S/4HANA introduces new licencing model. Are they suited for YOU ?

The genesis of the new licencing model

All started with a court action from SAP against one of its customer DIAGEO (UK). SAP claimed (and obtained) £ 55 millions. Note: Diageo plan to appeal.

The discord was about indirect access to SAP ECC data. While DIAGEO was paying for named licence on ECC and volume licence on PI (Process Integration : SAP's EAI), DIAGEO was using SalesForces and interfaced it with SAP ECC through SAP PI.

DIAGEO with such solution was not trying to avoid SAP named user licence; they genuinely thought this model was valid.... until SAP realized that DIAGEO did not respect the licencing model.

With this sentence starts a new era around licencing model. Because SAP's customers begin to worry about the obscure licensing model (180 pages in document called "SAP List of Prices and Conditions SAP Software and Support"), many user groups start to complain.

SAP's reaction was to build a new licencing model in a whitepaper:

What about you ?

If you are an SAP customer you should, at least, keep yourself informed of the new licencing model, in order to know, and anticipate, your new licences.

Join your SAP User Group

However I recommend to be more pro-active and contact the SAP User Group of your country (they are independent of SAP and composed exclusively by SAP Customers). They consist in lobby groups that will defend your interests.

Check that a licence covers your future needs

Then you should check that all you current projects (or ideas) will find a suitable licence in the S/4HANA Licencing model. You should also be imaginative and think far beyond you actual horizon for of all you future digital transformations like:

• Extended Enterprise: Will your customer consume your services from their own IT. Your services are builded on your data combined with your provider's services and the services of the providers of your providers...
• Machine interaction: Bot, Artificial Intelligence (from predictive analysis to deep learning)
• IoT: Either as your product or as shop floor probe for predictive maintenance (aka MES), ...
• Blockchain: Interaction from/to a private/public blockchain
• or any other promising technology that you already look at.

Keep in mind S/4HANA's new paradigm

Single point of truth

The single point of truth concept is part of S/4HANA's DNA as said Sven Denecken :

Today: A single source of truth with superior granularity for all transactions and analytics to streamline and eliminate cycle times and reconciliations of the data. Reconciliation becomes inherent.

This means that data, in S/4HANA, should not be duplicated, even less for licencing reason. While the static read (free) licences allows you an unlimited access from an ETL (Extract Transform and Load) to your datas, that also means duplication. Your S/4HANA can not be accessed as data source like any other database because you HANA "runtime" licence does not allow such access. Extending to HANA "Database Edition" will be unaffordable.

Segment of one

The segment of one (see in the marketing area) is another pilar of S/4HANA mindset as said Sven Denecken :

If you really want to be successful in an environment of segment of 1, or lot size 1 – than you need to make sure you tackle it end-to-end. And if you have no glue what this is about, the problem starts right there as your business people are discussing – rather scratching their heads – exactly about this. But happy to explain further if you want, let us know. Back to the use case…

This means that you will move from one big order with several (I) items and several (S) delivery schedules to many orders (IxS). This will dramatically increase the number of order within your system without changing anything in your activity, but:

What about licence cost when based on the number of orders?

Why bother about that now?

In May 2017, SAP has announced at SAPHIRE: "Modern Pricing for Modern Times"

“SAP is committed to modernizing its pricing approach”

If you do not take interest in the current licencing model build phase you'll miss the following opportunities:

1 - Is the licencing model suited for me?

You won't realize if new licencing model is suited for you or not. You might realize it's not suited for you when it will be too late (when licencing model is done and SAP no longer exchange with user groups)

2 - Will it suit your future needs

You might, in the future, end in a dead end: Not being able to do what you want because licence cost is prohibitive.

3- Let your voice count

This is the perfect time to works with SAP to provide a manageable, understandable, fair, smooth and "solution independent" licencing model:

1. Manageable: This means the number of licence type should be small, or at least provide an interactive way to navigate through them and reduce the number of licence applying to your case study. Exit the 180 pages documents...
2. Understandable: This means that you shouldn't need to be a lawyer with many years of experience to understand the boundaries of the licences
3. Fair : The new licencing model should adapt the existing one to the new needs. It must not be an opportunity (because disruptive) to generate more revenue (or less). Licence price should be connected to the added value the SAP product help's you to generate.
4. Smooth: Licencing model shouldn't be based on range of activity (like 0-10K, 10K-30K,...) because each time you cross a boundary it will be very disruptive in term of licence cost. SAP should rather provide a unitary cost (within an range) instead of a fixed price for a range. This means that both SAP must be able to count each metric that a licence is based on AND provide to the customer a visualisation of these metrics.
5. Solution independant: this means that whatever the solution choosen by a customer (provide as a UI using SAP or not, Provide as service consumed by human or bot, from your company or your partner) the licence cost should remain the same. The licencing model (or licence cost) should NOT be an obstacle for any improvement.

