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Infuriated clients force SAP to restructure licensing

SAP software company, licensing fee restructuring
SAP can no longer paper over the cracks in its pricing structure. Source: Reuters

Many businesses, both big and small, have become so reliant on licensed software that they would struggle to operate without it. Computer programs that run systems from payrolls to supply chains and customer databases have become a costly but necessary tool. But with increasing integration, it’s becoming less clear when such software is actually used.

That’s a lesson British beverage firm Diageo learned the hard way last year when it was ordered by a court to pay the software giant SAP £54 million ($76 million) in fees. It had unwittingly allowed the US firm Salesforce to use data generated by SAP software to help it with marketing. The small print in SAP’s contract spelled out that fees were payable if such data was used by a third party.

The ruling left SAP clients around the world worried about facing similar charges for the automated usage of SAP software by third-party systems — an increasing occurrence given the rise of machine-to-machine transactions through Internet-connected devices. It also really annoyed them, with many beginning to reconsider their relationship with Germany’s most highly valued company.

So this week, the software giant responded by presenting a new, more transparent pricing model designed to prevent nasty surprises. It differentiates between direct/human access, where charges will remain based on the number of human users, and indirect/digital access via third parties, Internet of Things applications or bots.

Initial reactions have been positive. “The announcement shows SAP has recognized the problem and wants to solve it,” said Andreas Oczko of the association of German-speaking SAP users (DSAG) that consulted about the new system.

SAP business outlook and results

SAP has huge power because it offers the most robust business management software on the market. Industry insiders said it had been billing even small companies seven-digit sums in “hidden” fees for years. Its salespeople had used the payment demands to exert pressure on clients to sign up to new products, said Guido Schneider of German IT services firm Aspera, which advises firms on license management. “Indirect usage served as a joker in the negotiations,” he added.

SAP hopes the new system will win back clients’ trust. In future, it will only charge customers if so-called indirect usage leads to a transaction. SAP is also splitting sales from license monitoring, meaning that salespeople will no longer be able to use licensing agreements to put clients under pressure. In addition, firms will be given systems to monitor their own license usage.

“We expect that customer satisfaction will increase because we’ve listened to them,” said SAP board member Christian Klein.

Stefan Ried, an analyst at consultancy Crisp Research, said the old pricing model had hampered digital change in companies rather than aiding it. The new system would allow firms to hook up vehicles, machines or buildings to the Internet without entailing licensing risks. “In the long term the new model will strengthen the use of SAP in industrial scenarios,” he said.

Christof Kerkmann writes about the technology sector. To contact the author: kerkmann@handelsblatt.com

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