What Is SAP Third-Party Licensing

What is SAP Third-Party Licensing

• Clarify Third-Party Integrations: Identify which third-party tools connect with SAP.
• Review License Terms: Understand the licensing structure for each third-party tool.
• Monitor License Compliance: Ensure usage aligns with terms to avoid penalties.
• Track Third-Party Costs: Keep a record of third-party license expenses for budgeting.
• Negotiate with Vendors: Review terms regularly for better rates or terms.

SAP Third-Party Licensing

SAP third-party licensing, often called indirect usage, is critical for companies that use SAP alongside other software systems.

The concept revolves around licensing requirements that come into play when non-SAP systems access SAP data or functionality.

Whether it’s a custom-built application, a CRM solution, or automated processes interacting with SAP, third-party licensing ensures all usage is appropriately covered.

Let’s dive deep into understanding the nuances of this type of licensing, the different models available, and the challenges businesses face in managing it.

What is SAP Third-Party Licensing?

SAP third-party licensing refers to the licensing requirements for non-SAP systems or applications that access SAP data or functionality.

It’s sometimes called indirect usage because users aren’t necessarily logging directly into SAP but are accessing SAP resources indirectly. Simply put, if users or systems retrieve SAP data through another application, those users or interactions need the appropriate SAP licenses.

For example:

• Custom-built applications that access SAP data
• Third-party CRM systems pulling information from SAP
• Web portals displaying SAP information
• Automated systems that process data coming from SAP

SAP licensing is still required in these situations, even if SAP is not the direct interface.

Types of Third-Party Access

Direct vs. Indirect Access

• Direct Access: Users log in directly to SAP. This is simple and requires straightforward user licenses.
• Indirect Access: Users indirectly interact with SAP through intermediary systems or applications. This can be complex, as multiple scenarios qualify as indirect access:
  • Custom applications accessing SAP data.
  • Third-party software like CRMs or ERPs integrated with SAP.
  • Web or mobile portals that retrieve and display SAP data.
  • IoT systems or automated bots are interfacing with SAP data.

Indirect access is particularly relevant as businesses increasingly adopt automated workflows, IoT technologies, and advanced analytics. Each scenario involves accessing SAP resources through external tools, where indirect licensing becomes crucial.

Licensing Models for Third-Party Access

SAP offers several licensing models to meet these indirect usage requirements, each structured to suit different scenarios and technical integrations.

1. User-Based Licensing

This is the traditional approach. It requires a license for every individual accessing SAP through an external system.

Features include:

• Named User Licenses: Each user accessing SAP indirectly must have a named user license.
• User Classification: Assign the appropriate license type based on the access level and interactions.
• Monitoring: Regular audits ensure user licenses align with usage patterns.

This model works well if it’s easy to identify individuals needing access to SAP data. However, managing named user licenses can become cumbersome as integrations grow and involve multiple users or systems.

Challenges in this model include:

• Tracking individuals who access SAP data through different third-party systems.
• Managing frequent changes in users, especially in dynamic teams or large organizations.

2. Package-Based Licensing

When user-based licensing is impractical due to the volume of users or data interactions, package-based licenses become more efficient. This approach relies on metrics such as:

• System Usage: Metrics like the number of transactions or volume of data processed.
• Capacity: Data processing levels or system integration capacities.

Package-based licensing is useful when systems, rather than individuals, primarily interact with SAP. It can significantly reduce the administrative burden of tracking individual users.

However, package-based licensing presents its challenges:

• Defining metrics accurately: Organizations must understand their system’s usage patterns well enough to predict package needs.
• Costs can escalate if transaction volumes grow unexpectedly, increasing usage beyond the original scope.

3. Digital Access Licensing

With the shift towards digital transformation, SAP introduced the Digital Access Model:

• Focus on Documents: Digital Access charges are based on the number of documents third-party systems created in the SAP system.
• IoT and Automated Processes: As organizations incorporate IoT and bots, Digital Access offers flexibility by licensing digital interactions like sensor data and automated processes.

This model can simplify licensing for digital-heavy companies by focusing on system outputs rather than user inputs.

Advantages of Digital Access include:

• Simplification of licensing models, reducing the need for tracking individual users.
• Flexibility in covering multiple devices and automated processes that interact with SAP data.