Conclusions

Fair and profitable (for both SAP and his customers), the new licencing model is under construction now. Support your user groups and have your voice count to provide a win-win licencing model that:

1- Helps customers to know, understand and estimate licence cost

2 - is based on activity (whatever the shape of the activity is), licence cost grows when activity grows.

Edit April 2018

The whitepaper is now SAP ERP Pricing for the Digital Age Addressing Indirect/Digital Access

Here is the big picture of the "new" pricing model:

1. You still have your old named user license
2. You still have some "free" (already included) access to SAP EPR from SAP application
3. What's new is the indirect access or "digital" access => which means all other situations

NEW INDIRECT/DIGITAL ACCESS PRICING MODEL

As defined by SAP:

SAP has identified nine document types that represent system generated records of commonly valued business outcomes from the Digital Core. Use of the Digital Core through Indirect/Digital Access will be licensed based on these nine document types; there is no additional charge for other document types.

• Counting Documents.

–One time create cost. SAP counts and charges for the creation of documents triggered via Indirect/Digital Access.

–Read, update, delete included. All read, updates, and deletion of documents via Indirect/Digital Access do not incur an additional charge.

–Initial document creation only. SAP counts only the initial documents created. For example: a sales document created by Indirect/Digital Access is automatically processed in the Digital Core resulting in the creation of invoice, material or financial documents. SAP would charge only for the sales documents initially created and not for the subsequent documents.

–Multiplier. Not all documents are weighted equally. Most documents are weighted at 100% (multiplier =1), documents of lower value and more frequently used are weighted at 20% (multiplier = 0.2).

• Volume Discounts. the higher the number of documents, the lower the price per document.

Is this model fulfilling the above 5 recommendations ?

1. Manageable: No change for the named user license, so NO. For the volume license it seems that there is only one model, so YES.
2. Understandable: No change for the named user license, so NO. For the volume license it seems to be understandable, but some points are still obscure.
3. Fair: cannot be evaluated, but it's a subject of matter for SUGEN (SAP User Group Executive Network).
4. Smooth: Cannot be evaluated, but as far as we know, range level will be used.
5. Solution independent: Definitively not the case !

Transition

The transition from the existing model to the new one is described as follow:

There is no information about the scope of this changes: Will it impact all the company, that could have several ERP, or could it be activated "one ERP at a time" ?

Conclusions april 2018

The new model is interesting because it opens the indirect/digital access. However:

• it is not very clear regarding the documents that will be counted. As an example, on warehouse management, the "good receipt" is counted as a document but what about other MM or WM stock movements? Will you count as a document each time you make MM or WM document even if it's a move from free stock to blocked stock or other movement without real action on the ground field
• You'll have to pay for indirect access of named user. So you pay twice if your employees interact with SAP using SAP Tools and your own tools.
• SAP has announced: "SAP is planning to provide customers with tools to monitor and measure ERP use.", which is a good point. But this will be crucial to evaluate the licence metrics.

Update april 2019

I've discussed about this licencing issues with SAP (France) and they told me that a commercial solution do exists (and has been choosen by some customers) called : Single Metric.

With "Single Metric" SAP and the customer agree to pay a fixed licence fee based on a Single Metric. This metric is negociated and could the "Sales Revenues".

With such licencing model you no longer has to worry abount licence boundaries are it's all inclusive. You pay only base on change on the metric.

I highly recommand to adopt such licence model as it provide a real freedom in the solution you could deploy.

Update may 2019

SAP has announced in May 2019 a Digital Access Adoption Program, where access are categorized:

Direct Human Access is the old user based licence model.

SAP Application Access means that communication fee between SAP Application is always included in the related Application licences.

Indirect/Digital Access:

This licence type is not user based but document based. Each document category has a multilplier in order to balance document weight/importance. Each document creation is counter and multiply by the document categorie multiplier. Document Read Update and Delete is free.

Please note that HCP is in the Digital Access and not in the SAP Application Access. this means that while using SAP Cloud Platform API Management you will pay twice :

1. One Digital Access Licence based on document access
2. One pay per use on API Management

Using Indirect/Digital Access require to change you licences with SAP. Either with a licence conversion:

or a contract conversion:

Please note that Contract Conversion is only possible when target is on SAP HANA or is S/4HANA.

More informations:

• From SAP
• From SAP user groups

Please feel free to comment, to provide additional information or to react on this article.

Feel free to contact me directly on Linked-In for any personal situation which cannot be exposed on the public comments.

Best regards,