mysap Product Bundles

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1 Decision Framework, A.Bona,J.Disbrow,D.Prior Research Note 17 December 2003 Dodge the Licensing Pitfalls in mysap's Product Bundles Many Gartner clients are mystified by the complexity of SAP's product bundles and licensing models, and disconcerted by its pricing practices. You must be clear which parts have been licensed, to avoid unexpected fees. Core Topics Customer Relationship Management: Creating Business Value for CRM ERP II, Supply Chain & Manufacturing: ERP II - Strategies, Applications and Technologies Business Management of IT: IT Asset Management Key Issues How can enterprises control the investments and quantify the benefits of CRM? How will successful enterprises select, deploy and manage ERP II solutions to minimize risk and achieve optimum ROI? What are the best practices for hardware and software contract negotiation? Strategic Planning Assumptions By 2005, SAP will have introduced at least another five software engines (0.6 probability). By 2005, large enterprise CRM vendors that fail to offer license and maintenance contract flexibility, will lose ground to rivals that do (0.7 probability). Note 1 mysap Solutions mysap Customer Relationship Management mysap Supply Chain Management mysap Supplier Relationship Management mysap Product Lifecycle Management mysap Human Resources mysap Financials mysap Business Intelligence mysap Enterprise Portal Many Gartner clients are dissatisfied with the increasing complexity of SAP's licensing, pricing and commercial practices. Typically, they feel they no longer understand the license models fully. We explain the mysap product bundles and licensing models. mysap Product Bundles SAP has three bundles for its application and technology products: Individual mysap solutions. Note 1 gives a full list of solutions. (R/3 Enterprise was originally available as a separate solution, but now can only be licensed as part of mysap ERP or mysap Business Suite.) mysap ERP. This allows customers to license all SAP NetWeaver's technologies, except Master Data Manager (see "SAP's Visionary NetWeaver Platform May Prove a Risky Bet"), R/3 Enterprise, mysap Financials (financial supply chain, strategic enterprise, financial analytics), mysap Human Resources (workforce analytics, operations analytics, employee life cycle, employee relationship ) and mysap Travel Management. mysap Business Suite. This covers all NetWeaver technologies, all mysap ERP components and a bundle of many of SAP's business applications, including its customer relationship (CRM), supply chain (SCM), supplier relationship (SRM) and product life cycle (PLM) products. Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Figure 1 mysap Product Bundles Single Solution mysap ERP mysap Business Suite List Price for Professional User: Up to 5,000 euros for CRM and SCM List Price for Professional User: About 3,000 to 3,500 euros List Price for Professional User: 3,800 euros CRM, SRM, PLM, SCM R/3E plus Analytics, SEM, FSCM, MSS/ESS, SAP Learning Solution, E-Recruiting, Self-Service Procurement, Internet Sales R/3 Edition NetWeaver: EP, XI, BW, KM, etc. Web Application Server and Parts of NetWeaver Individual Solution BW CRM EP ESS FSCM KM MSS PLM SCM SEM SRM XI Business Information Warehouse customer relationship Enterprise Portal Employee Self-Service financial supply chain knowledge Manager Self-Service product life cycle supply chain Strategic Enterprise Management supplier relationship Exchange Infrastructure Source: Gartner Research (November 2003) Individual mysap Solutions Named-user price points for individual solutions are mostly higher than those for Business Suite. This is because there is no minimum user requirement for these solutions (apart from a minimum spend of between 37,000 and 50,000 euros, depending on the solution). By contrast, for mysap Business Suite, at least 25 percent of the customer's employees must be licensed as named users. The availability of individual solutions enables businesses to be more selective about what they buy and implement, but high prices are a deterrent, especially as most mysap customers have more than one SAP application. 17 December

3 Note 2 Conversion From Traditional R/3 to mysap When SAP introduced the mysap solution set, it offered customers converting to mysap 100 percent credit for SAP software that had already been bought. But SAP now offers credit of between 70 percent and 75 percent. Businesses should negotiate a full 100 percent credit, either on a list-to-list or net-to-net basis; otherwise they will be double-buying part of the licenses. mysap ERP This "stepping-stone" bundle was devised to encourage customers to convert from traditional R/3 licensing to using mysap Business Suite. Customers had been slow to make this move because they needed to license an entire suite, rather than one or two SAP products, and SAP was not offering 100 percent credit for existing R/3 investments (see Note 2). Although uptake of the bundle has not been strong, it is an interesting option for customers that cannot justify investing in mysap CRM, SCM or SRM. However, businesses should realize that their negotiating power in moving to mysap ERP will be less than when moving to Business Suite. This is because SAP already has a strong position in the enterprise resource planning (ERP) market, and sales of mysap ERP will not help it increase its share in the CRM and SCM markets. Businesses that select individual solutions or mysap ERP bundles should negotiate for SAP to give 100 percent credit for these purchases if they move to mysap Business Suite at a later date. mysap Business Suite We believe that more than 95 percent of new customers have purchased mysap Business Suite. This suite is often promoted as including everything that SAP offers in one simple bundle and licensing program. The bundle is attractive from a license perspective, as only one license is needed for multiple solutions. If a project is delayed, the licenses can be transferred to users in other parts of the business. However, the Business Suite does not include all SAP software. Examples of solutions not covered are xapps and Exchange Infrastructure, for integrating non-sap applications. More confusingly, SAP's advanced capabilities in areas like workforce optimization in CRM or tutoring in HR need to be licensed separately, even though CRM and HR are supposedly included in the Business Suite. Although SAP markets NetWeaver as a single entity, not all mysap licenses include all NetWeaver components. Businesses should ask SAP to provide a price list of components as part of the evaluation and negotiation process. They should also ask SAP to detail all components in the contract and list those not included, to avoid unwelcome surprises. mysap licensing models SAP licenses mysap based on: 17 December

