claims.

The Timing of Receiving SAP Indirect Access Information

SAP wants to push the awareness regarding SAP indirect access to as late as possible in the process. This is reinforced by a quote from back in 2012.

The survey results are now in, and Blake recently shared some data points with ASUGNews.com. In general, the results demonstrate that.

“SAP is not doing a good job of educating their customers on this concept and what it means,”

He says.

“It reinforces why customers who have this issue—those customers who have had it brought to their attention—are completely caught off guard.”

But of course. You do not want to “educate” people if you can have them buy under one set of assumptions, and then come to them later with a bunch of SAP indirect access charges.

There is for SAP a perfect time for customers to become aware of the indirect access liabilities of the software they purchased. A typical time to do this is during an SAP software license audit! When discussing indirect access liabilities SAP would prefer the saying “we will cross that bridge when we come to it.”

Non Compliance?

“From our perspective, where non-compliance is clear, SAP is entirely within its right to demand payment for its customers’ use infractions. For example, it is acceptable for SAP to tout indirect use as a protective restriction when there is a legitimate reason for SAP to protect its intellectual property (IP). When unlicensed users knowingly take advantage of SAP’s infrastructure and unique processing capabilities without paying, SAP is justified in requesting its customer pay additional fees for the additional benefit. We also do not fault SAP for protecting its IP in situations where its processes enhance the capabilities of other systems. But of course, this is not where SAP’s definition stops.”

I don’t know if this is the same distinction I am drawing between Type 1 and Type 2 indirect access, but it does sound similar.

If we take Dave Blake’s comment, regarding “knowingly take advantage of SAP’s infrastructure without paying…”

This wording gets a bit tricky.

The reason being that when integrated, all applications take advantage of each other “infrastructure,” its data and its processing. That is the nature of application integration.

Reviewing a Scenario

If a CRM system sends sales orders to ECC, it is leveraging the infrastructure of SAP. But if the customer purchases SAP CRM, SAP does not charge the same license price for the ERP license. Actually in most cases waiving the license fee. SAP CRM is leveraging ECC’s infrastructure in the same way as Salesforce. The fact that SAP is engaging in such differential pricing puts it into the category a tying arrangement under US anti-trust law. In fact, I don’t think there should be much debate on this, and the details can be read in my article How to Fight Indirect Access with Tying Arrangement Law.

Teradata seems to agree. In their lawsuit against SAP which included allegations of antitrust violations, they used the term tying arrangement.

“SAP first carried out this plan by tying (emphasis added) SAP ERP upgrades to the adoption of HANA. Specifically, SAP launched the latest version of its ERP Application, SAP S/4HANA, in February 2015. SAP describes S/4HANA as being “built on” and “natively written” for HANA. This marketing language attempts to conceal the fact that, in an abrupt change to past practice, SAP S/4HANA is wholly incompatible with other transactional databases and can only run on HANA. Thus, in order to upgrade to SAP’s newest ERP Application, customers must now also adopt HANA.”

The Double Standard

So SAP applies a double standard. First, it will allow its applications to “indirectly access” (that is under its expanded definition) other applications, but if the software from another vendor does the same thing, then SAP wants licenses of the connection to system to be paid. That is indirect access only applies when the application is from a different software vendor. However, that is an entirely inconsistent definition of indirect access. I want this point emphasized so.

  1. It is illogical for SAP to apply for indirect access only to non-SAP applications.
  2. It is illogical for SAP to have a definition of indirect access that is entirely contrary to the overall history of licensing of software.
  3. If SAP was going to take this approach to indirect access, they should have done so back in the 1980s when they started selling their ERP application. If they had, they would have never grown into what they are today.

Applying Indirect Access to Excel?

If indirect access were applied to other types of software then if data were exported from Excel in a CSV format and then uploaded to a non-Microsoft database, then Microsoft would be owed an extra license of Excel. But on the other hand, if an Access or SQLServer were used, then no additional license of Excel would be required. That is the exact logic that SAP is using with its current determination. But it gets worse than that. If you agreed to purchase another separate application, for instance, Outlook, then the Microsoft account executive would waive the indirect access license for Excel!

Therefore, while I think Dave Blake here is on the right path, I don’t think the language is sufficiently specific to differentiate what is real indirect access from faux indirect access. This is why I prefer the terms Type One from Type Two indirect access. Type One is a legitimate form of indirect access. Type Two, which I also call SAP’s model isn’t.

Differentiated Prices

But there is also an extra dimension which must be captured, and it is not captured by the Type One and Type Two distinction that I have covered thus far. And, this is the questions of differential pricing as well as indirect access only applying to non-SAP applications being connected to SAP applications.

