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Why Diageo’s $70 million headache has the SAP community running scared

SAP Indirect user licensing has been a hot topic for awhile, but with the $70 million Diageo verdict in, the collective blood pressure of the SAP user community has gone up. CEOs and CIOs around the globe are wondering what the Diageo case means for them and are no doubt scouring their SAP contracts to size up their risk. Is their fear warranted? Probably.

Diageo certainly didn’t believe it was at risk when it added third party applications to its system through a product purchased from SAP. According to Diageo’s claims in court, they thought they had licensed software from SAP that gave them permission for users to access their SAP environment through the third party application by way of the licensed gateway.

Ironically, it was actually the gateway software sold to Diageo by SAP that created the financial exposure for Diageo. SAP Process Integration (now part of the Process Orchestration suite) was designed to enable integrations with SAP ECC. Without it, at least in this case, there would have been no indirect users and so no lawsuit. It is a very interesting example of giving someone just enough rope to hang themselves. 

And if it can happen to Diageo, it can certainly happen to others. According to Robin Fry, director at the software licensing firm Cerno, “If a corporate as responsible as Diageo can be hit with a £59m claim, then many corporates and public sector organizations will inevitably be carrying latent liabilities for software license costs.”

At Sapphire Now in Orlando, SAP’s CEO Bill McDermott outlined the company’s new pricing model based on orders and “static read” access. It was intended to calm the anxiety, but after his speech, conference attendees were still worried and a little confused about indirect licensing. And there is some speculation that the new pricing announcement may be designed more to drive migration to SAP S4 HANA than to reduce licensing worries. Furthermore, because his comments only mentioned integrations associated with the order to cash and procure to pay processes and the narrow case of static reads, it looks like indirect user licensing is here to stay – even for companies who move to SAP S4 HANA.

As businesses integrate third party applications with SAP in order to increase efficiency, better manage human resources, optimize IT processes, ensure adequate security, achieve compliance, and improve customer service, indirect licensing will still be tricky and businesses will still face financial risks. There is just no way around it.

Are more lawsuits on the horizon? Many customers and analysts think so. Win one lawsuit and you tend to become more confident that you can win the next one. No doubt winning the Diageo case will not make SAP less aggressive in going after what it feels is fair compensation for its IP.

So what’s an enterprise to do? Examining contracts and mapping every integration with an ERP platform takes time, is disruptive to staff, and may still not be enough to prevent a lawsuit; even hiring a cadre of expensive lawyers might not help since a precedent has now been set by the Diageo ruling.

But you can’t just sit back and do nothing. Risk Management 101 says that when facing a risk, you should address it by reducing exposure to it either by transferring the risk or by minimizing the chance of it happening (and the impact or consequences should it happen). You can also reduce the uncertainty of the risk and then accept and continue to manage it, pay to transfer the risk, or exit current operations and remove exposure to the risk. Whatever the decision, it will be based on new more confident expectations. But to get there, you need to know what the risks are, their potential impact, and where they are coming from. And, ideally, not have to pay a fortune for this understanding.

Fortunately, Security Weaver can help. So instead of spending thousands of man-hours doing license management or hiring expensive attorneys, install our simple ABAP transport that automates reconciliation activities, identifies where indirect license risks might be coming from, and automates continuous optimization and tracking of direct and indirect SAP user licenses.

With Security Weaver, financial risk mitigation around SAP licensing is straightforward and simple. Click here to request a free custom demonstration of License Management or visit our solutions page to find out more.

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