However, there are important considerations:

• Complexity in Document Definition: Defining what constitutes a “document” in SAP’s terms is sometimes challenging, leading to confusion.
• Unexpected Costs: If digital activities grow unexpectedly, costs can increase significantly.

Cost Implications and Optimization

Licensing isn’t just about compliance. It’s also about managing costs effectively.

Third-party licensing can have significant financial impacts due to:

• Initial License Acquisition: The upfront cost to acquire user or package licenses.
• Maintenance Fees: Ongoing fees for keeping licenses valid.
• Compliance Penalties: Costs due to under-licensing or misuse.
• Infrastructure Expenses: Potential costs for integrating third-party systems with SAP.

Cost Optimization Strategies:

1. Rightsizing Licenses: Assess your business requirements carefully and select the right mix of licensing models. For example, consider Digital Access to optimize costs where user-based licenses are cost-prohibitive.
2. Regular Monitoring and Audits: Conduct periodic audits to identify over- or under-licensed areas. This can help adjust license counts and reallocate resources to prevent overpayments.
3. Leverage SAP Tools: SAP provides tools like the SAP License Administration Workbench (LAW) to help track license usage and manage compliance more efficiently.
4. Negotiation with SAP: Organizations should also leverage their purchasing power and negotiate with SAP to get the best possible deal on licenses, especially when committing to large contracts or S/4HANA migrations.

Best Practices for Managing SAP Third-Party Licensing

1. License Optimization Strategies

Properly optimizing licenses can save both time and money.

Regular Audit and Assessment

• Track and review third-party system interactions with SAP.
• Monitor user activity levels and confirm whether license types match actual usage.
• Document every third-party system interacting with SAP to ensure compliance.
• Example: A manufacturing company could review its IoT devices to determine whether all sensor data interactions with SAP are appropriately licensed under Digital Access, avoiding unnecessary named user licenses.

User Classification

• Identify how users interact with SAP.
• Classify users correctly to ensure appropriate license allocation. Certain integrations may involve reducing the number of named user licenses by switching to package or digital models.
• User Role Analysis: To optimize costs, distinguish between different user roles, such as data viewers, contributors, or heavy users, and assign licenses that fit their interaction levels.

Integration Management

• Keep documentation of all integration points between SAP and third-party systems.
• Monitor the interactions volume and assess whether more cost-effective licensing models are applicable.
• Example: If a third-party CRM system is being integrated with SAP, it may be more cost-effective to use package-based licensing rather than named user licensing to manage interactions.

2. Compliance and Risk Management

Non-compliance can be costly, both in fines and in lost productivity.

Maintaining Compliance

• Conduct regular internal audits.
• Document all third-party accesses, even indirect ones, to maintain transparency.
• Establish governance policies and ensure relevant teams are educated about licensing requirements.

Risk Mitigation

• Implement tools to monitor and track licensing usage.
• Keep detailed logs of usage patterns and transactions.
• Regularly consult with SAP or licensing experts to understand new licensing models and avoid compliance pitfalls.
• Best Practice Example: Use SAP tools to track user access patterns to ensure no unauthorized users access SAP through third-party systems, which could lead to penalties for non-compliance.

Future Considerations for SAP Licensing

SAP licensing models are evolving rapidly, particularly with the move towards S/4HANA and the increasing adoption of cloud solutions.

Impact of Contract Conversions

• SAP clients moving from older versions to S/4HANA may need to reconsider existing contracts.
• Licensing structures may shift from traditional on-premise models to cloud-based subscription pricing.
• Cloud Readiness: As companies migrate, it is crucial to understand the difference between legacy and cloud-based licensing to avoid overspending.

Digital Transformation and New Models

• Digital Access Licensing will likely grow as organizations adopt more automation, IoT devices, and digital workflows.
• This change might affect your total cost of ownership (TCO) long-term. Therefore, you should be prepared to assess and evaluate these models.
• Emerging Challenges: With more digital transformation comes the complexity of managing increased data inputs and outputs, potentially leading to higher licensing costs. Understanding these challenges ahead of time is crucial.

Implementing Third-Party Access Licensing

Strategic Planning

Successful implementation requires a clear strategy that considers both current needs and future growth:

• Assess Integration Requirements: Consider all present and future integration points to avoid surprises down the line.
• Plan for Scalability: As your company grows, so might your licensing needs. Select models that can accommodate growth without excessive cost increases.
• Risk Evaluation: Conduct a thorough risk evaluation before implementing third-party access to understand potential compliance issues and cost implications.

