Key Terms in SAP License Agreements
- License Type: Defines the license type (e.g., named user, CPU-based).
- Pricing Model: Describes how fees are structured (e.g., subscription, perpetual).
- Maintenance Fees: Costs for ongoing support and updates.
- Usage Rights: Specifies how software can be used across the organization.
- Audit Rights: SAP’s right to audit usage for compliance.
- Termination Clauses: Conditions under which the license can be terminated.
Key Terms in SAP License Agreements
Organizations must understand SAP licensing terminology to maintain compliance and maximize their software investments. SAP license agreements can be complex, with many different models, types, and terms to keep track of.
This article explores the essential terms and concepts that form the core of SAP licensing agreements, including license types, deployment models, pricing structures, compliance obligations, and best practices for effective license management.
Core License Types
1. Named User Licenses
Named user licenses are the cornerstone of any SAP licensing model. These licenses are assigned to specific individuals who access SAP systems and typically account for 40-70% of the total costs of an SAP contract.
Every SAP user must have a named user license in various categories with different access rights and functions.
- Developer and Professional Licenses: These are the most expensive categories of named user licenses. Professional licenses, in particular, are often considered the default option if no specific license category is assigned. Developer licenses are used by those actively creating or modifying SAP applications.
- Employee Self-Service and Limited Professional Users: Other categories of named user licenses include more limited types, such as basic employee access, where users primarily interact with SAP systems to enter their data, such as timesheets or personal information.
Named user licenses are integral to maintaining proper user access levels. Misclassification of users can lead to compliance issues or unnecessary costs. Organizations should regularly audit user activities to ensure the assigned licenses match their system usage.
2. Package Licenses
Package licenses differ from named user licenses because they are not assigned to individuals. Instead, they are based on specific usage metrics, such as the volume of payroll transactions or the number of contracts mapped in the system. These licenses measure system usage and help determine pricing according to the functions utilized.
The challenge with package licenses is ensuring the licensing metrics accurately reflect business needs. Usage metrics can be complex and variable, requiring close monitoring to ensure compliance. For example, if payroll volumes fluctuate seasonally, it is essential to negotiate metrics that allow for such variations without incurring additional costs.
3. Engine Licenses
Engine licenses are designed for industry-specific or line-of-business solutions. Rather than being based on individual users or metrics like payroll, they focus on system usage and capacity. Examples include licenses for modules related to supply chain management or industry solutions tailored for sectors like retail or healthcare.
Engine licenses can be beneficial for organizations that need specific SAP functionalities. However, they require careful monitoring of capacity usage to avoid additional charges. To effectively manage these licenses, businesses should understand how engine capacity is measured, whether by throughput, processing power, or data volume.
Deployment Models
SAP offers multiple deployment options to fit different organizational needs. Here are the three main models:
1. On-Premise Deployment
In the on-premise model, SAP software is installed on servers owned and maintained by the organization. This model provides complete control over software and data but often has higher initial setup costs. It operates under a perpetual license model, meaning the organization pays a one-time fee for indefinite rights to use the software.
Organizations with strict data security and regulatory requirements prefer on-premise deployments. However, maintaining the infrastructure can be resource-intensive, requiring specialized IT personnel to manage servers, apply updates, and ensure system stability.
2. Cloud Deployment
The cloud deployment model allows organizations to access SAP software over the Internet. SAP hosts these services using a subscription-based licensing approach. A typical cloud licensing agreement includes several important documents:
- Order Form: The legal basis for accessing the cloud service.
- Supplemental Terms and Conditions: Additional conditions specific to the service.
- Support Schedule: Defines support levels provided.
- Service Level Agreement (SLA): Details system availability guarantees and support response times.
- Data Processing Agreement (DPA): Outlines compliance for data privacy, particularly for personal data processing.
Cloud deployment is ideal for organizations seeking scalability and flexibility. Subscription models allow businesses to increase or decrease usage based on their current needs. However, this flexibility can also lead to unanticipated costs if usage spikes, emphasizing the need for active monitoring and cost management.
3. Hybrid Deployment
Hybrid deployment involves combining on-premise and cloud models. Organizations benefit from leveraging the flexibility of cloud computing while maintaining on-premise capabilities where they require more control. However, the licensing structures for each component can differ, adding complexity to managing compliance and costs.
Hybrid deployments can offer the best of both worlds: maintaining control over sensitive data while using cloud capabilities for more flexible business processes. However, managing hybrid licenses requires carefully tracking the components used in each environment and aligning the licensing structure accordingly.
Read about SAP license negotiations.
