Why SAM Software Will Never be Included with SAP

 What This Article Covers

  • The LAW Transaction
  • What Many SAP Customers Think LAW is Used For
  • What the LAW Transaction is Actually Used For
  • How the LAW Transaction Works to Provide Information to SAP

Introduction

In this article, we will review the LAW transaction, particularly the interpretation of LAW versus true SAM software.

The License Administration Workbench (LAW)

This is what SAP says about their LAW transaction:

The License Administration Workbench (LAW) supports you during the License Audit Process for complex system landscapes. You use the LAW to collect and consolidate license-relevant measurement data (users and engines) for the component systems and the central system (LAW system) in which LAW is run. This provides system administrators with a better overview, and the system measurement is simpler and also more reliable.

Before you start LAW, you should classify the users in all measurement-relevant systems in accordance with their tasks; that is, assign them to a contractual user type (in transaction USMM, SU01, or SU10). During the consolidation that then takes place in LAW, the users for a person are listed and assigned one contractual user type. The multiple assessment of a person is therefore practically eliminated ‑ the Multi-Client/Multi-System classification is superfluous.

Actually this definition of the LAW transaction. A correction of the definition of what LAW actually is, would be the following:

The License Administration Workbench (LAW) supports you (No, it supports SAP) during the License Audit Process for complex system landscapes (No,the complexity of the landscape is immaterial. LAW is a transaction used for all SAP customers). You use the LAW to collect and consolidate license-relevant measurement data (users and engines) for the component systems and the central system (LAW system) in which LAW is run (True, but the output is not very useful for the customer, nor is it designed to be). This provides system administrators with a better overview, and the system measurement is simpler and also more reliable (No, this provides SAP with the usage of the system).

As should be evident from the corrections, SAP explains LAW as if it is some type of overall administration tool, and completely underplays how much SAP relies upon it during audits. This is why it is often the case that SAP’s technical literature cannot be taken at face value. This is not a technically accurate description of the LAW transaction.

This description, along with explanations by SAP consulting and SAP account executives is likely the reason that it is often assumed by many customers that LAW is SAM or software asset management software. It isn’t. SAM software is software that allows SAP customers to audit their SAP usage. SAM software is designed to be understood by the SAP customer. The LAW transaction is something that is primarily designed to provide information to SAP in order to audit companies.

How the LAW Transaction Works to Provide Information to SAP

The LAW transaction along with the USMM transaction are typically run once per year. This is the soft audit that SAP requires of all of its customers. The information is then sent to SAP so that SAP can review and determine if the customer is under licensed. If the customer is over licensed, the customer will not be informed of this fact by SAP. Instead over licensing is left to the customer to figure out for themselves.

SAM Software

SAP will not directly bring up the topic of SAM software. They will tell the customer about the LAW and USMM transactions but prefer that their customers not look beyond these transactions. This is because a SAM application allows a customer to determine their system usage, compare it to their licenses that they have purchased and to know their licensed position and which puts them in a better position to negotiate with SAP.

Conclusion

Companies should never accept SAP’s self-serving analysis of their licensing state. The LAW and USMM transactions are for SAP. SAP states that they are for the customer but that is a smoke screen.

References

https://help.sap.com/saphelp_erp60_sp/helpdata/en/ee/ee133bfae0750ce10000000a11402f/content.htm

Can a Consulting Company Represent a Customer in SAP License Optimization?

What This Article Covers

  • Using Consulting Companies that are SAP Partners
  • The Problems With Using PwC and Deloitte

Introduction

Several consulting companies that are SAP partners specialize in license optimization. When these consulting companies perform a license optimization project they will engage with a SAM vendor. These consulting companies have some people trained on the SAM vendors applications. However, there are several problems with using companies like PwC or Deloitte to do this work.

  • Rate Level: PwC and Deloitte have very high rates.
  • Lengthening Out the Project and the Billing: PwC and Deloitte bill far more hours than would a SAM vendor to do work that is actually not at the same quality of the SAM vendor’s consulting.
  • Conflict of Interest: PwC and Deloitte and other similar companies will often complete the project, but then seek to be relied upon for supporting the negotiation with SAP. However, companies like PwC and Deloitte are SAP partners. They receive enormous amounts of business from having SAP consulting practices. They are bobbleheads to SAP and will repeat anything that SAP says, regardless of its accuracy, because it is profit maximizing fro them to do so. This is covered in the article How to Best Understand the Bobblehead Consulting Partners. They recommend SAP to customers, only under the arrangement that they will perform almost all of the consulting on the project. Therefore, PwC and Deloitte and any other consulting company that is an SAP partner value its relationship with SAP very highly. This means that PwC and Deloitte are not actually able to even release information about SAP without clearing it through SAP. It means that PwC and Deloitte and any other consulting company that is an SAP partner has a conflict of interest when supporting a negotiation with SAP.

