By Siobhan Kennedy SAP AG this week detailed a radical overhaul of its licensing strategy, moving away from charging a flat fee per concurrent user model to applying a variable one-time charge for access to all of its applications. The move is designed to simplify the company’s often criticized licensing model as the German ERP […]
By Siobhan Kennedy
SAP AG this week detailed a radical overhaul of its licensing strategy, moving away from charging a flat fee per concurrent user model to applying a variable one-time charge for access to all of its applications. The move is designed to simplify the company’s often criticized licensing model as the German ERP software giant attempts to reinvent itself as a web-based applications, content and e-commerce provider.
MySAP.com, the product strategy which will lead it there, was outlined by the company’s CEO and co-chairman Hasso Plattner in his opening keynote at the company’s user conference in Philadelphia this week. Under the new strategy, Plattner said that SAP will no longer sell licenses for its front and back office applications separately based on flat fees for different types of users. Instead it will adopt a model in which all SAP applications are bundled on one CD and sold as a single offering. A company will pay different amounts for the CD according to the job function of each individual user.
The idea, said Eric Rubino, a member of SAP’s legal department responsible for drawing up customer contracts, is to make its licensing structure simpler, both for SAP and its customers. It was too cumbersome in the past, he told ComputerWire, look what happened when an APO (advanced planning and optimizer) user wanted access to some bits of R/3 and not others, and then needed access to an IS (industry specific) application too. It made things very complicated.
The new licensing model purports to flatten that structure so the user no longer has to distinguish between R/3, APO, IS or any other type of application. All the user sees is a customized Yahoo-style front end (which SAP’s calling the mySAP.com Workplace). The applications are buried underneath. Users will no longer require a license for each individual application.
SAP will price its software according to three types of job functions; professionals, managers and employees. Professionals are users that will likely need access to lots of different applications. Their jobs typically involve creating, managing and approving purchases with access to strategic management functionality. Managers have the ability to create purchase orders, but not approve them. In addition, on a daily basis, they will need to be able to have read and write access to applications and carry out transactions. The third category, employees, will only need access to employee-specific transactions, such as time and attendance data and vacation information – the data typically held in HR applications as well as some access to purchasing-type software, such as SAP’s business to business procurement (B2B) application, or business to consumer (B2C) product.
On that basis, SAP has come up with a rough scheme to charge companies that want to convert from existing applications to the mySAP.com product and pricing model. No one at SAP would give specific prices, but Rubino said a professional license would roughly cost twice the price of a manager license and the employee license would, in turn, be a lot less than both the professional and manager levels.
Overall, he admitted, companies will end up paying more than they did under the old regime, but he was quick to point out additional benefits to the user. Not only do they get access to all SAP’s applications, but through the workplace and marketplace portals, they can also link to third party applications, internet content and have the ability to collaborate with partners and suppliers in a web-enabled, end-to-end integrated supply chain.
Interestingly, small to medium companies – a market that SAP is going all out to capture – won’t be charged the same way. Instead, SAP reckons it would be too difficult to categorize the users in companies with less than 1,000 employees so it plans to make those organizations pay a fee for everyone, regardless of their role. It’s difficult to know whether these firms will end up paying more or less. Certainly, un
der mySAP.com, it will only be worth paying the additional costs if all, or the vast majority of your employees are going to use the software.
It’s important to realize that SAP’s new pricing structure only relates to the Workplace portion of its mySAP.com strategy. While SAP admits that prices will be slightly higher, given the slowing down of the ERP market, it seems unlikely that company has changed the way of charging for its software as a way of boosting revenues. It’s the other half of mySAP.com, the Marketplace, where SAP plans to make its money.
MySAP.com Marketplace is where SAP brings together vendors, suppliers and customers it’s effectively a single, integrated trading community, which SAP calls one-step shopping. On the face of it this doesn’t sound much different from any of the other online trading communities except that SAP’s product offers complete front to back end integration. A user can order 1,000 PCs from Dell, receive an invoice for the goods and have the whole process reconciled within its R/3 system, all within the same one step transaction. A fact which, in itself, is compelling enough to make SAP’s customers sign up for the portal. Add to that the fact that users also get customized access to web-based information, the ability to set up supplier/partner discussion forums and a host of other services, and it’s difficult to see why SAP’s 12,000 installed base wouldn’t want to join in.
Likewise, it’s a ‘no-brainer’ for sellers to get involved. It means they gain automatic access to an audience as large as SAP’s customer base. The company is already boasting that 1,000 vendors have registered interest in the marketplace, although it’s believed only around 40 will be integrated by September 30, when the doors finally open for business. But the second the big names get on board, hundreds of others will follow suit.
For SAP, the only difficulty at present seems to be deciding how best to charge for the service. It’s not yet clear whether it will bill vendors on a per-transaction basis (which they supposedly have balked at), or whether to charge a one-time fee for signing up. SAP said it was currently considering the various permutations and would have a better idea of pricing once the Marketplace is up and running. Either way, what’s important – and what came across loud and clear during its user conference – is that SAP sees the marketplace as the vehicle for driving revenue growth, both now and, more importantly, into the future.
Apart from an initial joining fee and/or transaction charges, company officials reckon there could be lots of other services that businesses may need that SAP could potentially charge for. That’s why we’re holding back on giving a pricing structure now, Rubino admitted. We could potentially get money from lots of things. Web page hits, a percentage of transaction revenues or from advertising within the different business communities. It’s a question of wait and see.
Where SAP could stand to make a killing is from non-SAP customers. In theory, there’s nothing to stop any vendor from asking SAP to link into the marketplace, but to do so SAP will have to integrate that vendor’s systems with those of its suppliers, some of which may or may not already be signed up. Given that SAP says it already has its integration house in order, bringing in new suppliers and vendors should be a relatively easy task, but one which SAP could charge a fortune for.
It’s no wonder, says Rubino that SAP wants to convert its users to Marketplace as soon as possible, although he admitted that some might be happy to stay put. But even they will have to change eventually. As part of its maintenance agreement, SAP stipulates that companies have to keep up with the latest release of its applications. Rubino says there’s a two-year period of grace, but after that users are legally bound to upgrade. To take advantage of mySAP.com companies have to be running version 3.1, or above, of R/3, which means users running systems below
that release will have to pay to upgrade. But SAP says it will make the transition as attractive as possible, giving companies discounts according to the length of time they’ve had their systems installed. A company running R/3 for five years won’t get as much money off as one that’s only had it installed for a year, it says.