History of SAP Licensing
- SAP started with on-premise licensing in the 1970s.
- Early models focused on user and module-based pricing.
- In the 2000s, SAP introduced subscription-based models.
- Cloud licensing gained prominence in the 2010s.
- Digital access and indirect licensing have evolved.
1. Introduction To the History of SAP Licensing
SAP has become one of the world’s leading software providers for enterprise resource planning (ERP) solutions, offering tools that help businesses manage finance, human resources, supply chain, and more.
As SAP’s software offerings evolved, so did its licensing models. Understanding the history of SAP licensing is crucial for businesses navigating the complexities of acquiring and managing SAP products.
This article will explore the history of SAP licensing models, detailing the evolution, major changes, and significant trends shaping how SAP licenses its software today.
2. Early Years of SAP Licensing
In the early years, SAP followed a traditional licensing model similar to most enterprise software providers.
During the 1970s and 1980s, as SAP launched its early ERP systems like R/2, the focus was on selling perpetual licenses.
- Perpetual Licensing: SAP’s original licensing approach was the perpetual license model, where customers paid a one-time fee for the software and an additional yearly maintenance fee. This model attracted larger organizations that could afford significant upfront costs and wanted long-term control over the software.
- Example: A manufacturing company buying SAP R/2 in the 1980s would make a large initial payment to get the perpetual license, then pay an annual fee to receive support and software updates.
- On-Premise Focus: Cloud computing was not yet mainstream in this era. As a result, all deployments were on-premise, meaning companies hosted SAP software on their servers. The perpetual licensing model worked well in this context because companies were comfortable investing upfront in hardware and software infrastructure.
The early approach to licensing focused on providing stability and control to large corporations that had the resources to invest in infrastructure and wanted to tailor ERP solutions to their specific needs.
3. Rise of User-Based Licensing (1990s)
The 1990s marked the beginning of SAP’s move toward more flexible licensing models. With the introduction of SAP R/3 in 1992, SAP made a significant leap, both technologically and in terms of its licensing approach.
- User-Based Licensing: SAP introduced user-based licensing to accommodate a growing customer base with diverse needs. In this model, customers purchased licenses for each user accessing the system.
- Named User Licenses: These licenses were assigned to specific individuals within an organization based on their role. Different types of users, such as Professional Users and Employee Users, were created to offer various access levels.
- Example: A finance manager needed a Professional User License for complete access to financial modules, while a warehouse employee might require a Limited User License for simple tasks like updating inventory.
- Flexibility and Scalability: User-based licensing benefited smaller organizations and those looking to scale gradually. Companies could purchase licenses based on the number of users and add more as they expand. This change made SAP more accessible to mid-sized businesses, allowing them to benefit from SAP’s ERP capabilities without significant upfront investments.
- Maintenance Contracts: Alongside user-based licensing, SAP continued to charge maintenance fees, typically 15-20% of the initial license cost. These fees ensured customers received software upgrades, patches, and support.
4. Introduction of Engine Licensing (Early 2000s)
The early 2000s marked another pivotal change in SAP’s licensing strategy. As SAP expanded its offerings beyond core ERP capabilities, it introduced engine-based licensing to accommodate customers using additional software components.
- Engine-Based Licensing: This model was introduced to license specific functionalities or “engines” separately, such as SAP Business Warehouse (BW) or SAP Customer Relationship Management (CRM). The cost of these licenses was determined based on specific metrics like data volume, the number of transactions, or the number of CPU cores.
- Example: A company using SAP BW would purchase an engine license based on the size of its data warehouse. If the data volume grew, the license cost would also increase.
- Metric-Based Pricing: Engine licensing introduced the concept of metric-based pricing, where the cost was linked to the actual usage of specific functionalities. This change helped SAP cater to organizations that required only certain modules without investing in the entire SAP suite.
- Challenges: Although engine-based licensing provided more tailored solutions, it added complexity. Customers had to track usage metrics closely to ensure compliance and avoid unexpected costs. This change marked the beginning of SAP licensing, which became a more intricate landscape requiring careful management and monitoring.
5. Emergence of Cloud and Subscription Licensing (2010s)
The 2010s were transformative for SAP as cloud computing became more popular and customer demands shifted toward more flexible, cost-effective solutions.
SAP responded by launching cloud-based products and shifting its licensing strategy accordingly.
- Cloud Computing Revolution: With the rise of cloud computing, SAP introduced SAP HANA, a powerful in-memory database that paved the way for cloud-based ERP solutions. The launch of SAP S/4HANA was a significant milestone, positioning SAP as a cloud-first company.
- Subscription-Based Licensing: SAP began offering subscription-based licensing for its cloud products instead of solely relying on perpetual licenses. This model allowed customers to pay a recurring fee for access to the software rather than make a large upfront investment.
- Example: A small retail company using SAP SuccessFactors could opt for a subscription model, paying a monthly fee based on the number of users. This was far more affordable than purchasing a perpetual license.
- Software as a Service (SaaS): SAP’s shift to the cloud was accompanied by its transition to a SaaS model for many of its products. This meant that customers no longer needed to worry about maintaining infrastructure or applying software updates—SAP took care of everything as part of the subscription fee.
- Benefits of Subscription Licensing:
- Lower Initial Costs: Reduced upfront expenses made SAP more accessible to startups and smaller businesses.
- Scalability: Companies could easily scale their usage up or down, depending on their needs.
- Automatic Updates: Customers benefited from automatic software updates and new features without additional charges.
The move towards subscription-based licensing and cloud solutions was driven by customer demand for greater flexibility, lower initial costs, and reduced IT management overhead.
6. The Introduction of Digital Access and Indirect Access Licensing (2018)
One of the most significant developments in recent years has been the introduction of Digital Access licensing, aimed at addressing the challenges posed by indirect access.