Technical Considerations

Implementation isn’t just about paperwork. You need to account for the technology side as well:

• Integration Architecture: Consider how different systems communicate with SAP and the impact on licensing.
• Security: Ensure that any third-party integration follows your organization’s security standards.
• Performance: Ensure that integration is efficient to avoid bottlenecks affecting system performance.
• Monitoring Capabilities: Implement tools to monitor interactions between SAP and external systems to avoid licensing gaps.
• Best Practice Example: Use middleware solutions that facilitate secure and efficient data transfer between SAP and third-party applications while minimizing performance issues.

Negotiating and Managing Licensing Contracts

Contract Optimization

• Clearly define what third-party access you need from the start.
• Identify future growth expectations to prevent having to renegotiate terms prematurely.
• Document use cases comprehensively and ensure SAP acknowledges them in the contract to prevent disputes later.
• Example: If integrating new automation bots, clearly define how these bots will access SAP to ensure there is no ambiguity, which could lead to future compliance issues.

Flexibility and Scalability

• Try to include clauses that allow flexibility as your organization changes. Growth in users, new integration requirements, or migration to S/4HANA can all necessitate contract changes.
• Negotiation Tactics: During negotiations, push for flexibility in licensing terms that allow your company to adjust license numbers or change licensing models without significant penalties.

Common Challenges in SAP Third-Party Licensing

1. Technical Challenges

• Complexity of Integration: Systems interacting with SAP might be varied and complex. Establishing a standard for integration and managing different technologies can be challenging.
• Performance Issues: Not all third-party integrations are efficient. Mismanaged integrations can lead to performance bottlenecks that affect overall system efficiency.
• Security Concerns: Third-party access opens potential vulnerabilities. Ensuring the security of these connections while maintaining compliance is often a balancing act.
• Interoperability Issues: Different systems may not easily communicate with SAP, requiring custom middleware or API integrations, which can increase the complexity and cost of licensing.

2. Administrative Challenges

• User Provisioning and Control: Keeping track of which users have access and ensuring the correct license is applied to each can be cumbersome.
• Access Monitoring: Continuous monitoring of who is accessing SAP and through which systems is crucial to maintain compliance.
• Reporting: Compliance reporting and tracking third-party usage can be labor-intensive without the right tools.
• Governance Complexity: As organizations scale, user and system access governance becomes more difficult. Establishing clear protocols and using automated tools for governance can simplify management.

FAQ: Understanding SAP Third-Party Licensing

What is SAP Third-Party Licensing?
SAP Third-Party Licensing refers to the permissions and agreements required to use external tools or software that integrate with SAP systems.

Why do third-party licenses matter in SAP?
They define the legal terms for using external tools with SAP and ensure compliance.

How do third-party licenses impact SAP costs?
Depending on the tools integrated into your SAP system, they can add significant costs.

Are third-party license terms negotiable?
Many third-party software vendors are open to negotiating terms, especially for long-term contracts.

How do I track third-party licensing costs?
Regularly review invoices and contracts and use software asset management tools to monitor usage and costs.

What happens if third-party license terms are violated?
Violation may lead to penalties, audits, or removal of third-party integration from your SAP system.

Can third-party licenses be transferred?
It depends on the terms of the agreement. Some licenses allow transfers, while others do not.

How often should third-party licenses be reviewed?
Annually or whenever there’s a change in the SAP system or third-party software usage.

What are common third-party SAP integrations?
Examples include CRM software, business intelligence tools, and cloud services.

Do third-party licenses require separate maintenance contracts?
Usually, yes. Most third-party tools have their own maintenance and support agreements.

How can SAP users ensure third-party compliance?
By regularly auditing third-party tools, reviewing contracts, and using compliance monitoring software.

Are there tools to automate third-party license management?
Yes, asset management and license-tracking tools can automate these processes.

What should be included in a third-party SAP licensing audit?
Usage reports, contract terms, and compliance checks for each integrated tool.

What types of third-party licenses are available for SAP?
There are perpetual, subscription-based, and pay-per-user licenses, depending on the vendor.

Can third-party SAP licenses be downgraded or upgraded?
Many vendors allow license upgrades or downgrades depending on changing business needs.