SAP Indirect Access Issues in Malaysia?

Is Malaysia Dealing with Indirect Access, Too?

Yup.

And in Australia, New Zealand, UK, Canada, Germany, South Africa, France, Belgium, Netherlands, Denmark, Sweden and many many more countries around the world.

I know because I’ve been getting letters from all of these places.  Too bad that they don’t come in stamped envelopes and that I’m not a philatelist.

Today’s blog post was inspired by a recent  Malaysian journalist’s inquiry on the topic of SAP Indirect Access.  As part of her adventure to SAP TechEd in Las Vegas this week, she wants to research the Indirect Access topic as well.  As she said, “someone who closely follows your work on SAP indirect access, mentioned you to me” and she “look(s) forward to reading more about SAP indirect access developments”.

I’ve never been to Malaysia but I think I want to go now :-).

I’m going to copy/paste my full response to her here.  I hope she doesn’t mind, but it’s as good a summary as I could write on what I’ve learned about SAP Indirect Access since my first blog post on the topic last June.

Onward!

Sam



Hi XXXXX,

Thanks for reaching out.

Unfortunately I won’t be at TechEd.

As far as learning more about SAP Indirect Access, I encourage you to read my blog posts on the topic and attached you will find the Duke Memorandum authored by Professor Barak Richman.  While it isn’t technical, it is very legal and pertains to US anti-trust law which may or may not apply to Malaysia.

I believe the SAP Indirect Access issue has three major components, and yes, as you point out, one of them is an IP matter and yes, SAP does have a right to charge for use/access of their products.

The other two aspects are:

  • the monopolistic application of the way they enforce their IP rights and
  • the fundamental business decision to enforce these non-value adding rights which prioritizes shareholder value over customer value.

The most serious issue here is SAP leveraging the fact that they hold a monopoly in this market from the perspective that once a client is on SAP it is very very hard to switch ERP vendors.  The recent UK court ruling in SAP v Diageo has only served to embolden the SAP salesforce who now go around the territories wielding the ultimate sales tool, extortion.

SAP Sales people enthusiastically approach their clients with the threat of license audits unless…and this is one of the key points of the anti-trust infraction…the client buys one of the products that SAP is pushing at the moment. If the client agrees to buy the SAP product, the threat of a difficult license audit miraculously disappears.

Many clients have been bullied into buying S4/Hana, hybris, Ariba, etc in this manner…even though clients don’t want, and may not even use, those products.  In addition, SAP provides proposals for their products and stipulates that there will be no additional charge for Indirect Access if the SAP products are purchased.  However, if you chose not to buy an SAP product, the Indirect Access fees are purposefully set to be prohibitively high so the client can’t afford to make the decision to buy from a third party.  As the Duke Memorandum clearly spells out, this practice is simply illegal.

You can see how when a CIO is presented with these monopolistic sales tactics she feels as if she is being pushed into a corner and a gun is put to her head.  The descriptions I’ve heard from CIO’s vary from “I’m done with SAP.” “I wouldn’t even buy lemonade from my SAP salesperson” to “I’ve got to live with the mafia like extortion and move on with my business” and “The best I can do is try and negotiate the fees down as much as possible, but I really don’t have much leverage and can’t compete with their legal team”.

It’s an extremely heated topic in the SAP world and if SAP isn’t very careful, they will quickly become the most hated software company in the world by CIO’s…which they are pretty close to becoming already.

The solution to this problem is very simple from a contractual and business perspective.

SAP should focus on delivering the best products in the world and drop the Indirect Access clause altogether. Indirect Access is effectively being used to prevent third party products, which clearly offer better value, from being purchased by clients.  This only serves to stifle innovation in the market, which only makes the monopoly stronger, which makes it more obvious that SAP is acting illegally.  Let the free market forces and competition do their magic.  SAP simply needs to level the playing field.

The more plausible solution for SAP is to become more explicit with their Indirect Access policies and more reasonable in the fees that they charge. I believe that is the direction that SAP is heading albeit at a snails pace, without the necessary detail required to write good contracts and no rational pricing model in sight.

SAP should also immediately begin policing the unethical, if not illegal, manner in which Indirect Access is being used in the field.  There is recent precedence in the SAP sales world where the sales organization has behaved illegally and SAP has instituted better Executive Management oversight.  I encourage you to read what’s going on in the Gupta case in South Africa.  I believe a dose of this oversight is also required in the Indirect Access situation.

No one argues that SAP has the right to charge for the use of their IP.  What everyone is arguing is that SAP is making a very poor business decision to do so.  Indirect Access simply serves to inflate SAP’s earnings, doesn’t deliver any perceived client business value, and worst of all, limits their clients’ choices and ability to innovate.

The market is hoping that SAP will get back to their mantra of being innovative, empathetic and aligned with the needs of their clients. People want to love SAP.  You will clearly see that at TechEd. There are a lot of exciting technological advances that make being part of the SAP ecosystem an enriching experience.  Unfortunately, SAP salespeople are destroying all of the goodwill that SAP has built up over the years with this Indirect Access weapon.

It’s quite sad to watch actually.  Short term shareholder goals once again take precedence over building what should be the world’s largest and best software company.

Sam

PS – In full disclosure, I am the CEO of one of these SAP Certified Third Party solutions and an SAP shareholder.

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