Note: This is the first of a four-part blog series
Imagine yourself in this scenario: your company runs an online business that sells products and services to thousands of daily customers and tracks all transactions through an on-premise or cloud-based financial/ERP system. All of a sudden, your ERP software vendor comes to audit you and demands true-up license fees for every single one of your customers that have ever made a transaction through the system, on top of your usual user licensing requirements. Wouldn’t you be disgusted by those findings?
Unfortunately, this isn’t exactly a fictional story, and SAP has recently taken the spotlight in the software industry for similar practices related to indirect software usage. Indirect use, which refers to virtual software use by either humans or bots, is a widely known software asset management (SAM) issue, and it has had major consequences for companies licensing SAP products.
If you’re worried about your SAP licensing and want to prepare for a potential SAP audit or right-size for an upcoming contract renewal, then our 4-part Indirect Use Guide will ensure you are ready to make well-informed licensing decisions for your company. In this 4-part SAP audit defense blog series, we’ll walk you through a brief history of SAP’s indirect use licensing methods, the ins and outs their new and improved Digital Access Model (DAM), key considerations before making the switch to DAM, and a guide to completing an SAP license assessment in about 21 days.
Part 1: SAP Indirect Use Licensing – A Brief History
When SAP first started charging customers for indirect use, they required named-user licenses for everyone accessing the SAP system through third-party applications. This meant that sales representatives and business customers who carried out sales and order related activities through a web platform were also required to be licensed for SAP products. The problem with this model was that it was often unclear what was meant by indirect use and how far it extended, as external users could be making updates to SAP database tables through a non-SAP application. Without full transparency and a clear definition of the users that required a license through indirect use, companies had a hard time managing their SAP licensing.
Understandably, many companies were unhappy with this reporting structure, and several companies refusing to pay indirect use licensing fees were brought to court, most notably beverage companies Diageo and AB InBev in 2017. Both companies refused to pay their initial multimillion-dollar license fees related to indirect use, and SAP took legal action on them.
Diageo’s case revolved around their deployment of two systems using SAP’s ERP interface mySAP. The original agreement between SAP and Diageo was signed in early 2004, and the systems in question were deployed around 2011. Ultimately, a high court sided with SAP ruling that Diageo was liable to pay SAP for the additional 54.5 million Euro licensee fees related to indirect use by customers and other sales representatives. For the most part, this case was settled in public and gave a lot of visibility to SAP’s aggressive software audit practices.
However, AB InBev’s $600 million case was settled in private. According to CIO.com, this came down to the method of enforcement. By enforcing the license agreement through Commercial Arbitration, the court case was able to be handled in private behind closed doors. For this reason, we still do not know how much AB InBev paid SAP to settle the case, although we know that the case was resolved outside of court.
As a result of these lawsuits, and the subsequent backlash from other SAP customers, SAP announced an improved approach for indirect use in late 2017. Organizations could cover any indirect use triggered by the creation of sales and purchase orders in the SAP system by licensing two engines: Sales and Service Order Processing or Purchase Order Processing. In other words, an unlimited number of sales and purchase orders could be created by an unlimited number of users, as long as you licensed the above SAP applications. However, the new model was not helpful or cost-effective to all customers, and many ended up still having to license indirect use by purchasing named-user licenses.
The Switch to Digital Access
Due to these shortcomings, SAP introduced a new licensing model in 2018, known as the Digital Access Model (DAM). While DAM is still a newer licensing model, SAP has been pushing for its customers to make the switch. In part two of this series, we’ll cover how DAM works, and the main changes from the older indirect use licensing model.
Getting Started with Your Audit Defense Strategy
If you want to learn more about how to protect against SAP audits, our compliance and software advisory experts help you successfully prepare for difficult vendor audits and boost the effectiveness of your SAM programs.
To learn more about our SAM and Audit Defense offerings, contact Connor Consulting at email@example.com today.