If you’ve been following this SAP blog series, you should have a good understanding of the changes from SAP’s old indirect use licensing to the vendor’s new Digital Access Model (DAM). Now that you have a firm grasp of each model after reading through parts 1 and 2 of our SAP series, how do you know what’s the best licensing model for your company? To start, it’s prudent to lay out the pros and cons of each model.
The old licensing model’s greatest strength is that it’s a familiar and common user-based licensing model. Many companies are already licensed for user-based indirect use through their existing SAP agreements; since the DAM was introduced in 2018, many companies have not yet converted to it. If you stick with your current licensing model, you can avoid administrative licensing paperwork, although you may not be able to effectively optimize your software environment and reduce unnecessary SAP vendor spend.
Additionally, licensing named users is quite common across the software industry, and many SAM tools have built-in functionality that can match license entitlements to specific user deployments. In theory, if you’re able to track and measure all users accessing SAP, you’ll be able to manage licensing and vendor compliance.
However, this leads to the old licensing model’s greatest weakness — it’s very difficult to track all remote and indirect users. As discussed in part 1 of this series, this was one of the major customer complaints with the old licensing model. While it may be relatively easy (depending on your company size) to track your company’s internal users, it gets more difficult tracking all customers and external users who access your ERP or SAP system. Without a clear definition of what indirect use activity entails, many customers are not able to identify and count users who needed to be licensed, resulting in major license fees or penalties resulting from an audit.
The new DAM is meant to be simpler for customers to manage and track. Instead of having to license individual users, the DAM calculates users based on documents created which is a lot easier to measure and track, given there are specific SAP tables you can query based on the document type. In addition, SAP plans on moving all existing customers to S/4HANA by 2025, so you will likely receive better support for the DAM, as compared to the older licensing model.
The challenge with the DAM is that it is still uncharted territory and a relatively new license model. Due to SAP’s aggressive auditing history, many customers are still skeptical about switching to the DAM thinking it is a vendor ploy to upsell additional software. Document-based licensing is also unfamiliar to many organizations, and while SAP may be pushing to convert all of its customers by 2025, it’s hard to predict how the DAM will unfold in the next few years.
Additionally, there is a potential risk of double licensing users if you don’t manage your SAP software diligently. In the past, users already covered by a Professional User license accessing SAP through third-party applications were not charged for indirect access. With the DAM, any user who updates the SAP system and creates a document through external applications will be charged through the new pricing model. This opens up the possibility that a Professional User who creates a document in SAP through a third-party application could be charged twice: once for the documents created in SAP and the second time for any other indirect access usage. Unless you’re tracking those indirect users who are also creating documents within SAP, your company is likely to overpay. Below is a table which summarizes the pros and cons of each licensing method:
|User-Based SAP Licensing||Digital Access Model (DAM)|
Converting to Digital Access: Current Options
Given this information, it’s now time to consider your existing options. There are three (3) viable options available when it comes to adopting/or not adopting the DAM.
- Keep your current license agreement and do nothing
This option is recommended for any customers who are content with their current contract and the indirect access model based on named-users and maintain an effective way of counting direct and indirect application users of SAP.
- Keep your current contract with the possibility to exchange the old Indirect Access licenses to the new Digital Access licenses.
If you purchased any of the engines to cover the indirect scenarios (order-to-cash, procurement-to-pay, or Platform User licenses) you can obtain a vendor credit and switch to DAM based on SAP’s trade-in values.
- Move to S/4HANA with a converted contract
This option is for customers who want to give up the legacy model and switch entirely to S/4HANA. In most cases, SAP will credit you 100% of the value of the old agreement towards purchasing licenses under the S/4 license model. SAP will incentivize you to move to S/4HANA, along with any of their other cloud-based solutions. Customers are responsible to pay for any difference in license or subscription fees after credits are applied by SAP.
Identifying Licensing Risks: 5-step Customer Roadmap
Whatever option you end up choosing, we recommend all customers be proactive and not get blindsided by SAP. If you can’t decide whether to migrate to the DAM or stay on your current contract, you can start with the following five (5) steps to analyze your SAP landscape so you can make the smartest, most cost-efficient decision:
- Create an architectural diagram for your entire IT environment
Creating a graphic representation of all applications and connections, focusing on software that sends and receives data from SAP, is valuable to your organization if it doesn’t exist already. The diagram should be updated whenever new external applications are implemented or existing ones retired. For smaller companies, it may more efficient to identify only the third-party applications that send data to SAP, whereas larger enterprises will want to maintain a bi-directional application interface view.
- Get an overview of all connection types between SAP and non-SAP applications
You need to identify data connections between SAP systems and other software. Depending on the size of your IT environment, this may be a very time-consuming activity, but it’s useful for recognizing indirect access. Start by looking for users created in SAP that interface or exchange data with external applications. There are tools that can aid you with this exercise, along with 3rd parties you can engage with this licensing expertise.
- Identify entries in the SAP tables
This is an important step in identifying whether third-party applications are updating any tables in SAP by sending data. You should keep in mind the nine document types measured for indirect use and check the tables where these documents are recorded. Based on the volume of entries registered to SAP, you can identify potential digital access risks. Note that documents created through direct access should be ignored, as well as any other documents created through SAP cloud, such as Ariba, SuccessFactors, Concur, etc.
- Find users who update SAP through external applications
Once you have identified all third-party applications that communicate with SAP and excluded any applications that fall under the indirect static read, you’ll arrive at a reliable user list for any interfacing third-party applications.
This list needs to be compared against a list extracted from SAP so you exclude users who already have a license assigned in the SAP system. All other users require an SAP license.
- Compare prices of both licensing models
Based on the number of users and the volume of documents created in your SAP system, you can decide which license type is more cost-effective for your organization. Put simply, if the interactions between third party applications and SAP generate a high volume of documents, you’ll want to stick to the old licensing model for now. If you’re not producing many documents within SAP tables, but have a high number of internal and external users, it may be more cost-effective to switch to the DAM.
Switching licensing models is certainly not an easy decision to make. You’ll want to ensure you have a complete and accurate of a picture of your SAP licensing environment, then perform a cost-benefit analysis on which model is best for your organization.
Once you’ve made the decision that’s most suitable for your company, you’ll want to be sure you are well prepared for an SAP audit. Given that SAP is pushing all customers to switch to the DAM by 2025, SAP will likely ramp up the volume of customer audits globally to capitalize on the complexity of their user-based licensing model and to leverage any software findings to negotiate conversions to the DAM.
In the last part of this series, we’ll cover how to proactively prepare for an SAP audit, and complete a software baseline and optimization effort in just 21 days.
If you want to learn more about how SAP’s licensing models, and how to protect against SAP audits or prepare for an upcoming contract renewal, contact Connor at firstname.lastname@example.org today.