Enterprise Software Licensing in the 21st Century: An Industry Under Pressure and Seeking Higher Ground

Some of the most contentious issues between customer and vendor in the enterprise software market center around software licensing. What to do about the increasing need to provide access to the data and processes in core back office systems to external users and devices has become a major problem for customers and a major headache for vendors and partners.

While much of the public focus on this issue originated from the news that SAP had prevailed in a lawsuit against one of its customers that centered on the use of SAP data by the customer’s Salesforce.com users, the presumption that these issues are unique to the SAP ecosystem is shortsighted. Every vendor is struggling with how to deal with the indirect licensing problem as well as an unfortunate practice – the punitive or predatory audit used to pump up revenues or “force” a customer into an upgrade – that has been closely associated with indirect licensing issues.

I’ve followed these issues avidly for a number of years, spurred on by numerous conversations with CIOs, business users, user groups, partners and software execs from across the industry about licensing and audit best and worst practices. Each stakeholder has made a passionate case for their perspective, which for the record did not include anyone suggesting that suing customers is a way to resolve these issues. (Also for the record the folks at SAP have made it clear lawsuits are not in the plan going forward either.) What was obvious from these conversations is that the complexity of these problems doesn’t lend itself to an easy fix.

My research accelerated last fall as it became clear that while the greatest noise about the issue came from the SAP ecosystem, more and more conversations entailed discussions about what is happening in the ecosystems of other vendors, among them IBM, Infor, Microsoft, Oracle, and Salesforce.com.  While for the most part these conversations were about the legitimate confusion regarding what to do about licensing new classes of users and devices that weren’t even part of the enterprise software landscape a decade ago, the problem of what to do about audit practices, and the underlying issue of contract complexity and opacity had become increasingly problematic as well.

Early this year, SAP offered me a confidential briefing on its plans to remediate these problems, the culmination of an internal effort at SAP that had started before the publicity about the lawsuit. This became the jumping off point for a research effort to publish a report on industry-wide practices and what vendors intend to do about them. My original plan for a single, industry-wide report was thwarted by the initial reluctance of certain vendors to be interviewed for a report: two of the more important vendors in this space – both of which were the subject of many of the stakeholder conversations that originally catalyzed this effort – either maintained they had no such problems or felt no need to explain their practices to me. While I had plenty of research on what their customers and partners were thinking and doing, it was clear that an objective analysis would be difficult without direct input from the vendors.

SAP, on the other hand, was eager to give me full access to their thinking and plans, and I decided to start with a report (a link is here) on SAP’s plans while I worked on convincing reluctant vendors to come clean about the issue. One of the holdouts recently made a first pass at providing input for the larger report (a mere 30 minute conversation, which is hardly sufficient to cover such a complex issue, but it’s a start) and to this company’s credit it looks like they’re at least thinking hard about the licensing issue, and their approach to audits starts with the important basic requirement of separating the audit process from sales. I have high hopes that the other holdouts will soon come to the table and help complete the research.

Why should they? Because confusion about licensing and predatory audit practices are a wrong that desperately needed righting, and the sooner the industry as a whole owns up to the problem and starts to fix it the better. Customers are owed the decency of a transparent and understandable licensing regime that strikes a balance between users’ need for access to their data and processes as a prerequisite to innovation and vendors’ need to earn what they believe is a fair price for the software and services they provide. That balance must take into account the enormous changes in how technology is consumed today: There isn’t really any good excuse for vendors to continue licensing practices that date back to a pre-Internet era. Extending the usability of enterprise software to the greatest number of users – human and otherwise – is clearly in everyone’s best interest.

The other reason I hope other vendors step up and participate in my research is that, as of this writing, SAP is the only vendor trying to actively remediate these problems by working closely with users and user organizations like its American user group, ASUG, its German user group, DSAG, and an international user community flying the SUGEN flag. Are there other vendors working this hard on the problem? As far as I can tell at this point, no, but if there are I’d like to give them the voice they deserve. The other companies I’ve spoken to thus far are aware of the problems, particularly about what to do regarding IoT devices and audits, but I have yet to unearth a process such as the one SAP has undertaken over the last two years. Nonetheless, I’m pretty open to hearing why others think they have been proactive, and it’s my hope that publishing this first report will get their competitive juices flowing and help me broaden the scope of my research and publish a more comprehensive industry report.

So, please take time to read the report and weigh in via comments to this post on how you see SAP’s actions in light of what your company (if you’re a vendor) or your vendor (if you’re an end-user) is doing about these problems. And let me know if you agree that it’s high time that the opacity and obfuscation that characterize the contracting and licensing side of our industry be replaced with a set of best practices that are consistent with the fact that most vendors genuinely want to partner with customers and provide the highest levels of customer satisfaction and retention, and most customers want to have an honest and mutually beneficial relationship with their vendors. This can only happen with greater transparency and a recognition that customer-centricity isn’t just something executives shout from the keynote stage – it has to be practiced day in and day out in every aspect of a vendor’s interactions with their customers. Having seen the anger and frustration of long-time SAP customers – and having heard their threats to vote with their licensing dollars if SAP doesn’t fix these problems – I’m pretty sure the vendors that fail to change will eventually be swept away and replaced by those vendors that do put their money – and their customers’ money – where their mouth is.

I don’t believe that even the most well-designed and intentioned new licensing model will change the entire industry, but do read why I think SAP is on to something with its new model. And if you don’t agree or think there’s a better way, let me know – as I’m sure you will.