4 Note 3 Geographic Changes to Prices The guideline list prices in this document are in euros. SAP increases its prices by 50 percent for customers in North America, South America, Asia/Pacific and some countries in Eastern Europe. Customers in Arabic countries face price increases of 100 percent. Role-based named users External community members Software engines A named user is anyone accessing the SAP software directly or indirectly. Indirect access is not defined contractually, but SAP requires the licensing of some interfaces between SAP and thirdparty applications, via SAP named-user fees, if access is deemed to be synchronous, real-time and bidirectional (see "SAP Plans to Mine More Revenue From Its Installed Base"). This is an increasingly gray area for customers. SAP perceives this as "license avoidance" in many cases, although this is not borne out by conversations with Gartner clients. Role-Based Named Users There are four types of named users: Developer User: A named user who uses development and administration tools for creating, modifying, deploying and managing SAP or third-party custom-developed applications. This user type includes Employee User rights, but not Professional User or Limited Professional User rights. The list price for the Business Suite is estimated at 6,000 euros. Prices are higher for businesses outside Europe (see Note 3). Professional User: Someone who accesses the software to do their job, or who uses it to perform operational roles. The list price for the Business Suite is estimated at 3,800 euros. Limited Professional User: This is someone "who performs limited operational related roles supported by the software." It is usually applied to third-party business partners, but it has been used to describe internal users who are using fewer of the suite's functions than Professional Users, or who are accessing the software infrequently. This category also includes those accessing the software from a mobile device only (for example, field service engineers). SAP has a rule that the number of Limited Professional Users shall not exceed 15 percent of Professional Users, but it is usually flexible on this restriction. The list price for the Business Suite is estimated at 1,500 euros. Employee User: This category is for employees using the suite for personal tasks unrelated to a specific job (for example, selfservice HR functions such as expense reporting). The list price for the Business Suite is estimated at 400 euros. 17 December

5 External Community Members Such members are non-employees (for example, business partners, customers, schools, universities, charities or government entities) that only access mysap Enterprise Portal or the Web Application Server. SAP states that if these users access other mysap solutions or software engines, they must be licensed as Professional Users. Businesses that need this additional access should negotiate for third parties to be licensed as Limited Professional Users. They should also explicitly eliminate fees for customer access from their contracts, as SAP has stated that the various engine fees are intended to capture revenue from customer access. For example, customers accessing mysap CRM to place orders will already be charged for via the sales, service and purchase order engines. External community members are licensed in bundles, starting at 250 euros per user for 500 users. Software Engines These automate processes that have little human interaction. It is also SAP's mechanism for charging for functionality that is industry-specific. There are cross-industry engines, which are based on business metrics such as annual volumes of purchases and sales orders. Then there are industry solutions, the pricing of which tends to be based on industry metrics (for example, barrels of oil per day for the oil industry). Other engines, such as financial supply chain (FSCM), are licensed based on "units" used for certain types of transaction. The units, which are arbitrarily assigned by SAP, can be changed at any point, making costs very unpredictable. Businesses should ensure that all licensing units or metrics are clearly defined and measurable. Many businesses find it increasingly difficult to manage so many different licensing models. They are also concerned by the emergence of some of the broad licensing metrics, like annual revenue or freight costs, as they struggle to correlate these with value derived from SAP software. Table 1 gives a sample of panindustry software engines. 17 December