License Models
SAP offers different types of license models to fit various needs, including:
1. Perpetual Licensing
Perpetual licenses allow organizations to pay a one-time fee for indefinite software usage. This model suits companies that want to invest long-term, particularly when they have the in-house expertise to manage their systems.
While perpetual licensing provides stability regarding ownership, it also comes with significant upfront costs. Additionally, ongoing support and maintenance fees are typically required to update the system. Organizations must weigh the long-term cost benefits versus the initial expenditure.
2. Subscription Licensing
Subscription licensing involves regular payments, either monthly or annually, for the right to access the software. The main benefit is flexibility, as companies can adjust subscription levels based on their needs. Predictable, recurring costs are also a major advantage for budgeting purposes.
Subscription licensing is especially beneficial for companies expecting to scale their operations. It eliminates the need for large capital expenditures, but it requires careful contract management to avoid unnecessary add-ons and ensure that the subscription terms match usage patterns.
3. Consumption-Based Licensing
Consumption-based licensing charges are based on actual usage metrics. These can include:
- Number of documents processed
- Procurement volume
- Revenue metrics
This model is ideal for organizations that require flexible scalability, as costs align directly with business growth and software use.
One challenge with consumption-based licensing is understanding and predicting usage metrics. For companies with fluctuating business activity, evaluating whether this model will lead to cost savings or increased unpredictability in IT budgets is important.
Access Types
Understanding access types is crucial for SAP compliance, particularly regarding indirect usage. There are two primary types of access:
1. Direct Access
Direct access occurs when a named user logs in to SAP systems using SAP-provided user interfaces. This is the traditional type of access and is straightforward from a licensing perspective, as each user requires an appropriate named user license.
Direct access is relatively easy to monitor and manage, as each user interaction can be traced directly to their account. However, to avoid over-licensing, it is essential to ensure that the roles assigned to each user align with their actual job responsibilities.
2. Indirect Access
Indirect access happens when non-SAP applications or systems interact with SAP without a user logging in directly. This type of access can occur in several ways:
- Interfaces connecting other software systems with SAP
- Bots or automated scripts
- EDI (Electronic Data Interchange) systems that exchange business documents
- IoT (Internet of Things) networks that connect devices and feed data to SAP
Indirect access fees can be significant if not managed properly, as these interactions are often difficult to track. Organizations must understand how external systems interact with SAP to avoid unexpected license fees. SAP’s move towards document-based pricing for indirect access has helped clarify some of these challenges. However, it requires detailed knowledge of what constitutes a “document” in indirect access.
Indirect Static Read
A specific type of indirect access, indirect static read, involves exporting data from SAP systems for further use without altering that data or interacting with the SAP software itself. When certain criteria are met, such as being initiated by a licensed user and running on a scheduled basis, this type of access is usually exempt from additional licensing costs.
Indirect static reading is advantageous for companies that use SAP data for reporting or downstream processing. Proper documentation of processes that qualify as indirect static reads is necessary to ensure compliance during audits.
Compliance and Measurement
To maintain license management, SAP customers must comply with audit and measurement requirements.
1. System Measurement
SAP conducts yearly audits to measure license compliance, often using the SAP License Audit Workbench (SLAW). These measurements ensure that companies do not exceed the agreed-upon usage in their contracts. In addition to these yearly audits, enhanced audits may occur every few years.
System measurement is crucial to avoid compliance penalties. Companies should prepare for these audits by running internal checks, validating user activities, and ensuring that all engines and packages are licensed appropriately. Automated tools can help track usage and preemptively identify discrepancies.
2. Document-Based Pricing
In some cases, SAP has moved towards a document-based pricing approach for indirect access. This model involves tracking nine primary types of documents:
- Sales Document Line Items
- Invoice Document Line Items
- Purchase Document Line Items
- Service & Maintenance Documents
- Manufacturing Documents
- Quality Management Documents
- Time Management Documents
- Financial Document Line Items
- Material Document Line Items
Document-based pricing simplifies the complexities of indirect access but requires organizations to maintain detailed data processing and storage records. This pricing model can be cost-effective for some, but it depends heavily on the nature and frequency of document generation.
Support and Maintenance
Support and maintenance are a significant component of SAP costs, and there are two key types to consider:
1. Standard Support
Standard support provides basic maintenance services, including updates and fixes, usually calculated as a percentage of the initial license fee.
Standard support suits organizations that do not require rapid response times or advanced troubleshooting. It includes general fixes and software updates, but major system configurations or customizations may require additional fees.
2. Enterprise Support
Enterprise support offers more comprehensive services than standard support, with faster response times and a broader range of features, including access to advanced tools and additional support from SAP.
Enterprise support is more expensive but provides value through enhanced SLAs, priority response, and proactive system health checks. Organizations relying heavily on SAP for critical business processes may find it essential to minimize downtime.
