Almost £ 55 million for 5800 users that access SAP indirectly – that is what Diageo could owe SAP UK after the decision of the High Court of England and Wales (comment here). This story made it into the news around the world and will be talked about for a while. It will also have caused sleepless nights for SAP customers that are in a similar situation.
Obviously SAP won the case because Diageo signed these conditions and maybe Diageo could have managed the risk better and avoided the cost - see our Software License Optimization blog for more detail on that. However, there is also a lot software producers can learn from examples like this.
The reason for this lawsuit was the indirect access to SAP ERP systems. SAP is working with a licensing strategy that requires customers to create users and provide them with a license type. There are different license types with different price points, depending on what these users can do. Even if users access the SAP system through a 3rd party application, which was the case at Diageo, SAP reserves the right to claim license fees for these users. Many SAP customers are unaware of this or it is hard for them to find out if indirect access occurs and at which volumes.
Be Reasonable and Transparent
The 5800 users that potentially accessed Diageo’s SAP ERP system through two applications added to Salesforce were priced based on the SAP Professional User license type, one of the most expensive ones. It was for the judge to decide if this is right, but you could question if it is reasonable.
Be Reasonable: When defining your license metrics and price points, be sure they are aligned with the value your customers derive from your software.
SAP provides definitions on indirect access and license types in their terms and conditions but it can be hard to understand the difference between license types and to find out what would count as indirect access.
Be Transparent: Provide your customers with clear definitions on what they pay for and how it is defined. License metrics and license policies should be easy to understand. Staying compliant should be easy for customers and as automated as possible. Try to show back license consumption and make sure that both sides – producer and customer – have a chance to react immediately in case of non-compliance.
IDC predicts that in 2017 at least five major software providers will announce plans to roll out a new licensing program specifically designed to simplify customer licensing. It is time to get this right and make licensing easy!
Determine the Right Pricing Model
Conflicts like the one in this example come up because producers and customers disagree on what should be paid for. There seems to be an acceptance problem with paying for indirect access by the user. In addition some SAP customers struggle with users that consume an expensive license (direct or indirect) but hardly access the system. There is a similar “shelf-ware” issue with many SaaS applications today. This concept leaves the burden with the customer who will have to work continuously to find inactive users, duplicates or those that are classified incorrectly.
Find a Monetization Model that Works and Relates to the Value: Try to look at your monetization model from your customer’s point of view and connect it to the value they will get from your software. Unintended consequences should be avoided and should be reviewed when they occur. Questions you should ask yourself are:
- Is user the right metric or is there a better option (like number of transactions etc.)?
- If it is user, should it be per registered user or should it be a concurrent user model which counts how many users access the system at the same time?
- Is the monetization model easy to understand and to manage for customers?
- Are customers likely to get out of compliance or create shelf-ware without knowing?
In this specific case, both SAP and Diageo could have done better. When you are in the process of defining or reviewing your licensing strategy and monetization model always ask yourself these 3 questions: Is it easy to understand? Is it transparent? Can customers manage?
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