In part 1 of this SAP blog series, we covered SAP’s older indirect use licensing model and some of its shortcomings. To recap, many customers were dissatisfied with SAP’s licensing model, complaining that indirect use was not clearly defined, and that this led to unfair licensing practices and enforcement. Pushed by these complaints, and the visibility around lawsuits involving Diageo and Ab InBev, SAP changed their indirect use licensing model in April of 2018 to the Digital Access Model (DAM).

So what’s new about the Digital Access Model, and did it ameliorate some of the issues with the previous model?

There are two major changes in the DAM. First, the new model focuses on measuring the use of the Digital Core. The new SAP digital core platforms have been updated from SAP ECC to include the SAP HANA in-memory database, SAP S/4HANA and S/4HANA Cloud. SAP also offered a definition of indirect use, grounding the definition in the use of the Digital Core:

“Indirect/Digital Access is when people or things use the Digital Core without directly logging into the system. It occurs when humans, any device or system, indirectly use the Digital Core via non-SAP intermediary software, such as a non-SAP frontend, a custom-solution, or any other third-party application. It also occurs when non-human devices, bots, automated systems, etc. use the Digital Core in any way.” (Source: SAP ERP Pricing for the Digital Age).

By basing indirect use on the Digital Core, customers now have a clearer understanding of the specific instances of indirect use that needs to be licensed. At the same time, SAP remains somewhat vague on how far indirect use extends using all-encompassing phrases such as “in any way” and “any other third-party application.” We’ll cover some potential ramifications of these terms in part 3, but in the meantime, try to grasp Digital Core use in your environment and how your SAM tools can be leveraged to measure such usage.

The second major change that the DAM made was to shift away from user-based licenses, to a document-based model. Instead of licensing the number of users using SAP systems, the DAM calculates licenses based on the number of documents created, regardless of who created them.

The DAM outlines nine (9) system-generated document types that are considered relevant for licensing. The 9 document types are:

1. Sales Order 2. Invoice 3. Purchase Order 4. Service & Maintenance Document 5. Manufacturing Document 6. Quality Management Document 7. Time Management Document 8. Financial Document 9. Material Document

To count the necessary licenses, SAP multiplies the number of documents by a corresponding multiplier, 1.0 for document types 1 through 7, and 0.2 for types 8 and 9. For example, 10 sales orders would be calculated as:

10 Sales Orders * 1.0 (document multiplier) = 10 licenses,

whereas 10 Financial Documents would be calculated as:

10 Financial Documents * 0.2 (document multiplier) = 2 licenses.

Importantly, license calculations are based on the initial document created, rather than documents read, updated, or deleted.

To give a more concrete example, imagine a customer using a sales management application to store sales, purchase orders, and payment data. Payment data is automatically transferred to the ERP, resulting in the creation of accounting records stored in the SAP system. Since only the financial module is updated through the third-party application, SAP will charge for the total number of accounting documents created in the system and license them based on the “Financial Document” document type.

But let’s alter scenario a bit and imagine that sales orders are registered on a web platform and are ultimately stored in an ERP. In this scenario, the initial sales order generates an invoice order first, and then an accounting entry in SAP. In this scenario, because SAP’s licensing rules specify that only the originally created document is counted, the customer would not get charged for all documents created in SAP (i.e. the sales doc., invoice doc, or financial doc.), but only the original sales order document.

To sum up, the key takeaways are:

1. Digital Access is based on usage of the Digital Core (S/4HANA).
2. Digital Access licenses documents, rather than licensing users.

In other words: Digital Access-Digital Core-Document Based

Currently, SAP customers can choose to license their software by named user (the old model) or by the DAM. But how do you know which option is best, and more importantly, less costly for your organization? In part 3, we’ll point out some potential pitfalls of both licensing models to help you make an informed decision about which licensing model is best suited for your organization.

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 Consulting at info@connor-consulting.com today.

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 info@connor-consulting.com today.