Conclusion

Some SAM vendors tend to just sell the tool, while others also provide consulting. For those SAM vendors that rely on outside consulting for implementation, it is important that the consultant that the customer chooses not have the types of conflict of interests that companies like PwC and Deloitte obviously do.

References

 

How The University of Chicago and Harvard Write In Defense of Tying Arrangements

What This Article Covers

  • The University of Chicago and Harvard
  • How The University of Chicago and Harvard Consistently Work Against the Public Interest
  • The Overestimation of “Perfectly Competitive Markets”
  • Deliberate Falsehoods

Introduction

In performing research in indirect access rules as employed by SAP, I investigated the topic of tying arrangements in tying agreements. I found it interesting to once again run into two of the least reputable universities who proposed arguments that once again seemed quite in line with what their monied interests donors would want these two universities to publish.

The University of Chicago and Harvard

“Theorists of the Chicago and Harvard Schools hold the position that the efficient and competitive tying arrangements constitute the lion’s share of all tying arrangements.78 This assumption is based on the fact that tying arrangements are very common in completely competitive markets.79 In such markets, the tying firm cannot “coerce” consumers to purchase the tied product. Therefore, presumably, the tying arrangements are efficient and beneficial for both the tying firm and the consumer public. These efficient results relate to the very tying, rather than to the market being competitive or monopolistic. Consequently, if tying arrangements in competitive markets have a significant efficiency potential, then this is also the case when the tying takes place in monopolistic markets.80” – Seattle University Law Review

The tying arrangements that UC and Harvard refer to are things like a camera being combined into a cell phone. This is combination of technologies that literally no one has ever accused any cell phone manufacturer of engaging in a tying agreement. UC and Harvard offer a number examples that serve as primarily diversionary tactics. This is what leads to the next big falsehood which is that tying agreements are as often a pro-competitive as they are anti-competitive. Right, they are so procompetitive that it is why we have laws, laws which UC and Harvard are attempting to dilute for the benefit of their donors, against them.

Professor Elhauge. In fact, there is no basis—either empirical or theoretical—for the two approaches presented whereby the onus of proof should be shifted. While closing a significant segment of the tied product market strengthens the anticompetitive potential of the tying arrangements, it does not diminish their pro-competitive efficiency potential.162 It can even be argued that the foreclosing of the tied product market is a prerequisite for eliminating double markup distortions, which is a pro-competitive effect.163 Applying a presumption against tying arrangements in certain scenarios assumes that their anticompetitive potential outweighs their pro-competitive potential. However, this assumption has no anchor either in theoretical writing or in empirical research.164 – Seattle University Law Review

UC and Harvard make it sound like tying arrangements that are procompetitive are frequently deemed uncompetitive by the courts or by the FTC. However, there is no history of this happening. It is a ridiculous argument presented by these two universities.

UC and Harvard’s views on tying agreements are consistent with economics generally.

They argue that the leverage theory only rarely motivates sellers to engage in tie-ins, and that even if it did, it would rarely be successful; therefore, judicial concern based on the leverage theory is misplaced. Economists suggest that, instead, several other objectives motivate sellers entering into tying arrangements which have benign effects on competition. Finally, they argue that some tie-ins are motivated by efficiency considerations, and that proscription of these would be harmful to the economy. – Vanderbilt Law Review

This flies in the fact of reality, and as economist frequently do, they appeal to some theory that has in most cases never been proven. Here is another example.

All the tying arrangement can do is reduce the price of the tying product and raise the price of the tied product, leaving the combined price no more than it would have been absent the tie. – Vanderbilt Law Review

If we take the example of the indirect access fees charged by SAP for SAP ERP licenses to companies that do not purchase complimentary SAP products, and instead go with a non-SAP application. In this case the customer can very easily be redirected towards the purchase of SAP (non-ERP) applications as this will allow the customer to not have to pay for both a non-SAP license for non-ERP software plus the ERP licenses. This is because SAP will waive the cost of the ERP licenses if the SAP non-ERP applications is purchased.