Indirect Access Mind Map

To help people make sense of this, I have the following mindmap graphic, with an accompanying description of the likely outcome depending upon where you are on the map.

  • A.) If both systems in question are SAP, then SAP will not apply for indirect access. Indirect access not defined by the use, but by whether the connecting system is sold by SAP.
  • B.) If you don’t buy other licenses from SAP that are unrelated to the first system that is being connected to, then SAP may decide to apply indirect access license fees.
  • C.) If you are willing to purchase other licenses from SAP, then the indirect access issue will most likely go away. SAP applies for indirect access inconsistently. It is used to punish customers that buy as much from SAP as SAP thinks they should.
  • D.) If you are not willing to purchase licenses immediately, but the account executive still sees you as a high or better than average potential account, then you will most likely not face indirect access charges.
  • E.) If you appear to be moving away from SAP, then indirect access becomes much more likely.

Financial Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

Indirect Access Contact

  • Questions About This Area?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, tell us your question below.

References

*https://www.jncconsultancy.com/sap-indirect-access-explained/

*https://upperedge.com/sap/sap-and-indirect-access-is-sap-taking-advantage-of-its-customers/

https://assets.teradata.com/News/2018/2018-06-19-Complaint.pdf

How ASUG Lies About SAP Indirect Access

Executive Summary

  • ASUG is a puppet of SAP that masquerades as a user group.
  • ASUG’s information provided on indirect access is a perfect example of SAP’s control over ASUG.

Introduction

For some time I have questioned ASUG’s independence from SAP. And this questioning was reinforced through checking with several others who routinely go to ASUG conferences. There is all manner of problems with ASUG’s objectivity, with one prominent item being that SAP approves all of the documentation that is presented by other vendors or consulting companies at every ASUG conference. And SAP is quite particular what it allows to be placed into print at its conferences. ASUG is behaving much less like a user group, and far more like a marketing arm of SAP. This is another example of how information that may at first blush appear to be independent of SAP is controlled by SAP.

The latest article from ASUG on the topic of indirect access has been a real eye opener on how ASUG sides with SAP and obscures the issue when there is a point of contention between SAP and its customers. This was to such a degree that it seemed worthy of commentary.

Therefore in this article, I analyze the comments on indirect access made in an ASUG article on indirect access. This article by ASUG will demonstrate how yet again, ASUG primarily represents SAP’s interests against their customers rather than the other way around.

ASUG Article on Indirect Access

Geoff Scott:What should ASUG members know about indirect access and their SAP and non-SAP systems?”

Joe Galuszka:Digital transformation is driving all companies—not just SAP customers—to buy third-party SaaS software—with CRM, HR or Financial applications being the leading customer-facing applications. At its simplest, indirect usage is those customers accessing data housed in SAP through those third-party SaaS applications, especially on mobile devices.” – ASUG

This is wholly inaccurate. Companies have been connecting applications to SAP since SAP was first introduced. And the definition provided by indirect access is not correct. I cover the definition of indirect access in the article HANA Police and Indirect Access Charges.

Geoff: “To me, indirect usage is any way that an SAP application is being updated or changed outside of an SAP-provided GUI or login. Digital transformation is the biggest place where you may find this, where you have CRM systems, e-commerce systems or IoT applications that are not SAP systems either feeding information into or taking information out of SAP. Customers may, or may not, have this type of access appropriately licensed. This is where the ambiguity begins, and where ASUG members are the most concerned.” – ASUG

This definition would include every single application that has ever been integrated into a SAP system. According to Panaya.

“40 percent of SAP shops have 20 to 50 systems interfacing wit their ERP. Of these less than 10 are SAP systems. Each of these systems have dozens of interfaces to the SAP system.”

Once again, digital transformation has nothing to do with this topic. What is described in the response is standard application integration.

“Some of the challenge is that the SAP product portfolio can be vague when it comes to terms and definitions, so a lot of this is open to interpretation, which is really the first thing we heard from our membership. They said: “I’m just confused.” – ASUG

A major reason why customers are confused is that SAP’s proposals on indirect access, in fact, their definition of indirect access is an expansion of indirect access, and other vendors do not share this definition.

Joe: “Regarding the U.K. ruling, it’s important to note that the mySAP ERP contract was signed in 2004. At that point the understanding of SaaS-based applications and what the potential implications would be of integrating them into the SAP ERP ecosystem was not necessarily a primary factor in the acquisition. Of course, so much has changed based on the business value of SaaS applications and the significant growth in usage.”

Geoff: “True. Not too many were thinking about how the application world would look today. I know I wasn’t. The cloud business, as we know it now, was in its early infancy.”

