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Negotiating with SAP: Would you like a License to Thrill?Derek Prior, PhDGartner Research

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Key IssuesWhat are the SAP licensing models and maintenance options?

How can enterprises negotiate best-in-class deals with SAP and protect their investments over time?

Hosted bymySAP Business Suite Pricing Model:

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RM

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AP S

CM

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P E

RP

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yS

AP F

I N

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AP H

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AP P

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Software Engine fees: (e.g Purchase Order/ Sales Order e.g Purchase Order/ Sales Order Industry Solutions based on industry metrics)Industry Solutions based on industry metrics)

Professional

E 3800Limited Prof.

E1600

(mobile E800)Employee

E400

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Named User fees (4 categories)

Developer

? Up to E5700

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mySAP Pricing Models:The introduction of mySAP ERP

SAP R/3 Enterprise or other single solution

NetWeaver : Web Application Server (Web AS)

Just R/3 Enterprise

or

CRM etc

Full NetWeaver : EP, XI, BW, KM, etc

HCM, Financials

CRM,

SRM

PLM

SCM

mySAP ERP

mySAP Business Suite

List Price for Professional

User: E2550 for R3 enterprise to E5000 for

CRM

List Price for Professional User:Approx E3000-E3500

List Price for Professional User: E3800

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SAP Maintenance

Standard offering (17%)

• Technical Support and Rights to New Versions

• 2 Early Watch checks and either SAP GoingLive Check, SAP GoingLive

Functional Upgrade Check, or SAP OS/DB Migration Check.

Max-Attention Service Level offering (20%)

• Guaranteed response time for very high priority incidents

• Safeguarding for up to 2 mission critical projects and named contact in

SAP support services

Max-Attention OnSite offering (23%)

• Above plus two full-time on-site consultants

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User Vendor

Ramped or steppedmaintenance disappearing

Selected versions not included in maintenance

Maintenance policy changing at vendor will

Vendor cancellationfor convenience

Shortened support periodsfor prior version

Increased maintenance fees

Maintenance starts day the license is signed

Separation of technical support from rights to new versions

Removal of technical support during warranty period

Decreasing level of service in standard offerings

Maintenance

$$$$Software Maintenance Trends

Hosted bySAP Maintenance Cost: Five Years

Assume 50% Discount on the $4,000,000 Software:

$2,000,000 Initial License Cost. 8% Cap Negotiated for Five Years

Maintenance Maintenance Maintenance and Support and Support and Support

at 17% at 20% at 23%

First Year: 2001 $ 340,000 $ 400,000 $ 460,000 Second Year: 8% cap $ 367,200 $ 432,000 $ 496,800 Third Year: 8% cap $ 396,576 $ 466,560 $ 536,544 Fourth Year: 8% cap $ 428,302 $ 503,885 $ 579,468 Fifth Year: 8% cap $ 462,566 $ 544,196 $ 625,825 Total Maintenance: $1,994,644 $2,346,641 $2,698,636

Year 6: Maintenance cap is over, based now on “then-current” list price: $4,862,025

Due 2006 $876,544 $972,405 $1,118,266

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License ModelChoice of e-business platform = all SAP applicationsor solutions = CRM, or other single application. Fee for three role-based, named users.Automated B2B transactions charged via software engines based on sales and purchase orders.Maintenance: 17 - 23 percent

Top Five Terms to Negotiate: Full 100 percent credit for R3 investment, and for future conversion

from mySAP ERP to mySAP Business Suite if required. On larger deals, minimize uplifts outside

Euro-zone countries Understand ‘indirect access’: Specify exactly when licenses for

external systems accessing SAP software are required, be particularly careful with BW (OpenHub)

Right to outsource Rights to custom-developed code

SAP License Terms to Negotiate: ‘For Your Eyes Only…’

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SAP Interface Fees‘From SAP, With Love…’

R/3 or R/3 Ent.

Real-time/BatchSynch/Asynch

Data in from any ISV or Legacy

App

Interface IN

Interface OUT SometimesFree, Sometimes not!!

BW

Interface OUT

Interface IN

SAP OpenHub.

- 3rd Party

Data Load.

Data Extract to Other 3rd PartyApplication, eg DataWarehouse

Free !

Not Free !

Free !Not Free !

All mySAP Apps

Interface OUT

Interface IN

SometimesFree, Sometimes not!!

Free !

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Charges for Changes in Technology

Example of onerous term and condition: “If the licensee decided to change from one supported database to another supported database, the cost for doing this will be horrendous.”

Likely way presented in the contract:

Database: Oracle (or any other specific database listed)

Example of solution (not legal advice):

”Licensee may transfer this software, at no additional cost, to any hardware platform, software operating system, or database that the vendor supports for this software.”

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Onerous term and condition: “If you drop maintenance, but after a year, want to re-start it, you are subject to whatever we want to charge at the time, and you will have absolutely no leverage.”

Likely way presented in SAP agreement: “In the event Maintenance is declined for some period of time, and is subsequently requested or reinstated, SAP will invoice Licensee the accrued Maintenance Fees associated with such time period plus a reinstatement fee. “

Example of solution (not legal advice): “Licensee can resume software maintenance for lapsed periods by paying an amount no greater than the support fee that would have been due if software maintenance had been continued over the lapsed period.”

Maintenance Reinstatement Fees: ‘Maintenance Is Forever?’

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Software Compliance: ‘The Auditor that Loved Me…’

Onerous term and condition: “We are going to send you software that you are not licensed to use. If you use this software in error, you will be out of compliance with this contract, and woe to you if we audit.”

Likely way presented in an SAP agreement:

“Licensee may only use the program modules referred to in the definition of software even if the licensee is technically able to use other modules from the software supplied.”

Example of solution (not legal advice): “Licensor shall not ship any software to licensee that licensee is not authorized to use.”

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Increased discounting, but new customers treated better than installed base

Only 25% of installed base has converted to mySAP licenses. These were larger customers with strongest rationale to upgrade. Believe the next 25% will take more convincing

Time of year (Year end December)

Portal deals Size of deal (average deal size in

2002 approx Euro 420,000) Credible competition Industry vertical (process

knowledge) Geography/Mid Market (reference

account)

SAP Negotiating Levers: ‘Never Say Never, Again…’

Hosted byPay-as-You-Go Agreements vs Buying everything up-front...

Evaluate against buying exactly what is needed

Establish minimum licenses to be retained after contract term

Ensure that licenses are transferable without limitation

Include new functionality and products in agreement

Build in flexibility to accommodate business change

Negotiate full credit for existing licenses

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What’s in a Suite...?

XI for non-SAP apps

Master Data management

Industry Solutions

xApps

mySAPBusiness Suite???

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Six Steps of Preparation for Licensing with SAP

1. Establish a negotiating team with representation from all participating business units.

2. Define requirements over two to three years with focus on funded projects.

3. Perform a physical inventory of SAP licenses and existing contract terms; understand new models and terms. Compare with new proposal.

4. Determine whether purchase can be made under existing agreement. Weigh re-licensing benefits against loss of favorable terms.

5. Balance additional discount with potential shelfware.

6. Leverage competition.