SAP indirect access explained

A timeline of the SAP indirect access issue, from the Diageo case to the German software giant's subsequent response to customer concerns

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It has become a defining issue for Europe's biggest technology company over the past few years, and shows no sign of going away.

Indirect access is a term used to define the situation where a SAP customer is liable for additional licence fees when third party applications access data held in SAP systems.

This tends to occur when a customer fails to purchase licences for users accessing a SAP system indirectly through a third party or custom interface, which generally will be a software-as-a-service (SaaS) application. For example, a third-party or custom mobile app for tracking goods and updating SAP records accordingly would be deemed indirect access. 

This issue has been a cause for concern among SAP users for a long time, but things came to a head in 2017 when long-running customer Diageo was ordered to pay millions of pounds in indirect access fees.

Here is a timeline of events surrounding the indirect access issue, starting with the Diageo court case and charting the responses to the controversy since then.

February 2017: SAP wins court case against Diageo

The indirect access issue came to a head when a UK court ruled in February 2017 that SAP's named-user licence fees apply, even when related applications that only offer users indirect, or read-only, access to SAP data.

This could mean a myriad of use cases where data that has been generated by, or delivered through, SAP software is being accessed or acted upon from other systems.

The verdict saw the alcoholic beverage giant ordered to pay £54,503,578 in licensing fees after its sales staff were running Salesforce applications on top of SAP data. The two parties have apparently come to a settlement since but neither side is willing to talk about it publicly.

In May 2017 it was also revealed that SAP was seeking $600 million in compensation for unlicensed use of its software from the Belgian brewing giant Anheuser-Busch InBev. This was also settled in June 2017 (see below).

May 2017: SAP responds to Diageo indirect licensing case with "modern pricing" approach

SAP moved to reassure customers amidst concerns over indirect licensing fees at its annual Sapphire conference in Orlando in May 2017.

The company announced a range of changes to its pricing policies, including reassuring customers that it won't charge or be seeking back licensing fees for customers using SAP data in third party applications.

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

Read next: SAP responds to Diageo indirect licensing case with "modern pricing" approach

SAP CEO Bill McDermott also directly responded to the issue, telling customers and partners at the event: "Indirect access is causing some anxiety out there. So let's tell it like it is. Protecting [intellectual property] and accommodating ease of doing business is a delicate balance. But even as we maintain that balance we can still show greater empathy to you."

"Static read access in third party systems is your data. Competitors charge you for static read in third party systems, SAP will not. This is another example of where we can listen, we can evolve and we can improve, we will."

May 2017: User groups respond to new pricing

Geoff Scott, CEO of the Americas' SAP User Group (ASUG) said: "The licensing terms we have all operated under for the past 30 years just aren't working in the digitised world, so there is a need to modernise that and that is exactly what is happening."

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

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

June 2017: SAP settles indirect license dispute with Anheuser-Busch

SAP settled its $600 million software licensing dispute with the brewer Anheuser-Busch, a subsidiary of the US conglomerate AB InBev in June 2017.

The settlement was only made public in March this year as it was buried in an SEC filing published on 19 March, 2018. "The parties settled the dispute on 30 June 2017 and the matter is now closed," the line read.

The SEC filing details the nature of the claim, which asserted: "Multiple breaches of a 30 September 2010 Software License Agreement based on allegations that company employees used SAP systems and data - directly and indirectly—without appropriate licenses, and that the company underpaid fees."

At the time of the dispute the brewing company said it would defend itself against the claims, but in stark contrast to Diageo, has preferred to settle out of court.

SAP, for its part, will be happy to settle these cases out of court and subsequently the public eye. It primarily saves the two parties from disclosing the monetary amount of indirect licence fees they settled upon. Unfortunately an out of court settlement does little to clarify the company's more general policy when it comes to indirect access, especially for smaller organisations without the clout of InBev.

October 2017: SAP launches Licensing Transparency Centre

SAP launched a new tool in response to continued confusion from customers regarding indirect access.

The tool allows members that are concerned about how they are licensed for indirect use to submit anonymised use cases or scenarios and get feedback from SAP.

The level of feedback from SAP will depend on the level of information provided by members and as submissions are anonymous, the responses from SAP will be generic.

Read next: SAP launches Licensing Transparency Centre

Paul Cooper from the UK & Ireland SAP User Group said at the time: "The problem for most organisations is they have no idea whether they are correctly or incorrectly licensed.

"Despite SAP's assurances it won't ask for back-maintenance payments from organisations that are under-licensed, members have understandably been reluctant to speak with their account managers."

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

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

April 2018: SAP announces new "transparent approach to indirect licensing"

SAP announced its most thorough response to the issue of indirect access in April 2018 with a new "transparent approach to indirect licensing" which encompasses a new sales, audit and pricing model.

The new pricing model itself has been described as "a first of its kind for the enterprise software industry" by SAP.

Read next: SAP announces new "transparent approach to indirect licensing"

The new model is 'document-based', and is an evolution of the 'modern pricing approach' Zeine announced at Sapphire.

"This new model is designed to address every conceivable indirect access scenario for the digital age. It was designed to provide customers the business certainty and predictability on their license commitment," a blog post from Christian Klein and Hala Zeine says.

The new model centres on nine document types that "represent system records of the most valued business outcomes from the ERP system."

"Use of the ERP system through indirect digital access will be licensed based on the initial creation of these documents, and the document license value is based on the total number of documents created," the post continues.

SAP counts and charges for the creation of documents triggered via indirect digital access. Then "all other operations, post-creation, on the document are included in the onetime create action cost," and, most importantly, "all read, updates, and delete actions on the document via indirect access do not incur a charge."

This means "no more counting users or trying to define what constitutes a user via indirect access. It doesn't matter how many users are accessing the ERP system via a third-party application."

SAP is also reorganising its business to separate its license sales departments from auditing departments.

"Customers and SAP have sometimes struggled to reconcile older commercial agreements with the requirements and outputs of modern digital activity levels," the vendor admitted in a statement. "Combined with ongoing discussions regarding the procurement of new software, this can sometimes cause frustration."

This means that sales teams will no longer be able to approve or cancel licensing audits, which has historically given them leverage in negotiations.

Lastly: how to avoid indirect access

SAP will begin rolling out this new licensing, sales and audit policies in April and the vendor is opening up 'conversion offerings' to "help customers who choose to move from current pricing to the new model."

Despite SAP's attempts to calm customers many will still be anxious about this issue. The advice of SAP and the user groups is to review the existing contract to ensure you aren't liable to indirect access charges and to discuss this issue with your SAP account manager.

In theory they should be sympathetic to your cause if the contract is old considering the on-the-record response from CEO Bill McDermott so far.

However, Gianmaria Perancin, chairman of SUGEN - the global SAP User Group Executive Network - says: "Expecting customers to talk to and trust account managers in an environment where SAP has admitted to having lost customer trust is asking a lot.

"If SAP publicly provided reassurances that customers won't be asked to pay more for use cases and implementations that were undertaken in good faith, this would go a long way to encourage customers to engage with SAP proactively."

SAP also plans to introduce features "that will enable customers to measure their own usage and licence consumption in a self-service manner" later this year.

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