Data Processing and Privacy
Proper data handling is a core component of SAP agreements, particularly given the advent of stricter global data protection regulations.
1. Data Processing Agreement (DPA)
The DPA sets out how SAP and the customer will handle personal data. It’s especially relevant for cloud deployments, where data privacy and regulatory compliance are crucial. Organizations operating in the EU must ensure that SAP’s DPA aligns with their compliance needs, including GDPR requirements.
Data privacy breaches can lead to significant penalties. Reviewing the DPA during contract negotiations helps ensure that SAP’s data management practices align with the organization’s compliance obligations. Additionally, organizations should evaluate how data is transferred, processed, and stored to mitigate privacy risks.
2. Service Level Agreements (SLAs)
SLAs define service expectations, such as system availability, maintenance schedules, and response times for support requests. An SLA can include details such as:
- System availability guarantees (e.g., 99.9% uptime)
- Service credits that apply if SAP fails to meet performance guarantees
- Defined maintenance windows to minimize disruption
Effective SLA management ensures that unexpected system downtime does not adversely affect business operations. Reviewing SLAs in detail during contract negotiations ensures that expectations are aligned and service credits can compensate for unmet standards.
Tips for Managing SAP License Agreements
Managing an SAP license can be challenging, especially for large organizations with complex deployments. Here are some tips to keep in mind:
- Conduct Regular Internal Audits: Regularly measuring SAP usage helps identify compliance risks before they become costly audit issues. Consider conducting internal checks using tools such as SAP’s SLAW.
- Keep Accurate Records: Maintain records of all users, packages, and engines licensed, as well as which users have access to which functionalities. Proper documentation is crucial for accurate system measurement and avoiding penalties.
- Review Indirect Access Risks: Understand indirect access risks by examining how third-party systems and automated processes interact with SAP. Then, evaluate whether you need indirect access licenses to cover these interactions.
- Negotiate Support Packages Wisely: Depending on your organization’s needs, it might be worth negotiating enhanced support packages at renewal to benefit from higher support levels without incurring unexpected costs.
- Leverage the Cloud for Cost Flexibility: If your organization has fluctuating usage needs, consider a hybrid or cloud model to balance flexibility and control. Subscription models might be better if you need to scale up or down regularly.
- Understand License Terms During Negotiations: Engage in detailed discussions about the types of licenses you need, including indirect access and the metrics used for package and engine licenses. Understanding these terms can help reduce licensing costs and avoid surprises during audits.
- Use SAP License Optimization Tools: License optimization tools can help identify underused licenses, incorrect classifications, and other areas where adjustments can lead to cost savings. Tools like License Utilization Information (LUI) reports can assist in identifying areas for optimization.
FAQ: Key Terms in SAP License Agreements
What is the license type in an SAP agreement?
The license type defines the specific scope of software usage, such as named user or concurrent user licenses.
How are users counted in SAP agreements?
Users are typically counted based on the number of individuals who will access the system, and different pricing models are based on user roles.
What is a deployment model in SAP agreements?
It specifies whether SAP software is deployed on-premise, in the cloud, or in a hybrid environment.
What does the support and maintenance clause cover?
This ensures you access ongoing software updates, bug fixes, and customer support.
What are the pricing structures in SAP agreements?
Depending on the software and user volume, SAP agreements may include fixed pricing, usage-based pricing, or tiered pricing.
What is the term length of an SAP agreement?
It refers to the duration the license is granted, typically one year to several years.
What are audit rights in SAP agreements?
SAP has the right to audit your usage, including the number of users and system access, to ensure compliance with the terms.
Are there restrictions on how SAP software can be used?
Yes, the license typically includes restrictions on geographical use, software modifications, or use in non-approved industries.
How are renewals handled in SAP agreements?
Renewal terms dictate extending the agreement, including any price adjustments or additional requirements.
Who owns the intellectual property in an SAP agreement?
SAP retains ownership of the software and intellectual property rights, while the customer has usage rights based on the license.
What happens if I breach the SAP license terms?
Breaching the SAP license agreement can result in penalties, termination of the agreement, or being subject to an audit.
Can I transfer my SAP license?
Transferring an SAP license is usually restricted and may require prior approval from SAP.
What is the difference between named user and concurrent user licenses?
Named user licenses assign access to specific individuals, while concurrent user licenses allow a set number of users to access the system at any given time.
How can I ensure compliance with SAP licensing?
Regular audits, keeping track of user numbers, and understanding your license terms can help ensure compliance.
Do SAP agreements include third-party software?
Some SAP agreements may include third-party software, and the terms of use for that software will be detailed separately.