- Indirect Access Issue: Indirect access refers to scenarios where third-party applications or systems interact with SAP. Traditionally, SAP charged customers for every user that accessed the system, even indirectly. This led to confusion and unexpected customer costs, particularly as businesses integrated more third-party applications with SAP.
- Example: A company using an external e-commerce platform that updates SAP inventory automatically would need to pay for every user interacting with SAP, even if they were accessing it indirectly through the platform.
- Digital Access Licensing: 2018 SAP introduced the Digital Access Model to simplify indirect access licensing. Instead of charging for indirect users, SAP began charging based on the number of documents processed through the system (e.g., sales orders, purchase orders, invoices).
- Document-Based Pricing: Digital Access licensing is based on the number of specific documents created, such as sales orders or purchase invoices. This approach allows businesses to integrate third-party systems without worrying about per-user costs.
- Example: A manufacturing company that generates thousands of invoices through a third-party logistics system can now pay based on the number of invoices processed rather than the number of users interacting with the system indirectly.
- Benefits and Challenges:
- Transparency: Digital Access provides more transparent pricing for customers integrating multiple systems with SAP.
- Complexity: While Digital Access solved some issues, it added new complexities. Businesses had to determine how many document types were generated and ensure they were properly licensed.
Digital Access marked a significant shift towards more usage-based licensing, providing greater clarity for companies navigating system integration complexities.
7. Current Trends in SAP Licensing (2020s)
The 2020s have seen SAP continue to adapt its licensing models in response to changing market needs and technological advancements.
- Rise of Cloud Adoption: Cloud adoption has accelerated, especially with the global shift towards remote work. SAP has focused heavily on promoting SAP S/4HANA Cloud and other cloud services, encouraging customers to transition away from on-premise solutions.
- RISE with SAP: In 2021, SAP introduced RISE with SAP, an all-in-one offering to simplify moving to the cloud. This initiative includes cloud subscription licenses, infrastructure, and services bundled under a single contract.
- Example: A large automotive company could use RISE with SAP to migrate its existing on-premise SAP ECC system to SAP S/4HANA Cloud, streamlining its transition to a cloud environment.
- Consumption-Based Licensing: Another trend is the move towards consumption-based licensing. This approach allows customers to pay for their use, similar to utility billing. It is particularly attractive for organizations with fluctuating workloads.
- Flexibility: Consumption-based licensing allows companies to scale up or down as needed, providing more cost efficiency than fixed subscription models.
- Sustainability and Licensing: As sustainability becomes a major business focus, SAP has begun incorporating sustainability metrics into its licensing strategies. For instance, SAP has launched tools to help companies measure and report their carbon footprint, which can be tied into licensing discussions.
- Integration with Third-Party Tools: As more companies use various digital tools to manage their operations, SAP licensing has evolved to accommodate integration with third-party systems without excessive indirect access costs. Digital Access and other changes reflect SAP’s desire to provide flexibility while ensuring its licensing structure appropriately captures value.
8. Comparison of Licensing Models
Understanding how SAP’s licensing models compare over time helps understand their advantages and drawbacks.
- Perpetual vs. Subscription Licensing:
- Perpetual Licensing: High initial cost, suitable for companies with stable, long-term needs and a desire for complete control over their software.
- Subscription Licensing offers lower upfront costs, scalability, and access to updates, ideal for dynamic, growing businesses.
- User-Based vs. Digital Access:
- User-Based Licensing: Charges are based on the number of users accessing SAP.
- Digital Access: Charges based on documents processed, offering better pricing transparency for companies using integrated third-party systems.
- Engine-Based Licensing:
- Charges are based on specific modules or engines, allowing companies to license only the necessary components.
History of SAP Licensing FAQ
When did SAP licensing begin?
SAP licensing started in the 1970s with simple user-based and module pricing for on-premise systems.
What were the early SAP licensing models?
Early models focused on licensing based on the number of users and the specific modules or features businesses needed.
How did SAP licensing evolve in the 2000s?
In the 2000s, SAP introduced subscription-based licenses, shifting away from traditional perpetual licenses for more flexibility.
When did cloud licensing become part of SAP’s model?
SAP began incorporating cloud licensing in the 2010s, offering businesses scalable, subscription-based options for cloud services.
What is indirect access in SAP licensing?
Indirect access refers to third-party applications interacting with SAP data, potentially requiring additional licensing fees.
How has SAP adapted to digital transformation?
SAP introduced digital access licensing, which charges based on document creation and interactions, aligning with modern business processes.
What are the major differences between on-premise and cloud licensing?
On-premise licenses typically involve a one-time fee, while cloud licenses are subscription-based and offer more flexibility.
Has SAP licensing always included user-based pricing?
User-based pricing has been a core component of SAP licensing, though its structure has evolved.
When did SAP introduce modular licensing?
Modular licensing, allowing businesses to license specific modules, was introduced in the early stages of SAP’s growth.
What drove the shift to subscription-based licensing?
The shift was driven by demand for more flexible, scalable solutions, particularly for businesses adopting cloud technologies.
What challenges arose with indirect access?
Indirect access confused businesses, as they were charged for third-party interactions with SAP data, leading to legal disputes.
What is digital access in SAP licensing?
Digital access covers the use of SAP data in non-SAP applications, billed based on document creation and interactions rather than user counts.
How has SAP licensing changed for small businesses?
SAP has adapted its licensing models, offering more flexible and affordable cloud-based options tailored to the needs of small and mid-sized businesses.
Why is modular licensing beneficial for businesses?
Modular licensing allows companies to only pay for the specific functionalities they need, making it more cost-effective.
What’s next for SAP licensing?
The future of SAP licensing likely includes further adaptation to cloud services, automation, and continued focus on digital access pricing.
