Why SAP Digital Access is still not a viable pricing model

December 20, 2021

by

Francisco Hansen

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SAP Licensing

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SAP Digital Access

SAP DIGITAL ACCESS

Definition by SAP:

Digital Access is defined by SAP as a new pricing model […] that provides an approachto licensing Indirect and Digital Access to the SAP Digital Core.

  • Direct/Human: access (existing), which will be charged for by number of human users.
  • Indirect/Digital Access: Access via third party, Internet of Things (IoT), bots and/or other digital access that can be licensed based on transactions/documents     processed by the system itself (new).

Source: SAPDigital Access | Home

Our "layman's" definition: 

When you connect, via interface, non-SAP application/s to SAP, which transfers one or more of 9 different kinds of pre-defined data objects into SAP, you will have to acquire additional licenses from SAP.

SAP has been charging some clients for indirect use for more than five years, but it was first in 2018, that the rules were officially published.

In our blog-entry from August 2020, we already discussed the problems involved with the digital access licensing model.

One year later and having analyzed further SAP clients and their use-cases, the situation does not show an improvement. Still today, the SAP clients we have evaluated show an average of 106 M digital access documents with an average price of 2 M USD (after subtracting the 90% digital access adoption program discount). Even if we leave out the largest data point in this analysis with 3.6 B documents, the average client has still 32 M documents and 735,000 USD digital access costs for a total 9,400 employees – not users.

Now this would not be an issue, if these costs were maybe in the region of 5 – 15% of the total SAP licensing costs, but reality shows, we are rather talking about 5 – 500% of the client’s total SAP license costs.

The average SAP licensing costs per product group as found within our client base are:

  • User licenses: 20% – 55%of the total contract
  • Engines: 30% – 70%
  • Database:8% – 25%

So, the question is: How much is indirect usage worth? What percentage is acceptable?

SAP has been selling the idea of licensing indirect access with the justification of new technologies like robotic process automation, Internet of Things, B2C sales applications and customer relationship management. According to SAP, these technologies have been introducing a new way of using the SAP software through indirect access, which could lead to SAP potentially losing their user license revenue.

We have not seen a single client reducing their number of user licenses due to indirect access – moreover has SAP revenue per client been increasing thanks to the digital access licensing model – without SAP contributing any additional functionality for clients to make use of such indirect access.

It is not in scope of this study to judge the ethical validity of the digital access licensing model, but we do want to look into the question on whether taking digital access documents as the metric for indirect usage is a viable pricing model or not. And our conclusion is: it is not a viable model. Why so?

  1. Because the digital access pricing model is not outcome based. See the following diagrams showing the relationship between digital access costs and company size in revenue and employees.
  2. Because the digital access pricing model, which is designed to price indirect usage, has no dependency on the client's total license costs for SAP (in opposite to database costs, for example)
  3. Because the model reaches all too frequently a price above the total license cost of SAP
  4. Because the model inhibits free competition and best-of-breed choice of software and forces clients to choose SAP products over others independently from their market position

The following diagram shows the inexistent relationship between a company’s size in revenue and the costs of digital access.

The next diagram shows the lacking relationship between a company’s size in employees and the costs of digital access.

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Once the non-existing correlation between a company’s size and their costs for digital access according to SAP’s price list is proven, the next question is: does the amount of digital access found within our client base show reason for preoccupation? I fear, the answer is yes, for many clients.

The analysis of digital access costs shows prices (90% discounted price based on the digital access adoption program, due to end December 2021) going from zero USD for companies with no applications connected to SAP and up to 56 M USD for a retail company with several ERP systems, warehouse and POS systems connected to SAP.

I don’t expect any company agreeing to pay 56 M USD for indirect usage, but SAP’s pricing model puts the company in a situation, in which it is left out to come to an agreement outside SAP’s standard pricing. Same counts for another client with 2,000 employees (not users) and a digital access exposure of 1.7 M USD, approximately 12 times their yearly maintenance with SAP.

Half of the companies show digital access costs below 500,000 USD. Of the other half, the prices lay between 500,000 USD and 2.1 M USD except for two companies with prices of 6.8 M USD and 57 M USD. Excluding the biggest company in the sample, the average amount of employees (again, not users) for the evaluated group is 9,400.

The perfect Software pricing model

There is evidently no perfect pricing model, and each one of them needs adaption to each client's situation and business particularities. It is both the software manufacturer's as the client's responsibility to find a suitable model for each situation.

 

Defining and adapting particular metrics, metric caps, maximal costs per product will be essential to achieve a successful business agreement for both the client and the manufacturer. In our eyes, sales and pricing teams need much more flexibility to adapt the standard models to a client and a much bigger understanding of the client's business to perform such adaptations. And clients need to design financial scenarios that prevent unforeseen growth in software costs.

Size-based: a user-based model means as well, that two companies with very different amounts of usage and revenue, but an equal number of users pay the same, although the company with more revenue and more transactions shows a much higher usage.

Transaction-based: this is digital access, and today we find clients paying 70 k USD yearly SAP maintenance with potential DAAP costs of 5 M USD vs. companies with and 5 M USD yearly SAP maintenance with potential 100,000 USD DAAP costs. Transaction-based models don't work, because transactions vary enormously from company to company, even within the same revenue and margin.

Outcome-based: this is, in our opinion a fascinating model, or? We could also argue: why am I as a software manufacturer to be punished for a client performing poorly or for having incompetent management? Or, as a client, why would I pay a software manufacturer more, if I sink my costs, optimize my sales, and still have the same software usage?

Our Suggestions for SAP

What does all this mean for SAP clients? Although SAP's thoughts are understandable and the need to adapt their licensing model to the new technology environment with IoT and RPA, we kindly suggest to SAP:

  • Change digital access pricing to reflect both documents and the SAV value of the client (sum of the total license value of a client, named SAP Application Value) instead of a simple fixed document price. It is not acceptable that digital access can grow to the same or even a higher amount than the client's total yearly maintenance value
  • Consider reducing user licenses when selling digital access. SAP always presented digital access as a means to reflect the new technologies with sinking user licenses and growing digital access. But right now, digital access is solely an additional and relevant income source for SAP and cost risk for their clients, punishing clients for using EDI, non-SAP CRM systems, or non-SAP warehouse systems..
  • Get rid of subsequent document counts - although SAP's technical teams are already working on it, today subsequent documents are still not correctly excluded, sometimes leading to a multiplication of digital access costs..

Conclusion

As a client, be aware of the fact, that SAP is still working in correctly counting digital access documents and that this pricing model just does not adapt to each client’s situation – so demand flexibility from SAP’s sales and pricing teams to find a suitable price for your specific digital access use-case and don’t consider your document count as the only determining metric for digital access.

Be determined to negotiate a price that is fair for both parties.

ABOUT THE AUTOR

Francisco Hansen

Francisco Fernández Hansen has been Head of Advisory at VOQUZ Labs since 2019. He is responsible for sales in the USA and Latin America. Francisco leads the team and the offices in New York and Mexico City.

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