SAPs new ERP pricing model: Quick analysis – Enterprise Irregulars

SAP pre-briefed me on the new ERP pricing they announced this morning. It is meant to dampen the angst in the customer base about high-profile Indirect Access disputes which have become public in the last year. CEO Bill McDermott had announced an initiative to tackle the concerns at SapphireNow last May.

Three items of note in the announcement:

a) A move away (at the customer’s choice) from user based licensing to that based on document counts.

b) An organizational realignment that separates license sales departments and procedures from auditing and compliance groups and procedures.

c) Mechanisms for license exchanges and contract conversions to move to the new construct.

Here is my quick reaction. SAP will be briefing a few analysts next week in more detail, and over the next few weeks I hope to get reaction from customers as I continue my research for volume 3 of SAP Nation.

What I like about the announcement:

  • The fact that they had used the “Trust Equation” as a guiding principle in their initiative. You can snicker when a corporation uses terms like “intimacy” but it reflects some humility that SAP feels the need to regain trust of its customers.
  • The licensing metrics are more aligned with a world in which surround-systems, machines and sensors more than humans interact with core ERP processes. The friction over having to pay SAP for users who just accessed data in its tables should subside. By moving to document-based compensation, SAP is agreeing to get paid for “work” its software actually does – calculations, validations etc.
  • I like the organizational shift where initiation of audits will be done outside of sales. So the hope is they are more likely to be driven by breaches of compliance rather than by revenue quota drivers.
  • I like the initial validation they have had from involving several of the global user groups and customers (they told me they estimated they had talked to 200) across a wide section of industries and countries

I left, however, with several questions, which I hope get answered in the next few weeks.

– For a project which was meant to simplify pricing, most customers will have to go through a rigorous analysis of their likely document count exposure. The matrix of 9 document types (sales, time management, material etc.)- some priced on a line item basis – may not be appealing to many customers (think for example of a customer with each user processing orders each with hundreds of line items)

– For the ten months it has taken, I would have liked to have seen more rationalization of Industry Engine pricing, and that across processes which touch both on-premise and cloud SAP offerings

– While the new compliance group will initiate any reviews, the business resolution will still be done in the field. I want to see how strong is the Chinese Wall between the two groups.

– In addition to Trust, I wish this team had also been given Realism as a target. As I pointed out in my recent note on Uptake, value in software has been moving away from transaction processing to intelligence and analytics. Not sure the exchange/conversion values reflect the fact that ERP functionality pricing should have steadily declined over the last few decades. In a world where machines are doing more of the work at the front end of so many processes, improving quality of data etc. why should you continue to pay for (often duplicative) work by your ERP system at the back end of that process at the same rate you did a while ago?

– For customers who choose to stay with current contracts based on user counts or more recent order counts, there does not appear to be much protection from Indirect Access reviews. SAP says it will not seek back maintenance but there could still be license exposure.

– The elephant in the room I think that SAP continues to ignore, is customers did not surround SAP just for the fun of it. In the 1990s when SAP took off, the CIO had most of the technology budget in organizations. Today the VP of Products, the CMO, Owners of Industrial Assets and other C level executives have their own technology budgets. They want functionality or cloud flavors SAP could not offer. Many invited SAP to compete for their business and SAP could not win. ECC has not evolved much, and S/4 is only gradually replicating ECC (and small amounts of IS) functionality, and there mostly in on-premise deployments. Putting customers through lots of rethinking from user to document counts would make a lot more sense if SAP could offer a much bigger function point footprint. Hopefully the focus at SapphireNow coming up in June will be on how SAP plans to significantly grow functionality.

(Cross-posted @ Deal Architect)


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