Businesses need to be more licence savvy

SAP UK vs. Diageo UK should trigger companies to take action… Now!

Here we go again. 

The recent SAP UK vs. Diageo Great Britain court decision is yet another software licencing lawsuit between large vendors and their customers.  Enterprise software licencing agreements are complex documents.  Companies licence software products based on many different metrics – including a quantity of named users or devices, fixed count of processors in a server, etc. 

Most businesses spend approximately 25 percent of their IT budgets on software.  Because it is not a physical asset – like a computer, desk or chair, software is difficult to keep track of and inventory.  The problem gets exponentially more complicated when you consider complex environments (such as tracking software on premises, in the cloud, on mobile devices) and the dynamic nature of organisations (including how to track software ownership/use in the midst of mergers, acquisitions, employee hiring and departures). 

Organisations must also track how that software is being used – and whether that use is compliant with the software contract.  For instance, each licence agreement contains Product Use Rights that define acceptable software use. In many software licencing models, once enterprises go above the number of licenced users/devices/processors, they are out of compliance and therefore subject to expensive and unbudgeted “true-up” (balancing) penalties.  In most cases, the use of unlicenced copies of software by customers is unintentional – due to contract, product-use rights and licence model complexity. 

A recent survey, conducted by Flexera offered a stark wake-up call for C-level executives across businesses of all sizes: "The State of the (Software) Estate: Waste, & Risk Running Rampant in Enterprises: A 2016 Key Trends in Software Pricing & Licensing Survey Report."  The level of software waste was outstanding, but the survey underscores the Software Asset Management (SAM) challenges organisations face today given the complexity of their environments.

Here are some of the key statistics:  

  • A staggering 75 percent of enterprises surveyed were out of compliance with regards to at least some percentage of their software
  • The cost of non-compliance is rising, with 44 percent of enterprises (compared to only 25 percent the previous year) paying £80,000 or more in true-up costs to their software vendors as a result of noncompliant software use; and for 20 percent (up from only 9 percent in the previous year) the software audit true-up costs were £1m or more!
  • A surprising 93 percent of organisations reported spending money on at least some software that is under-used – i.e. shelfware, despite SAM tools that can readily identify these shelfware gaps.

The Backstory and Ruling  

One particular area of licencing confusion can occur when there is uncertainty over what qualifies as a “named user”. 

In SAP UK vs. Diageo Great Britain, the High Court of England and Wales ruled in favour of SAP UK, which sought a claim of over £55 million against the beverage giant Diageo for “indirect users.”  This has huge implications for large companies that have integrated customer-facing systems with SAP databases.  

Since 2004, Diageo had licenced mySAP Business Suite based on a number of named users.  A few years ago, Diageo then created two new customer-facing applications on the Salesforce platform to access Diageo’s mySAP implementation through a SAP Process Integration (SAP PI) interface, which was also licenced.  The dispute was whether the licence fee for SAP PI allowed Diageo’s sales staff and customers to access SAP data through Salesforce applications, or did they need to have SAP-Named User licences… 

The ruling held that user-licence fees also apply to Diageo’s 5,800 indirect users, exposing them to an additional licence fee almost equal to the total amount paid to SAP for all previous software and services.  Therefore the court said that Diageo must pay to licence all of these users – affirming the SAP indirect licence model.  

However, if an enterprise’s direct access named users also have access to SAP data via indirect applications, only one licence is required.  And, if the enterprise has users with accounts for multiple indirect applications, only a single SAP-named user licence is needed to cover access to all of the systems.  So, there are techniques to optimise the cost associated with SAP licencing across direct and indirect usage models. 

Mitigating Financial Risk 

But how can an enterprise identify users who have accounts on SAP systems and non-SAP systems, or the optimal SAP licence type?  

Enterprises can mitigate the financial risk of SAP indirect access by leveraging SAM and licence optimisation technology.  Companies can optimise SAP Named-User licences by detecting idle users, identifying duplicate users and assigning the optimal licence type for each user based on an analysis of real usage data – avoiding buying too many high-cost licence types when lower cost licences meet user needs.  In addition, organisations can discover instances of indirect access and optimise licence requirements for non-SAP system (indirect) users using these types of tools. 

The right SAM processes and licence optimisation tools will help eliminate uncertainties and risk, and plan and budget future purchases based on accurate usage data by: 

  • Automatically optimising named user licences and business packages, in preparation for SAP law reporting
  • Defining transaction profiles for limited professional users, as a basis for converting them to another type
  • Getting transparency on SAP indirect access, for example, when using Salesforce
  • Knowing what to consider when integrating third-party products

SAM and licence optimisation technology should be a critical element of an organisation’s risk strategy, preventing out-of-compliance, unbudgeted costs that can run into the millions.  It is crucial to learn how to identify and eliminate SAP licence management pitfalls.  With a smart combination of manual and automated Software Licence Optimisation, companies will be in a position to manage SAP licences more efficiently and include SAP in their enterprise SAM program. 

Vincent Smyth, Senior Vice President EMEA, Flexera Software

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