German SAP users call for IoT-ready software license models

Companies have started their digital journey and  for SAP customers, the ERP backend is a fundamental part of the technological foundation. These firms evaluate other SAP solutions such as SAP Leonardo that support IoT-based applications and the SAP Cloud Platform as development and deployment environment for native applications that run on SAP HANA. However, companies using SAP fear that rising costs associated with unclear SAP license models may become a barrier for their digital agenda. This was one of the takeaways from the annual congress of the German-speaking SAP user group DSAG.

More than 4,500 customers of SAP from Germany, Switzerland and Austria attended this year’s annual conference (‘DSAG Jahreskongress’) which was held in Bremen, Germany. According to the DSAG, a number of SAP customers have started to think of IoT-based applications that support new business models. For them, digital innovation is about a combination of solutions to integrate devices on the edges and the integration into ERP backend systems. Building such environments is complex. However, unpredictable license costs associated with the integration of non-SAP technology is another challenge for SAP customers. “If any device that connects to SAP-based environments requires an SAP license, all IoT use cases are dead.” was one message that could be heard clearly.

These concerns relate to lawsuits between SAP and its customers. In one case, the beverage maker Diageo lost a $70-million case against the software maker. SAP accused the customer of using its software indirectly, which was not covered by the license agreements. The problem is that it is not always clear when exactly there is an indirect access. An example could be if an online shopper buys goods in a company’s online store and for this transaction a processing in the SAP backend is required. The shopper would indirectly use SAP’s software, but does he need to have a license for this or not? And it is this uncertainty that SAP users struggle with when they think of building data-driven applications that connect large numbers of devices and machines via IoT platforms with SAP software.

Although vendors such as SAP claim to provide solutions that support a digital transformation, their license metrics seem to not have been transformed accordingly. At least, SAP says it has understood the concerns and it promises its customers to address the problem in collaboration with the DSAG.

The problem with license agreements of software vendors such as SAP is that they date back to a time when software users sat in front of a PC. For each of these users, companies buy a license for a named user. In times when companies create data-driven applications that connect various devices, machines and sensors, this concept does not match anymore. A pay per use or consumption-based pricing would be much more adequate. Such a metric can be based on the number of devices that are connected. Cloud-based development platforms for instance charge for the number of API calls (Application Programming Interface), no matter if a user, an application of any kind of network-attached device calls that API.

Another issue that causes SAP users trouble are that they fear to pay double if they use several SAP solutions (on-premises and cloud-based applications) to support a certain process. For the processing of an online order, data has to pass various SAP applications, say SAP Cloud for Customer, SAP Hybris Commerce Cloud and SAP S/4HANA. Instead of buying licenses or subscriptions for each of these products separately, the DSAG members would favour a so-called “vertical license” that is based on the characteristic of the process and not on the different SAP solutions involved.

In our view, license or subscription agreements must consider the fact that companies are going to integrate various SAP and non-SAP systems and that – in the case of IoT – the number of integrated devices is hard to predict. If the vendor fails in establishing reasonable pricing models, companies may look for alternative technologies from third-parties that do better in that sense.