The result is that the customer buys from SAP instead of buying from the non-SAP vendor.

Once the “objectives” of the economist become clear, then their arguments very much fall on hard times. Here is one example.

“Third, the fact that certain forms of tying arrangements might not shift any resources among competing producers, but will merely shift them between sellers and buyers, is nonetheless not irrelevant for antitrust purposes. Economic explanations are said to be value free; the distribution of resources among buyers and sellers, provided there is no increase or diminution in total societal resources, is a concern that economists need not address.2 The legal system ought not be equally value-free. 3 This Article not only proceeds onThe premise that it is not of negligible concern whether profit maximization goes to the seller or to the buyer; it makes the explicit value judgment that, all other things being equal, the buyers’ interests ought to prevail. For example, there is no need to be equivocal about tie-ins used to evade governmental price ceilings on the tying product, even if they cause no adverse impact on competition. Therefore, if it is asserted that the principal objective of tying arrangements is to achieve this shifting of resources effect, this in itself might be sufficient grounds to hold all tying arrangements unlawful.” (emphasis added) – Vanderbilt Law Review

It is almost impossible to believe that economists hold this as a goal. Therefore they consider immaterial if tying arrangements benefit the buyer or the seller, as “surplus” ends up “someplace.”

How The University of Chicago and Harvard Consistently Work Against the Public Interest

It should come as little surprise that the University of Chicago and Harvard would propose this. In fact, they consistently write in this exact manner on a wide variety of topics and their “research” is highly predictive. Time and again UC and Harvard propose policies that benefit the most powerful companies at the expense of all others.

  • Both UC and Harvard are aligned with the interests of the largest companies and oppose the interests of smaller enterprises or individuals.
  • UC states that not a single dollar is overpaid in the US and not a single dollar underpaid. And UC’s logic for this is that the labor market in the US is perfectly efficient.

The Overestimation of “Perfectly Competitive Markets”

Harvard performed research which was used to justify not regulating financial markets, and this was before 2008. Both UC and Harvard greatly exaggerate the number of industries that are perfectly competitive. They do this for the very simple reason that their donors want the markets that they operate in to be viewed as “perfectly competitive” so that they receive no oversight and they can continue to operate as unregulated entities.

Deliberate Falsehoods

Harvard and UC consistently don’t care what is true, they are about pushing forward arguments that support the interests of their donors.

UC and Harvard are writing about a public interest issue, but because UC and Harvard are so focused on the interest of monopolists they are unable to rationally discuss topics that are related to public interests.

Conclusion

Both UC and Harvard are consistently wrong on topics ranging from competition levels in various industries to what constitutes things like tying agreements. The less regulation of industries is performed, the more the donors to UC and Harvard benefit. Neither UC nor Harvard are reputable sources of information on this topic.

This is because they only represent the interests of the largest corporations that benefit from the promulgation of misinformation on how regulation is unnecessary and markets are perfectly competitive. In this way, UC and Harvard produce exactly the “research” that their donors request and their donor pay for.

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

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

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

How to Best Understand the Business Software Alliance

What This Article Covers

  • Business Software Alliance and their Motivations
  • Business Software Alliance as a Bully Organization
  • No Declaration of Funders
  • Publishing Fake Research

Introduction

The Business Software Alliance is a legal and lobby group which is ostensibly designed around enforcing copyright rules.

The Business Software Alliance performs audits for the software vendors that fund them, but there is some interesting debate as to who the Business Software Alliance serves. In this article, we will get into the topic of this entity’s motivations.

Business Software Alliance and Their Motivations

The Business Software Alliance was founded by Microsoft. They now have many other software vendors as members including Intel, SAP, Symantec and Adobe among others. However, research from previous cases where the Business Software Alliance has brought actions against companies that it found to be out of compliance, it turns out that the primary way to get the Business Software Alliance to go away is to purchase Microsoft products. This is true even at the expense of other software vendors that are in the alliance. Therefore, the Business Software Alliance has an official reason for being (to stop copyright infringement of the software of their members), but it has a practical reason for being, which is to move as much of the software purchases to Microsoft.

In fact, many of the attorneys for the Business Software Analysis also do work for Microsoft on other matters. This is in addition to the fact that Microsoft provides the most money to the Business Software Alliance. This means that it is very difficult for the Business Software Alliance to claim that they represent the interests of all their funders.