6 Table 1 Sample List of mysap Pan-Industry Software Engines Engine Metric Sales/ Service Order Processing Orders per year Applies to mysap CRM Mobile Field Sales/Field Service Number of mobile field sales or service users Applies to mysap CRM Trade Promotion Management Annual corporate revenue Applies to mysap CRM Internet Pricing Configurator Number of IPC users Applies to mysap CRM Purchase Order Processing Orders per year Applies to mysap SCM, mysap SRM Advanced Planning & Scheduling Annual corporate revenue plus a price multiplier Applies to mysap SCM Transportation Optimization Freight costs Applies to mysap SCM Supplier Collaboration Engine Number of trading partners Applies to mysap SRM Payroll Processing Master records Applies to mysap HR e-recruiting Candidates per year Applies to mysap HR Incentive and Commission Management Commission contract partners Applies to mysap FI, mysap CRM D&B for Accounts Payable and Receivable Number of installations Applies to mysap FI Financial Supply Chain Management Applies to mysap FI FSCM units (1 invoice processed is 3 FSCM units, 1 dispute case processed consumes 20 FSCM units, 1 credit case processed consumes 10 FSCM units) Note: When a sales or service order is being processed by a named user, they process as many transactions as they can enter. When the sales or service order is being processed by a non-named user that is, a consumer, a citizen or someone that is not licensed as a named user the sales or service order processing engine pricing is applicable. Source: Gartner Research (December 2003) Additional pricing model issues for businesses to negotiate When negotiating or renegotiating with SAP, do not focus entirely on the discount percentage. Though SAP tends not to offer discounts as high as some of its competitors, it is willing to negotiate on other areas of pricing. This will often result in reducing the net price. Examples of how to achieve price reductions are: Elimination of requirement to license 25 percent of employees to use Business Suite 17 December

7 The trend in software procurement is away from large business deals toward more granular purchasing, based on limited, specific requirements. Some vendors are offering users "pay as you go" schemes with no minimum purchase requirements and no locked-in commitment. Businesses should negotiate to eliminate SAP's requirement for licensing a minimum of 25 percent of employees when purchasing mysap Business Suite. Creation of new categories for users Internal: Many businesses have large populations of internal, casual users of SAP products with specific functional needs who do not need access to the entire Business Suite, but do need more than Employee Self-Service. The Professional User price tag is too high for such users. SAP has applied the Limited Professional User category to internal as well as external users. Businesses involved in large deals have sometimes arranged for customized user categories, specific to certain tasks and processes, with price points between those for Limited Professional User and Employee User. Companies negotiating custom categories should also pre-negotiate rates to upgrade to the full Professional User category, if required. External: Many businesses with large numbers of partners, for example, in retail or media, find the 1,500-euro price tag and named-user model expensive. In general, SAP is reluctant to change the named-user model, but has negotiated lower price points. If you need "generic" log-ons that may be used by more than one person, include those rights in the agreement. Right to reallocate users across categories or the user fees toward engines Companies purchasing mysap software are often unsure how many users they will want to allocate to specific categories. They are even more unsure of the number of sales and purchase orders, or other engine metrics they will require. Businesses would be wise to negotiate the right to reallocate users across all categories over a one-to-two-year period. This entitlement will assume that the company does not reallocate the licenses to more users than it originally paid for. Businesses should also include the right to add more licenses under the same terms with the same price protection. Protection against being charged for multiple new engines SAP is creating software engines at an alarming rate. This means that SAP customers are unable to predict or control license fees. For example, some companies bought CRM, bundled with the Business Suite, and the industry solution for 17 December

8 consumer products. Because trade promotion (TPM) is integral to CRM in at least the consumer packaged goods (CPG) industry, they anticipated that this would be included in the CRM and CPG bundle. But SAP introduced a separate engine for TPM, which has a licensing model based on annual revenue, and a list price that starts at 1 million euros. These companies are now being asked to pay for TPM separately. Such extra payments are sometimes difficult for SAP to justify because it makes a maintenance charge of between 17 percent and 23 percent for each software suite it sells, which is supposed to provide functionality enhancements and upgrades. Acronym Key CPG consumer packaged goods CRM customer relationship FSCM financial supply chain IPC Internet Pricing Configurator PLM product life cycle SCM supply chain SRM supplier relationship TPM trade promotion To prevent unpleasant surprises, businesses should define in their own terms the functional blocks they think they are buying from SAP, rather than rely on the general terms SAP uses in contracts to describe its products (see "mysap ERP vs. R/3 Enterprise: A Clarification," "SAP Adds Enterprise Resource Planning to mysap" and "SAP's mysap CRM 3.1 Update Is More Than a Facelift"). Contracts should also state explicitly which user populations have access rights. We recommend adding a clause stating that if SAP subsequently charges for any of this functionality, or anything substantially similar, as either separate or additional engine fees, no extra license or maintenance fees should be due. Bottom Line: SAP's licensing models and bundling strategies are becoming increasingly complex, and are frustrating its customers. Informal client surveys on the licensing, pricing and associated business practices of dominant software vendors reveal that users see SAP as more rapacious, less trustworthy and less able to satisfy their needs. Businesses should clearly document which functionality they have licensed, and the associated licensing models, to avoid unexpected bills. Companies must involve representatives from business, IT and procurement when handling SAP negotiations. 17 December