When the SAP contract was signed, and the rise of SaaS has nothing to do with indirect access. This is another thread along the logic of trying to propose that technology brought this to the front, rather than a policy change. SaaS is only the delivery mechanism of the software, and it has nothing to do with changing the integrations. SAP had many non-SAP applications connecting to it back in 2004. Other software vendors are not enforcing indirect access against their customers. SAP is doing so. Why?

Joe: “That’s why it’s so important for ASUG to have this dialogue. Plus the fact that some SAP customers may be reluctant to go to their account team and open up this dialogue. This conversation should first happen within the confines of ASUG with the members, and then when you have the ability to consolidate and represent a view point, take that forward to SAP. ASUG should be the consolidated customer viewpoint. Otherwise this topic will continue to be vague and confusing to your members.”

If ASUG is going to mislead SAP customers as to the nature of indirect access, it seems that the nature of the dialogue will be quite deceptive and tilted for SAP. Interesting how the topic should be consolidated and confined within ASUG, and entity that is not independent of SAP. If customers agree to do this, one can be assured that the outcome will be on SAP’s terms.

Joe: “I know you had meetings recently with the Executive Exchange [ASUG’s community of C-level leaders]. What were you hearing from them?”

Geoff: “I took a couple things away. They were very animated about this topic. We could have doubled the time we had allotted for this conversation and still not covered all the viewpoints. What I took away is that there is a lot of concern. “What does this mean to me and my company? On the basis of this ruling, I may be in violation. I don’t think so, but now I am not so sure.” They are looking to ASUG to help mediate a fair and equitable solution to this challenge.” – ASUG

“Animated” is an interesting description that is a politically correct euphemism for customers being infuriated and feeling betrayed by SAP.

It is ludicrous that ASUG, unable to even publish an honest article on the topic of indirect access, will be the entity to mediate a fair and equitable solution to the challenge. A challenge that non-SAP customers have yet to even see on the horizon.

Joe: “What’s also interesting to think about is what causes this business situation to occur. To me it squarely falls on the digital transformation that is happening right now. The fact that companies are going out and finding cloud and SaaS-based solutions they think will provide best-of-breed apps or increase flexibility to provide better solutions to their business users.

And let’s also point out that so often now it’s the actual business user who is driving the demand for the new application in order to better serve their business unit and their users. The fact of matter is that users go out and buy competitive products which creates concern on the SAP side of the equation. Especially if data inside the SAP application is being assessed, created or modified.”

And one more time with the “digital transformation.” The second paragraph is simply an endorsement of SAP’s viewpoint on indirect access.

Geoff: “So be prepared and do your due diligence now so you are not surprised. What else should our members be doing?”

Joe: “This should be ASUG members’ main call to action: If they were avoiding this issue or not paying attention to it—that time period is over. This certainly tells the users they need to be aware of how their licenses are being used and whether or not there is a potential compliance issue.

The second would be to bring that information forward to ASUG to start having the conversations for the first time or again, so it creates a momentum that ASUG can take forward.

I think this customer fear and the emotional response should be acknowledged in the market place. Geoff, you’re just coming back from that meeting with a lot of CIOs, and there is no question there is a fear that is being generated in terms of what this means from a financial risk perspective.”

So the first two paragraphs above are boilerplate.

Then the third paragraph points back to ASUG. Again, there is no indication that SAP is doing anything untoward, and there is no attempt to relate the indirect access definition applied by SAP to the non-issue of indirect access at other software vendors.

The last paragraph acknowledges the fear, but once again does not discuss legitimacy.

Geoff: “Do think what happened in the U.K. will be applicable across the globe?”

Joe: “You have to remember that this court case is but one judge, one ruling, one case, one court and potentially not the definitive answer. There are a lot of factors, and this could have been decided in a different way by a different court, if the factors were weighed differently.

Regardless, we now have a ruling. Meaning, if you have contractual SAP agreements, you better read them and understand what are the legal implications of the agreement you signed.”

This is one of two accurate sections in the entire article.

The UK judge did not appear even to review SAP’s definition of indirect access. But the last paragraph of the response is entirely dishonest. Indirect access as interpreted by SAP is not a legitimate claim. Companies that signed SAP contracts did read and understand the legal terms. SAP changed their policy and had changed the interpretation of indirect access.

Geoff: “Is the “named user” even relevant in today’s world? Are we trying to use legacy definitions in a digitally transformed world, and perhaps that isn’t working?”

Joe: “Yes and no. If you look at Salesforce, for instance, they typically have three user categories based on the level of use and functionality required that follow similar conventions. As an industry, the named user is still the primary way that licenses are described. That doesn’t work as well when the named user may be an interface or a sensor, or some other device.