Business Software Alliance as a Bully Organization

The Business Software Alliance has a remarkably negative reputation. Their MO is to audit smaller companies, under the guise of being an “independent” audit. They then share any information that they have gathered with Microsoft. In fact, in some countries, a senior account manager (salesperson) for Microsoft is also the Business Software Alliance representative. Therefore, the lack of independence of the Business Software Alliance is not something that Microsoft even attempts to provide.

  • The BSA actively encourages ex-employees to rat on their previous employers offering large awards. And there is also a problem in that in many cases those that turned in their employers themselves had installed the software before they left that causes the violation of copyright.
  • There is also the problem that in some cases the employee, often working in IT and therefore familiar with the rules of the BSA, takes the receipts for software with them before they go, and they report the company as out of compliance with the BSA.
  • Finally, the evidence that the BSA requires appeared excessive and designed to maximize the finding of out of compliance licenses.
  • The BSA pays rewards to people that turn their companies in, but then state that the rewards are irrelevant in determining a motive. They state the only important thing is “the story they have to tell.” That is an interesting position to take, as motive is used to determine the credibility of witnesses during actual trials. The BSA has no way of knowing if those that turn in their employers are doing so for the money or because the company violated the copyrights of their funders.

The BSA has a way of making up its rules. Almost no BSA brought audits and actions are ever taken to court, so the attorneys that work for the BSA use their training primarily to intimidate the customer to settle. And settlement means purchasing (in most cases) more Microsoft product.

The BSA’s behaviors are quite horrid, but they serve to distract attention from the funders of the BSA. That is, the BSA can develop a terrible reputation for misusing power, but the vendors themselves are insulated from the PR damage.

No Declaration of Funders

The only way to find the funders of the Business Software Alliance is to look at non-BSA sources or to look for who is on the board of directors. Not declaring funders, for a group that purports to be dedicated to a high-minded ideal, and which purports to perform research, is a violation of the basic rules of transparency. Here are the list companies the people on the BSA’s board of directors work for.

  • Oracle
  • Symantec
  • Apple
  • IBM
  • Adobe
  • ANSYS
  • AutoDesk
  • Bently Systems Inc
  • CA Technologies
  • DataStax
  • Microsoft Corporation
  • SalesForce.com
  • SAS
  • Siemens Product Life Cycle Management Software
  • Splunk
  • Tend Micro
  • Workday

Virtually every member of this board is the General Counsel or Cheif Legal Office for the company the work for.

That is quite a large board, and it is no doubt necessary to placate all of the funders that they have a place at the table. We can be reasonably certain that these are the major donors behind the BSA. However, several of these vendors have voiced the concern that the BSA primarily looks out for Microsoft first.

Publishing Fake Research

Like most industry-funded groups, such as the American Petroleum Institute, research without any evidence is published which is beneficial to the funders. BSA follows no methods, never has its research peer reviewed, and routinely has its research lampooned in the IT press. The do not explain that the research is funded by software vendors, which have a strong financial incentive to overstated the losses due to piracy and other related copyright infringement, and present themselves as impartial, just looking out for apple pie, truth, and all that good.

Conclusion

The BSA is a front group that operates on pure intimidation. Their game is to shock a company and intimidate them into buying most often Microsoft products, but sometimes other vendor’s products as well. They are a beehive of conflicts of interest and follow none of the transparency rules that an entity that was playing fairly would normally follow. They set incredibly high standards of what constitutes evidence of purchased software to maximize the fines that they request, and the purchases made to their chief sponsor. In that way, they are an extra-legal entity, shaking down companies, not based upon actual copyright law, but based upon the cost of actually taking a case against the BSA, with their very deep pockets to court.

SAP Licensing Contact Form

  • 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.

How to Best Deal with SAP Audits

What This Article Covers

  • SAP Audits
  • SAP Audit Management
  • Audit Software Vendors that are Also SAP Partners?

Introduction

SAP audits are when the SAP comes to a customer and determines if the customer is out of compliance on SAP licensing. In the recent years,

In the recent years, SAP has increasingly come to rely upon software audits to drive revenue. Secondly, SAP’s licensing rules are some of the most complex in software (along with Oracle, another company that is known to heavily audit its customers). Generally, the largest software vendors (which includes SAP, Oracle, IBM and Microsoft) tend to perform the most software audits, and tend to have the most stiff penalties for being out of compliance.

