SAP overlicensing

From sublicensing to overlicensing

SAP license management is regarded in the SAP community as an extremely complex and multi-layered topic that requires in-depth technical and legal expertise. Due to the large number of software products and the complexity involved, it is particularly difficult to define software license compliance precisely. Existing SAP customers who neglect this issue risk considerable financial disadvantages.

SAP is entitled to check the correct licensing of its existing SAP customers: In the past, there was a popular trick used by SAP sales representatives in classic R/3. Usually in the summer, when vacation interns were present, the number of R/3 users increased. Technically, it was no problem to register more users in the system than the R/3 license agreement allowed. A random license measurement by SAP then often revealed under-licensing - additional licenses had to be purchased. After the vacation interns left, there was over-licensing and from then on SAP collected a substantial maintenance fee.

The strategic orientation for existing SAP customers must aim to ensure compliance together with optimal license costs for on-prem and cloud. Over-licensing is a major cost factor. Those who are over-licensed are paying too much, which is often encouraged by SAP's tier-based pricing model, where customers buy additional licenses to achieve discount levels (so-called shelfware, i.e. unused licenses).

Over-licensing and downstream support and subscription costs

To overcome the challenge of "over-licensing", lawyers and IT experts recommend either setting up an internal license management office that reports directly to the CIO or CFO, or using external SAM (Software Asset Management) service providers. SAM solutions help to ensure SAP compliance, analyze the S/4 migration, compare Indirect Access with Direct Access, and evaluate SAP SaaS options. An intensive license review can often pay off financially.

On-prem and cloud license optimization requires a detailed insight into the actual use of SAP installations. It is crucial to identify unused licenses (shelfware) in order to reallocate resources to other users or systems. When it comes to user licensing, the biggest cost driver is over-licensing due to incorrect license type allocation, e.g. professional licenses for managers who only use the SAP system occasionally or not at all, or due to inactive and duplicate ERP users.

End of support, license termination and decommissioning

The switch to S/4 will be accelerated by the announced end of mainstream maintenance for core applications of SAP Business Suite 7 (ERP/ECC 6.0) at the end of 2027/2030 and perhaps also in 2033. The maintenance fees (maintenance fees) are generally payable from delivery of the software.

More than ten years ago, Gartner analysts pointed out that the sovereignty over one's own licenses is an invaluable asset. Long before the cloud computing era with the "subscription" license model, there was a discourse on ERP autonomy with self-owned licenses!

Existing customers with their own licenses have the right to terminate maintenance with SAP and switch to a third-party provider. The acquired right to use the software expires in very few cases. SAP disapproves of this step, which can often lead to legal disputes when returning to SAP maintenance.

There are defined processes for license decommissioning: SAP offers the option of terminating unused on-prem licenses together with the associated maintenance level (decommissioning) if a corresponding subscription for new cloud services (Cloud Extension Program) or on-prem licenses is concluded. However, no maintenance fees paid in advance will be refunded.

Second-hand SAP software

The trade in used SAP licenses is based on the fact that a purchased software usage right rarely has an expiration date. Courts have confirmed the legality of passing on purchased licenses under certain technical and logical conditions. Although IT providers such as SAP, Microsoft, Adobe and Oracle are opposed to this market and have fought against it, reselling to third parties is a way of optimizing licenses. However, the sale of legacy licenses can lead to considerable discussions and disadvantages with regard to future negotiations and the partnership with SAP.

SAP license agreements harbour unexpected cost risks. Skilful and targeted preparation of license negotiations is necessary in order to avoid these risks and realize potential savings. As SAP does not make the price and conditions list (PKL) publicly accessible and the actual price list is a non-public Excel table, information on metrics and prices is difficult to obtain. However, the DSAG user association regularly provides its members with the price lists and delta information.

S/4 license conversion for on-prem and cloud

License conversion is central to the S/4 migration. The product conversion option, which essentially retained old R/3 contract components, has been discontinued since PKL Q2/2023. For existing customers, the primary option is therefore Contract Conversion (CC), which offsets the entire existing license value as a credit. With CC, the customer loses all old rights and switches to the current license model. In addition, SAP generally requires that the value of the new contract must be at least two percent higher than the list price of the licenses included in the old contract.

SAP is also gradually moving from usage-based to entitlement-based licensing. This is the new reality for all customers with existing S/4, Rise or Grow contracts. Assigning too many roles ("monster roles") can quickly lead to expensive licenses. The strategy here should be to revise the authorization concept before the license measurement in order to reduce the risk of potentially expensive authorization-based allocation.

Vendor lock-in and Full Use Equivalent (SAP FUE)

SAP is pursuing a cloud strategy with its Rise offering. Rise is a subscription model in which the customer changes from owner to tenant. In the cloud contract, the right of use expires at the end of the contract and SAP is entitled to delete all data one day after the end of the contract. This leads to a vendor lock-in.

The central license model in the cloud context is the Full Use Equivalent (FUE). FUE is a complex set of rules that converts existing licenses into cloud subscriptions. The complexity of the FUE model is a key driver of the increased complexity in license management. SAP does not have an official cloud exit strategy, which is why the path to the cloud is often described as a one-way street. Existing customers lose all autonomy over their ERP as a result of the FUE conversion.

Finally, companies are advised to continuously optimize their licensing landscape and transparently query the actual costs, including annual increases, for cloud services in order to avoid over-licensing. Decommissioning legacy systems after outsourcing historical data to audit-proof platforms can also enable massive cost savings of 80 percent and more in operating costs, as legacy systems can be shut down completely.

SAP has no tools to orchestrate a breathing ERP system with a fluctuating number of users, i.e. flexible software licenses. Existing SAP customers can always buy, but returning ERP licenses, decommissioning licenses or suspending maintenance and service fees is always a problem - almost impossible! If SAP wants to remain a "friend" of the German economy, new license rules must be included in the PKL (SAP price and conditions list).