There is a famous saying in the United States that exclaims, “Remember the Alamo!”. This was used as a battle cry for the State of Texas fighting for independence from Mexico in 1836, after a severely outnumbered band of Texans all lost their lives to the Mexican Army at The Alamo. Their memory lived on as soldiers shouted this war cry in the battles to come until the end of the Mexican-American war in 1848.
While no lives were lost in this battle, February 16th 2017 may be the day where we will coin a new phrase: “Remember Diageo!”. SAP has now won what is considered by many to be a landmark decision in London that will have serious consequences around the globe. In SAP’s lawsuit ‘victory’ against Diageo in the London High Court, the ruling demonstrates that:
SAP Customers now have an exponential increase in organizational risk
The financial impact will be, well…massively horrendous
Long term client relationships are far less valuable to SAP than licensing revenue
On February 16th, the London High Court ruled that ‘Indirect Access’ via third party systems (i.e. Salesforce) and or via SAP XI (SAP Exchange Infrastructure) to MySAP ERP supported systems, require a named user license.
Diageo had claimed that the SAP PI license grant was a “gatekeeper license” that allowed access to the SAP database and applications. Most interesting to note from Diageo’s defense claim as quoted from the ruling, “SAP’s interpretation would result in all users of the third party software systems being required to be Named Users i.e. most people in the organisation, which would not make commercial sense.” We of course, agree 100% with that assessment that it “would not make commercial sense.”
SAP however, seems far less concerned about what makes commercial sense for its customers, and is seemingly far more concerned about how they can bleed every last drop of revenue from even its best and longest term customers as their stance in ruling notes: “A Named User is an individual representative of Diageo or a Group Company, or a Supply Chain Third Party, who is authorised to use or access the software directly or indirectly.”
Impact and Risk Exposure:
For many multinational companies across most industries, their SAP back end touches thousands of third party logistic touchpoints, and that’s before you get to internal employees who are interacting via third party software solutions like Salesforce. In that instance where Salesforce is interacting with SAP in any way, the user would not only need that Salesforce license, but now would need an additional SAP named user license to go along with it (note: an SAP named user license is typically 15x more expensive than a Salesforce license).
The financial exposure is exponential and immediate that can and will escalate into the hundreds of millions for some organizations. Financial risk:
Additional full use licenses in the thousands – in some cases, hundreds of thousands
Additional maintenance and support for those licenses
Payments and penalties dating back to original access – potentially years for some
Penalties and Interest payments on ‘illegal’ and unpaid access
What You Should Do:
Interrogate: SAP customers need to immediately assess and interrogate their deployments for exposure on indirect access of applications. If you take the ruling literally (as you should), indirect access can mean thousands of potential touchpoints – basically anyone accessing information from your system, like pricing from the website, delivery dates, etc. – may be classified as a user requiring a named license.
Audit Preparation: In addition, you are now forewarned that software audits will now have a predominant focus on indirect access to applications. With this ruling behind them, SAP (and others) will now be emboldened to aggressively seek compensation for “indirect access”.
Future SAP Deployments – Seek Alternatives: Web and mobile access by customers and third parties are only growing and as such this ‘indirect’ scenario only widens your risk. Now is the time to seek and review alternatives and curtail SAP use where it makes sense in order to minimize your risk.
Keep the lessons of this case close at hand. Diageo had already paid SAP in the range of £51 to £60m for its SAP suite of applications. With this loss, they are now exposed to an additional £54m which basically equates to a 100% increase in cost! In most supplier situations even an increase of 10-20% can mean serious changes in a business’ technology landscape – let alone doubling the cost. Now is the time to find out what this will mean for your deployment.
We have frequently discussed the ‘Technology Cartel’ and how the deck is stacked against technology buyers at every step of the buying process from Industry Analysts, Consultants, VARs, OEMs, Software Suppliers, Systems Integrators, MSPs, Storage Makers, Server Companies, Networking Manufacturers, Outsourcers and many more. This is a telling example and even more evidence that the ‘technology cartel’ prefers to rule with an iron fist, rather than sustain and nurture long term client relationships that evolve as the customer business does.
In short, SAP is not your friend or even a trusted partner. They have declared themselves (again) to be a tyrant where they could have been a change agent. Besides the PR disaster and message this SAP lawsuit sends to its own customer base, the truth is that it will cost them far more in the long run as businesses look away from SAP, to other solutions and alternatives.
The final lesson to remember – is to ask yourself why SAP would risk their long term customers and relationships in this way? And the answer is simple…because history shows they can:
Step 1: Intimidate with lawsuits and audits
Step 2: Settle on favorable terms to them, but make you ‘think’ you got a great deal
Step 3: Continue to invest and propagate the ‘Cartel’ which they know will wear customers down, and make them forget about the last time they were taken advantage of and run over
In any SAP decisions, we should all remember the new battle cry: “Remember Diageo!”