What this means is that software purchased from the largest vendors tends to have the greatest liability associated with them.

SAP Audit Management

SAP audit management is actually the name of a SAP product that speeds the non-software internal audit process (according to SAP). This product runs on SAP HANA, which is a fast database. There is actually free trial of SAP Audit Management available. SAP Audit Management is an app offered by SAP. But it has nothing at all to do with software audits.

The term “SAP audit management” generally refers to the activities necessary to prepare for and manage a SAP audit.

One of the approaches to a software audit is for the customer to purchase audit software and perform the audit themselves.

  • Making Changes: Doing so can mean adjusting behavior which moves away from violating SAP licensing, as well as changing the roles within SAP so that the company is not out of compliance.
  • Simulation: It allows what if scenarios to be tested in terms of changing the usage of SAP. Some of the software vendors propose being able to determine the scenarios both the SAP licensing and support costs, however, that is not entirely knowable because of things like the discounts that are offered by SAP.
  • Purchase Proactively: It also allows the customer to approach SAP to purchase licenses before the fact. For example, users may have SAP user licenses assigned to them that they no longer use because of a job change or some other reason.

Another major liability that can be caught during an SAP audit is indirect access. Indirect access is covered in this article. But indirect access is a complicated topic which SAP is increasingly the enforcement of, and which increased the complexity of dealing with an SAP audit.

Audit Software Vendors that are Also SAP Partners?

Unfortunately, in order for a software company to build audit software for SAP, it must be an SAP partner. This means that it has restrictions by SAP on what it can say and what it can publish. I am in constant contact with many software vendors, and the complaints about SAP interference in what they can say and what the can do are unremitting. In fact, I am surprised that SAP would allow software vendors to offer an audit product as it states clearly, for instance in the promotional video from one of the software vendors that their product.

It ensures that you know more about your SAP system than anyone else, giving you the upper hand in any negotiation or audit.

Why would SAP want that? SAP wants the upper hand clearly. Snow software states that they can

..save 20 to 30% savings on their SAP costs typically within weeks alone.

But again, this is money coming out of SAP’s pockets, and they have the right to decertify Snow or any other software vendor at anytime. So if the audit vendors statements are true, how are they still certified partners of SAP. What this means is that SAP has a say as to how the software vendor’s software actually works. SAP can and will threaten the software vendor with a removal of their SAP Certification, which would impact that software vendor’s ability to exist.

If I compare how the SAP partnership agreement is used with other vendors, SAP will use it to neuter the marketing of the vendor so that everything the third party vendor releases is consistent with the needs of SAP.

Conclusion

There is something fishing going on with the market for SAP audit software.

One cannot both be an SAP certified partner and have free reign to provide whatever information you want to, to your customer. And unfortunately, audit software companies have to be SAP certified partners to have their software connect properly to SAP. This brings up questions regarding how much any audit software company can actually work for customer’s interests, which means working against SAP’s interests, without compromising their SAP certified partnership arrangement with SAP.

If you have questions or comments about our coverage of SAP audits and SAP audit software, reach out to us.

References

Protected: The HANA Police and SAP Indirect Access Charges

Should You Trade In Unused Licenses for S/4HANA and HANA?

Executive Summary

  • Snow Software explained how to trade in unused SAP licenses for S/4 HANA.
  • However, Snow’s article makes a lot of unfounded assumptions regarding the readiness of S/4HANA while approaching the question from the perspective of only the licensing implications.

Introduction

In this article, we will evaluate a strategy that is proposed by Snow Software on their website. Snow Software makes software that is used for auditing SAP software. The article by Snow Software is quite interesting and is very specific in what it proposes, and it provides specific recommendations.

I want to set the table properly before we get into Snow Software’s article. I don’t have anything against Snow Software. I happen to like a lot of the articles on their website, and several weeks ago I read every one of their articles related to SAP and quite a few others not related to SAP. Snow Software has a blog that brings in some authors with different license domain expertise.

I don’t happen to agree with the recommendations in this article, and I invite a representative from Snow Software to comment on this article and to have a collegial discussion. These are involved topics, and even people who are knowledgeable in the area can disagree, and that is quite reasonable.

