Why SAP Digital Access is not a viable pricing model yet

Why SAP Digital Access is not a viable pricing model yet

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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 his Blog-Article from May 2019, Christian Klein, CEO & Member of the Executive Board at SAP, described how SAP listens to the worries of their clients, who perceive Digital Access as a significant business risk and have therefore introduced the Digital Access Adoption Program. This 90% discount program should first end in April 2020 and will now stay at least until the end of 2021.

Is this a step back from SAP’s Digital Access pricing model? In my eyes, it is. Let me explain why and what the causes are.

Digital Access was SAP’s reaction to the changing technology environment. Both IoT and RPA are putting the classical user-based license model at risk: one robot can now replace more than 500 users and only needs one user license in the traditional model. 2,000 IoT devices would use a technical user and not even need a single user license, since technical users are free. So SAP’s reaction is understandable and maybe a step in the right direction- but here we want to defend the position that digital access is not a mature pricing model yet.

SAP DIGITAL ACCESS

Definition by SAP:

Digital Access is defined by SAP as a new pricing model […] that provides an approach to 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: SAP Digital 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.

Metrics in SAP’s pricing model

SAP’s started years ago with a pricing model based on the **number of users**. With the growing product offering, engines were introduced to have a pricing model that reflects the different needs of functionality of different clients and business sectors. Engine prices were based on various metrics from the beginning: some had fixed rates, others were based on users, others on revenues, cores, etc.

In 2020, SAP has the following metrics in its product offering:

  • 21 User license types in ECC and
  • 4 User license types in S/4HANA on-premise
  • 3 User license types in S/4HANA cloud
  • 50 different engine metrics like: 
  • Revenues
  • Documents
  • Users
  • Contacts
  • Contracts
  • Employees
  • Plants
  • Resources
  • Cost of Goods Sold
  • Items
  • Freight spends
  • Cores
  • Master Data Objects
  • Devices
  • Rental Units
  • Spend Volumes
  • Monitored Users
  • Revenues & Expenses
  • Transactions

Interested to learn more?

Watch here a 5-minute video to understand how we can help you.

New Pricing Metrics

In his research article “Optimize Cost and Risk as These Software and SaaS Pricing Metrics Emerge to Enable Digital Business”, Gartner analyst Bill Ryan defines alternative license models:

  • Size-Based – this can be users, servers, installations, revenue, etc.
  • Transaction-Based: like order volumes, API- Calls, transactions
  • Outcome-Based: Bill Ryan names here revenue growth targets and cost reduction targets

Does that mean, outcome-based is among others a revenue-growth target? This does not seem to have anything to do with digital access, which is based on documents, so more transaction-based.

Cambridge Business English Dictionary defines “outcome” as “the result or effect of an action, situation,  etc. So, if digital access is outcome-based, as SAP defines it in multiple publications, how is it dependent on the outcome, and what is here the outcome? Digital access documents are a technical measure – the client is charged for a measured amount of documents – not for changes of any metrics like revenue growth, cost savings, financial margin, EBITDA, etc.

SAP and the other big software manufacturers have had for long time unlimited license agreements in place, which are based on single size metrics like the number of employees, total revenue, etc. All manufacturers have been ever since looking for metrics that allow them to adapt their charges to the client’s software usage growth over time.

The challenges of software pricing models

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?

You want more information about the topic?

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.

Back to SAP Digital Access

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 ask SAP to:

  • 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.

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.

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.

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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