Way back when, for an on-premise system like SAP, the users were the employees of the company that accessed that system through a display device. It was all contained within the company environment. That was the only way you had access to the software. And it was easy to say at what level of access or functionality there was an equivalent fee based on the usage.

Today, that notion has become even more convoluted given outsourcing, e-commerce, partnerships and third-party customers.”

ASUG is perpetrating or allowing a false framework to be promoted. A named user never applied to application integration. This is because SAP’s application and interpretation of an expanded indirect access definition are new. These two comments by Geoff and Joe are either completely misinformed, in which case Geoff and Joe are the wrong people to interview on these topics, or Geoff and Joe are lying, in which case again, they are the wrong people to interview on these topics.

The last two paragraphs have nothing to do with the topic. The last items listed, “outsourcing, e-commerce, partnerships and third-party customers” have absolutely nothing to do with indirect access or the Diageo v. SAP case.

Joe: “I firmly believe user categories are still relevant. The fact is, previously, they were protected by the boundary of the company and the employees. And that certainly has been opened up in terms of this ongoing indirect issue. As we discussed, this is not a new issue. But this case certainly highlights the issue and brings it to a level of awareness that is probably unlike other things we have seen.”

No kidding Joe. User licenses are still relevant! This is the insights that ASUG readers get from ASUG. And indirect access as applied by SAP is new. What is not new is that applications have been integrated with SAP since SAP started selling its applications.

Geoff:The other issue for customers might be ensuring they’ve got all their contracts lined up. For most SAP customers it’s probably not going to be one contract, but a series of contracts with amendments. Language layered upon language.

Customers have to cut through all of that and align back to how the software is being used today versus how it may have been licensed yesterday. Start thinking about this now, how you are doing business, and why you think you are licensed—or not.”

No, incorrect. SAP’s application of indirect access is new. The use of the software is not “different’ on indirect access. ASUG keeps proposing this, but it is not true, and the participants to this article don’t seem to know enough to know on this topic or they are simply lying.

Geoff: “ASUG members should not universally allow SAP to define what indirect licensing is. This has to be a collaborative discussion between the user community and SAP about what is equitable and fair.”

One of the few true statements in this article. Everything that Geoff and Joe have said in this ASUG article has simply directly reinforced SAP’s position on indirect access.

Geoff: “We, as ASUG, are happy to bring that banner forward. And to advocate on behalf of every one of our members for a fair way to understand, in today’s digitally transformed world, how complex licensing concepts should be applied and executed.

What’s interesting is that we were already speaking with SAP on this topic, along with the rest of the global user communities. The ruling in the U.K. brought this to the forefront. I promise our members that we are championing this topic on their behalf and that the ASUG Board, who are all SAP customers, are as vocal as the rest of the members.

I know personally that SAP isn’t interested in pursuing court action to resolve these conversations and would like to have a dialogue with customers on the topic, which is why these conversations are so important.

Look for a lot more from ASUG. ASUG advocating on these topics is what drives the value in being a member. And ASUG needs to hear your voice.”

ASUG is patting itself quite a bit on the back here, but this article they have published indicates that they intend to be nothing more than a pawn for SAP.

ASUG Continues its Misinformation Campaign

ASUG published a second article with several other quotations.

“As SAP has opened up its software to new data sources and software, the trend is poised to become a concern for SAP customers. The result of these types of unlicensed activities is, of course, a violation of SAP customers’ licensing agreements—which will not go unnoticed during a compliance audit.”

Again, incorrect. This is a concern because has changed the interpretation of indirect access.

“In general, the results demonstrate that “SAP is not doing a good job of educating their customers on this concept and what it means,” he says. “It reinforces why customers who have this issue—those customers who have had it brought to their attention—are completely caught off guard.”

This assumes that SAP wanted to educate its customers on this topic. What if by not educating the customers it puts itself in a better negotiating position? Has ASUG considered the possibility?

“The majority of the respondents have more than five interfaces to non-SAP applications—with 12 percent claiming more than 50 interfaces. “Think about the number of potential users on the other end of those apps,” Blake says. “The magnitude [of indirect access fees], from an unbudgeted perspective, can be pretty significant.”

Right, except this has always been the case.

“When asked about SAP’s legitimate indirect-access violation claims, most respondents perceive SAP to have a legitimate claim for indirect access in real-time and non-real-time (or batch) two-way communications. And a majority of survey participants indicated a willingness to pay additional license and maintenance fees under real-time, two-way communications between systems.”

This is interesting.