Understanding Snow Software’s Logic for S/4HANA

The logic for Snow Software’s proposal is laid out in their article Use S/4HANA to Get Rid of your SAP Shelfware?

In that article they layout the following logic for purchasing S/4HANA. Let us get into their quotations.

“SAP Business Suite 4 SAP HANA. S/4HANA, for short, is SAP’s latest technology. But it’s also much more than that. S/4HANA represents a fundamental shift in how the mega vendor will generate long-term revenue streams. What is often less-discussed is what S/4HANA means for you, the customer. Not only in terms of technology; but in terms of an opportunity to reshape your relationship with SAP. Without over-dramatizing things, it’s a once-in-a-lifetime opportunity. Why? Because SAP needs S/4HANA to be a success. It needs to demonstrate to investors that it has a business model that is not stuck in the era of on-premise perpetual software licensing. And because it needs to sell S/4HANA licenses, it is offering excellent deals to existing SAP customers to move fast.”

So, what can be seen as left out is that S/4HANA has not been a success and it has had plenty of time to become one. It has a massive installed base (with ECC/Business All in One).

Now, while it is true that SAP has a strong desire to show that its business model is not suck in an on-premises state, SAP really has Wall Street fooled already on this topic. SAP has successfully adopted cloud speak, and is constantly cloud washing their products. The more you cloud wash, the more Wall Street rewards you. So we have yet another example of an industry that is driven by the opinions of people who don’t have any expertise in the area.

S/4HANA to be Delivered as SaaS?

Secondly, (and don’t tell Wall Street or they will be very very sad) S/4HANA is unlikely to be delivered by SaaS. In research that I am currently performing into S/4HANA to determine what has occurred on S/4HANA implementations, it turns out that very few of the implementations have been in the cloud. And in the few that I can find that are stated to be in the cloud or SaaS, they are not cloud or SaaS at all. Instead, they are non-multi-tenant or simply hosted solutions. Customers can expect none of the traditional benefits of SaaS from S/4HANA when delivered this way.

Finally, S/4HANA has nothing to do with the cloud or SaaS.

The quoted paragraph from Snow Software continues:

“And therein lies a huge opportunity for those existing SAP customers, who have typically seen their investments in SAP license increase year-on-year over quite significant periods of time. This is an opportunity to reverse that trend and focus in driving deals with hungry SAP account managers on the licenses and technologies you really need, not the ones you’ve been force-fed over recent years. To understand the scale and opportunity of this shift, we must first look to the past.”

Customers Need S/4HANA?

It is very difficult to argue that anyone “needs” S/4HANA at this point. S4HANA comes with all types of implementation costs and maintenance costs. These costs are far higher than any potential license cost benefit from moving to S/4HANA. In fact, the majority of costs associated with SAP come in maintaining SAP systems, not purchasing SAP systems. I cover this topic in detail in my book on TCO, Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making.

The quoted paragraph from Snow Software continues:

“The fundamental change is that the open architecture of R/3, with the ability to employ third-party databases within the system, is giving way to a more specific database that you’ll require as part of the platform – SAP’s HANA. This is all being done with the promise of improved performance and scalability through in-memory databases.”

Well, the promise of the performance improvement is not analyzed by Snow Software’s article. But as HANA is an analytics database primarily, there is no evidence that an ERP system will run much faster on HANA due to software. Here it is important to draw a distinction between the software side and the hardware side of HANA.

Hardware Improvement?

HANA combines a changed database with SSD memory (instead of a spinning disk) so the performance will automatically increase because of the hardware change (SSD), but not necessarily due to the software.

The quoted paragraph from Snow Software continues:

“The faster it migrates everyone, the quicker it can stop focusing its investment in resourcing and maintaining R/3. So, in a perfect world, SAP would spend nothing on R/2 today and, 10 years from now, it won’t spend any money on R/3.

Moreover, S/4HANA revenue is heavily scrutinized by investors in SAP. The faster they see adoption of this new platform, the quicker that is reflected in the share price for SAP. SAP as a stock needs a growth leg to the story despite its strong position and cash flow.

The transition to S/4HANA requires the replacement of third-party database systems with HANA and there is a monetary uplift from doing this.”

Ok, so this is a strange way of saying that the cost will be higher. The cost of HANA is quite high, and the expensive software is just the beginning. The following quotation will focus on support costs, but the support costs are based upon the license cost. Let us continue with the quotation to see how this is a problem.

Lower Cost for HANA?

