SAP licensing – reassuringly expensive?

As someone who follows the software licensing market and who is also partial to the odd pint of Stella Artois, I have been following the AB InBev versus SAP case with considerable interest.

Anheuser-Busch InBev is the world’s biggest brewer, with more than 500 brands including Budweiser, Corona, Stella Artois and Becks, plus more modern tipples such as Camden Town Brewery.

We learnt last week that AB InBev settled out of court with SAP in their $600m indirect licensing dispute. Six hundred million is such an enormous figure, what does it really mean to a brewer like AB InBev?

It’s not uncommon for IT projects to be cut and IT heads to roll after a painful audit fine, but will $600m register on the radar of an international lager monster? I would say so, yes.

To put it into context, $600m on AB InBev’s 2017 revenue of $56.4bn is the equivalent of an IT manager on £40,000 a year getting a speeding fine for £8,000. Ouch!

Assuming AB InBev makes a profit margin of 20%, $600m would wipe off one-fifth of its annual pre-tax profit. That would hit share price, jobs, the IT department and, gulp, the price of a pint of Stella!

So what can be done in the face of such risk? There are six steps I would recommend organisations take to address the risk of SAP indirect licensing.

First, this risk is too important to wait for SAP or SAP user groups to act. SAP says “we’re listening” and SAP user groups say “we’re working on it”. This issue takes leadership. Grab it by the scruff of the neck and drive a resolution. Getting a handle on SAP will reap dividends way beyond SAP licensing, as discussed below.

Next, appreciate that audits and licence disputes are not about compliance – they are about market share. Every minute you spend squabbling with Microsoft, SAP, IBM, Oracle, Micro Focus and other software dinosaurs, you are not spending your valuable time innovating, pushing your business forward and exploring more suitable competitors.

Complex licensing and audits have many negatives, but the main one is a great big time suck. Software audits are foreplay – they ensure your time is spent with them rather than exploring more suitable competitors.

For example, consider the situation when SAP says “talk to us” about indirect access. This is the equivalent of BMW saying “yes, it’s an open market and you can buy your tyres from anywhere, as long as you come and talk to us before removing the wheel nuts”. SAP wants you to “talk” because it will allow them to talk you out of innovating with Salesforce or some other platform.

This is uncompetitive and grossly restrictive.

SAP can be an awesome strategic partner, transforming your business. But it can equally be a parasitic dinosaur, draining your time. View SAP’s behaviour in perspective.

Clearly, you should get a handle on what you are consuming. Here’s a rule of thumb: for desktop and mobile, only deploy software via an online portal where you can industrialise governance; for datacentres and cloud scenarios, only deploy when you have figured out how you will manage it.

Specifically regarding SAP consumption:

1. How many users are actively using SAP, how are they using it and what others systems are connecting to our SAP infrastructure?
2. Identify active users (why pay for inactive users?) and how they are using SAP (why pay for functionality you are not using?).
3. Identify systems that are connecting to your SAP infrastructure. Identification of SAP indirect access should ideally be achieved by working with system owners and your internal SAP team to understand consumption.
4. Do an inventory of all interfaces to SAP and third-party applications and access their risk – RFC connections, but also check IDocs, HTTP, SNA, TCP/IP and all other means of communication. It is better you find them first before SAP finds them.

The next step is proactive user management. We are in a user-centric era. Any proactive work you do getting a handle on SAP users will reap dividends. Proactive user management allows you to identify duplicate users (reduce users, save money). Identify inactive user accounts (reduce users, save money) and identify user accounts accessing indirectly that are not covered by existing user types (indirect access compliance risk). This is not the sexy innovative end of IT. This is housekeeping, admin – but ignore it at your peril.

The fifth step is to identify and manage risks, The Diageo versus SAP case cited a licence fine of £54m based on 5,800 users indirectly “using” SAP via Salesforce.com. So I’ll use £9,000 as my guide for SAP named user pricing.

Best practice suggests any risk identified should be communicated to your senior management team in purely financial terms. So if you think you might have discovered 300 users of an application interfacing with SAP, that is a licence risk (until proven otherwise) of £2.7m. The 300 might not need a professional named user licence, and it might not technically be indirect access at all – but until we know otherwise, I would raise it as a risk of that magnitude.

You should work to continually educate your organisation about the risks and create checkpoints in the build process where SAP risk might exist. It is also good practice to develop  internal rules and tools for interfacing with SAP to reduce risk and rework for new interfaces.

When buying new third-party applications, demand an in-depth description of the interface to SAP before buying. Validate them against your position. When changing existing systems, demand an in-depth description of interfaces to SAP before starting the project and validate these against your position.

My final tip is to focus on licence optimisation. Our main cost optimisation opportunity with a SAP user-based model is removing redundancy and right-sizing user accounts.

When seeking investment and resources in SAP cost optimisation, our primary opportunities are:

1. Saving money by removing unused accounts.
2. Right-sizing accounts to the right type.
3. Avoiding nasty surprises and the debilitating effect of audit defence cycles and penalties.

Depending on your environment, there may also be optimisation opportunities in assessing your spend on engines or other licence metrics to ensure they are delivering value.

With businesses increasingly underpinned by IT, even the very traditional ones such as brewing and selling a pint of ale, software licensing appears to be front and centre. The management of software licensing, or the lack of it, affects SEC filings on the US stock exchange, share price and profits. It’s no wonder AB InBev settled out of court.