“Respondents were asked about their response if SAP notified their company that it would terminate their SAP license agreement for breach as a result of indirect access. Their responses: More than half (54 percent) would try to negotiate a settlement amount with SAP to resolve the dispute; 19 percent would pay nothing to SAP and dispute the claims in legal proceedings; another 19 percent were unsure; and 8 percent didn’t answer.”

This shows how many companies are willing to come to the table with SAP on this topic.

“Blake does give credit to SAP for working with its new customers on being more transparent in their licensing agreements, though he claims there’s still too much ambiguity in the contracts.”

Of course.

“For the first article, I had interviewed Joe LaRosa, head of global pricing at SAP. He offered straightforward guidance for customers on indirect access, and it remains applicable in looking at these survey results. “Assume that with anyone who uses our software there’s going to be a licensing fee,” LaRosa said, during an interview for the first article. “What the exact fee is is something customers need to address with their account executive.”

Right, well the question is what is the use of the software. I do not agree with SAP’s definition of use, and other software vendors do not either. The “use” Joe LaRosa is referring to was until very recently referred to as “integration.”

“The problem [in many of these cases],” Blake says, “is that no one out there knows the answer to that except SAP, and right now SAP wants to be more selective in enforcement.”

Right. SAp enforces indirect access if the customer is shown as lower in the potential for new sales than the SAP account manager expects them to be.

Conclusion

Is this article intended to inform SAP customers on the topic of indirect access? If so, it seems to keep away from the topic of whether SAP’s interpretation of indirect access is even valid. This article is clearly attempting to propose that indirect access is due to some change in technology, such as digital transformation, rather than being a policy change on the part of SAP. In another article on this topic by Diginomica, the culprit was SaaS and not digital transformation. The people writing this either do not understand the topic in sufficient detail or are deliberately obscuring the issue.

If you are a SAP customer, ASUG clearly has no intention of fighting for your interests. They can’t even provide a balanced viewpoint on indirect access. How can they possibly be useful in this debate?

The primary use of ASUG will be to corral SAP users into channeling their efforts through SAP so that the impression can be given that ASUG is helping “solve the problem.” That is ASUG will sell out the interests of its members, to the interests of its real priority, which is SAP. This is the problem when an entity pretends to be independent but isn’t.

Financial Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

Indirect Access Contact

  • Questions About This Area?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, tell us your question below.

References

https://www.asug.com/news/asug-talks-with-sap-licensing-expert-about-indirect-access

https://go.panaya.com/upgrading_to_sap_ehp8_ebook_WTY.html?aliId=41403196

https://www.asug.com/news/sap-customers-sound-off-on-indirect-access-fees

The Argument for Per Se Treatment of Indirect Access and SAP

Executive Summary

  • Indirect access is illegal as represented by a legal explanation called “per se.”
  • To understand why it is necessary to understand the history of indirect access.

Introduction

At Brightwork we have spent considerable effort in analyzing the connection between indirect access and tying agreements, which are illegal under US law. Indirect access is used by SAP to block out the access of vendors from their accounts.

What is an Illegal Pre Se Basis?

An “illegal per se” argument is that the activity which is the topic is illegal without any other circumstances of any other evidence being necessary.

The Argument for Per Se Treatment of Indirect Access

Brightwork was the first to connect indirect access to tying agreements. The following quotation is quite instructive on this topic.

“In determining whether there is a tie, it may be relevant to determine whether the defendant has market power, and whether it has actually used that power. However, once a tie is found to exist, this should conclusively establish liability. (emphasis added) The only remaining issue would be whether the defendant could show special facts that would justify the imposition of the tie-in, notwithstanding the strong presumption that all tie-ins injure competition. This approach is based on the following conclusions:

  1. There are a variety of reasons for a seller to impose tying arrangements. However, in some cases, at least one reason the seller wants to impose the tie is to leverage its market power in the tying product to obtain added sales in the market for the tied product.
  2. The use of this leverage power will have anticompetitive effects, particularly the foreclosure of competition in the tied product market.
  3. Although there are several other reasons a seller may have for imposing the tie, tie-ins, in general, do not produce any economic benefits, except in certain specific situations, and may lead to other societal losses. Therefore, again with certain specific exceptions, there will be no economic loss from condemning all tying arrangements, regardless of the seller’s motivations. Condemning them all will provide a clear line for businessmen and courts and will simplify the judicial application of the rule.” – A Simplified Approach to Tying Arrangements: A Legal and Economic Analysis, Vanderbilt Law Review

See our overall article on indirect access and tying arrangments or tying agreements.

Financial Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

Indirect Access Contact

  • Questions About This Area?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, tell us your question below.

References

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