The quoted paragraph from Snow Software continues:

“SAP Enterprise support customers currently pay (by default) 22% of license costs in annual maintenance for the use of third-party databases within the architecture of their systems. SAP has steadily over the past few years increased this amount from the 15% level in advance of its migration mandate. In lieu of paying an annual 22% of license costs for your database (typically Oracle), you will pay 15% of license costs for HANA*. Additionally, as an incentive to move to S/4HANA, SAP’s extension policies may enable you to apply unused SAP licenses against a credit for the new purchase. A reduction in the software application value means reduction in overall maintenance to be paid on HANA. *Note that individual circumstances may vary.”

The problem is that Snow Software is making a case for the lower cost of the annual license cost for HANA. However, HANA is the most expensive database on the market. So if you decline from 22% to 15% maintenance, the maintenance is lower, but the base is much higher than the database that HANA replaces.

Secondly, HANA comes with other liabilities, such as indirect access liability, that impact the costs of other software, which are a whole other can of worms and which I have covered in part in other articles.

Conclusion

I find the strategy presented by Snow Software to be problematic. Here is a synopsis.

  1. Total Cost of Ownership: It is far too focused on the simple license math. It leaves out the all-important aspect of implement ability of S/4HANA. And these issues are far more cost impactful. These costs are far higher than any potential license cost benefit from moving to S/4. In fact, the majority of costs associated with SAP come in maintaining SAP systems, and Snow Software’s article is not observant of this point. This true even if the unused software is traded in for HANA or S/4 HANA and if the maintenance on HANA is reduced to 15%.
  2. S/4HANA Maturity Issues: It is difficult to see how any company could have taken S/4HANA live at this point. That will not be true at some point in the future, but it is true now. I will elaborate on this point in my research which is due out in around five weeks from now. But most of the S/4HANA implementations that have “gone live” at this point are not what we would typically consider real implementations. And below that statement resides quite a lot of very interesting detail.

Therefore, applying the strategy above will simply result in having the license for S/4HANA that cannot be taken live for some time. Snow Software is not taking into account that S/4 HANA will most likely sit unused or in a partial demo state for this time. This would not be a problem as S/4HANA will normally be purchased at a discounted rate. Not HANA, which is required to run S/4HANA will not be purchased at a discount.

Therefore every year maintenance will be required to be paid on a very expensive database, albeit it at a reduced rate. And that is just one of the limitations of the strategy.

SAP Licensing Contact Form

  • 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

[Use S/4HANA to get rid of your SAP shelf ware | Snow Software](https://www.snowsoftware.com/int/blog/2016/09/20/use-s4hana-get-rid-sap-shelfware-pt-1#.WBzBfY_XJ-Y)

TCO Book

TCO3

Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making

Getting to the Detail of TCO

One aspect of making a software purchasing decision is to compare the Total Cost of Ownership, or TCO, of the applications under consideration: what will the software cost you over its lifespan? But most companies don’t understand what dollar amounts to include in the TCO analysis or where to source these figures, or, if using TCO studies produced by consulting and IT analyst firms, how the TCO amounts were calculated and how to compare TCO across applications.

The Mechanics of TCO

Not only will this book help you appreciate the mechanics of TCO, but you will also gain insight as to the importance of TCO and understand how to strip away the biases and outside influences to make a real TCO comparison between applications.
By reading this book you will:
  • Understand why you need to look at TCO and not just ROI when making your purchasing decision.
  • Discover how an application, which at first glance may seem inexpensive when compared to its competition, could end up being more costly in the long run.
  • Gain an in-depth understanding of the cost, categories to include in an accurate and complete TCO analysis.
  • Learn why ERP systems are not a significant investment, based on their TCO.
  • Find out how to recognize and avoid superficial, incomplete or incorrect TCO analyses that could negatively impact your software purchase decision.
  • Appreciate the importance and cost-effectiveness of a TCO audit.
  • Learn how SCM Focus can provide you with unbiased and well-researched TCO analyses to assist you in your software selection.
Chapters
  • Chapter 1:  Introduction
  • Chapter 2:  The Basics of TCO
  • Chapter 3:  The State of Enterprise TCO
  • Chapter 4:  ERP: The Multi-Billion Dollar TCO Analysis Failure
  • Chapter 5:  The TCO Method Used by Software Decisions
  • Chapter 6:  Using TCO for Better Decision Making