SAP Third Party – Indirect Usage Licensing Part 2

For those who may not be aware, SAP is not the first company to require user licenses for third party or “indirect usage.” This requirement is becoming more commonplace, and some companies are quite aggressive with it. This follow-up to my previous post on SAP Third Party – Indirect Usage Licensing Part 1 will address real opportunities here.

Over the years, SAP has set itself apart by aggressively pursuing sales while generally maintaining good customer relations. SAP’s strategy is a balancing act that has served them well. Generally, SAP has avoided the market perception of a ruthless, do-anything-to-get-the-sale software vendor.

While their third-party, indirect software usage may undermine that avoidance to some, SAP has options to avoid poor perceptions.

A Third Party/Indirect Usage Win-Win for SAP

Like any other company, revenue growth is a primary focus. For software companies, expanding the software footprint within the customer base is directly related to revenue growth.

SAP as a company wants to grow revenue and expand their software footprint. What if there is a way to achieve this and satisfy your customers as well?

Would you agree this would be a win-win?

Customer Perception of the SAP Third Party Indirect Usage Licensing

To a customer, purchasing licenses for “indirect usage” feels as if they are paying for something and not receiving any benefit. A customer receives no “value” in this approach. Yes SAP, you have your Intellectual Property (“IP”) to protect, and yes, you developed that IP.

I am not talking about a legal issue with your IP. Instead, I am referring to a sales, marketing, and customer relations issue.

Add a customer’s lack of awareness to the perception of “no value,” and you have a recipe for difficult customer relationships. SAP third-party or indirect software usage presents an unbudgeted “pure expense” from a customer viewpoint. Most customers are not aware of the indirect usage requirement, so they don’t budget for it.

SAP, Your Third Party or Indirect Usage Answer

Provide your customers a value-added alternative to indirect usage or third-party compliance issues. Give them an option to substitute the third-party or indirect usage cost they would have incurred in the form of other SAP applications or solutions. This way, your customers are receiving something of value, you are expanding your software footprint, and you are still gaining the revenue you were looking for without the nasty reputation. If necessary, give them a deferred payment window so they can plan for and budget the change.

Provide your customers a value-added alternative to indirect usage or third-party compliance issues.

You can gain a huge advantage by targeting certain application deployments. For example, if you want to expand your Cloud sales, HANA, or mobile, you could pick the various products you will allow as a substitute for the indirect usage fees. This in turn boosts your sales of these newer products and provides your customers with something meaningful. This method has huge strategic benefits– for example, each HANA sale potentially displaces Oracle. Each CRM sale substitute (for the indirect usage) potentially displaces Salesforce.

Expand Application Footprint and Increase Revenue

Always be ready to trade the third-party integration for a deeper footprint that keeps a competitor out of the client. Clients benefit from new software capabilities, and SAP benefits from a revenue stream without the negative relationship consequences of forcing the third-party maintenance issue. This also becomes a differentiator with Oracle and other vendors who may push the third-party issue. Ultimately, SAP still gains the additional revenue.

You could structure contracts to defer third-party usage fees by adding some tradeoff in contracts like “as long as annual license revenue is at least ‘x’ no 3rd party licenses.” By doing this you are taking a “gentler” approach in preparing customers for a possible future license event. This takes the surprise, frustration, and shock out of the equation while keeping your revenue stream more predictable and giving them a chance to budget for the spend.

Conclusion on SAP Indirect Usage or Third-Party Usage Sales and Marketing Options

SAP, you have many options here. You can maintain a positive image by noting that you will defer indirect usage or third-party fees as long as a customer’s annual, net new license spend is “X” amount a year. If they need new licenses for additional users, the customer perceives this as a benefit, and they can gain additional time to budget for an eventual indirect usage fee. You are still satisfying your core requirement to grow revenue while increasing your solution footprint within your customer base, all in a less offensive way than the customer perception of a cost for no benefit. While the IP is yours SAP, a customer may find indirect usage fees offensive because the data and business are theirs.

This creates a more open environment, and many more customers may be willing to “come clean” about indirect usage. By providing some kind of perceived benefit, they are more likely to address the compliance (rather than hiding it). Additionally, the customer and SAP gain something of value. Talk about a Win-Win!