Announced at the 2008 Field Kick Off Meeting (FKOM), the elimination of the Standard and Premium support offerings was originally developed just for new customers. However, today's announcement that existing customers will be "transitioned" to Enterprise Support as of January 1, 2009 will come as an unpleasant surprise to SAP's 17,000 customers on basic support. This move may stem from a variety of factors including:
- Increasing complexity of the SAP user landscape. SAP often cites the movement towards SOA environments and the growing complexity of IT landscapes as the main drivers for a more comprehensive, differentiated, and streamlined support offering. In fact, SAP customers would concur that their environments have become more complex to manage and own. Many of SAP's largest customers have decided to skip the upgrade to ERP 6.0 and wait for SAP's next major release.
- Failure of Business ByDesign launch. Inability to scale BBD in a cost effective manner and delays in moving BBD onto the new NetWeaver 7.1 platform have led to a major loss in potential revenue growth. Most notably, SAP will not reach the 1000 customer target by 2008 as promised in its Q4 2007 earnings call.
- Margin pressure exerted by Oracle. During the 2007 Q4 earnings call, Oracle’s CEO, Larry Ellison, stated an overall goal of reaching 50 percent margin and 20 percent earnings annual growth. The effect - SAP has had to react with an equivalent profit margin growth strategy. Combined with the recent $83M payout to i2 and the pending TomorrowNow legal issues, SAP has been left little choice but to respond with a maintenance fee increase to achieve double digit earnings growth.
Despite the price hike, SAP should be given credit for holding maintenance fees at 17% for over a decade. Unlike the policies and practices of other vendors, SAP's increase does comes with additional benefits:
- Free trial period and graduated increase. Customers will be moved to Enterprise Support as of July and not begin payments until January 1st 2009. Expect increases of about 8% a year until the 22% maintenance fee is reached. For most customers this will occur around the 2011 - 2012 period.
- Upgrade commitment. SAP provides a technical upgrade commitment that every installed base customer can be upgraded to the next release. In addition, SAP commits to deliver all the tools required to manage a technical upgrade. However, customers must migrate to ERP 6.0 to take advantage of Enhancement Packages (EHPs).
- End to end operations support. Enterprise Support comes with a central test plan for core business processes, a quality manager that will validate test execution and completeness, and a central transport mechanism and change control system. SAP also commits to 7 X 24 support advisory, 7 X 24 root cause analysis, and continuous quality checks via remote access and supportability.
In conversations with over 100 SAP customers, most express minimal utilization of the existing Basic Support offerings. Basic Support typically includes problem resolution, quality management, SAP Solution Manager, SAP standards for solution operations, knowledge transfer, continuous improvement, and access to the SAP Service Marketplace. The average customer claims to connect with SAP less than 5 times a year. This is the software equivalent of getting an expensive but comprehensive insurance policy and never utilizing it.
The bottom line.
Maintenance fees continue to erode the value of a perpetual license. At 22% of net price, customers pay the equivalent of 2X their original license cost over a typical 10 year ownership lifecycle. Maintenance continues to be the most expensive cost component of enterprise software. Customers should take action by:
- Considering third party maintenance options. Rimini Street's recent announcement to provide third party maintenance in 2009 is worth a look. JD Edwards and PeopleSoft customers who have considered this option already save up to half of their Oracle maintenance fees.
- Galvanizing the SAP User Groups to take action. Now is the time that customers should leverage their independent users groups to organize a campaign against this maintenance fee increase. Groups such as ASUG, DSAG, SAP Users Group UK & Ireland need to step up to the plate and find a solution to this increase. This will be the real test of these users groups effectiveness. It will become painfully obvious which individuals in leadership positions have been under the influence of SAP and which individuals will be willing to back the end users.
- Determining long term SAP containment strategy. Most SAP customers adopted a single vendor strategy. The initial benefits were driven by a fear for complicated integrations, desire for process standardization, and need to expedite deployments pre Y2K. This strategy has led to vendor lock-in and vulnerability. Long term apps strategy should consider how to contain future risk in a single sourced ERP scenario.
You've heard my view, but I'm looking to see how you feel about this latest increase by SAP as well as the Oracle price increases.
For more details on how SAP has raised maintenance fees see the Forrester Report from March 3, 2008 "SAP Raises Maintenance Fees for New Customers"
For some other interesting posts on this topic check out the news time line:
- July 11, 2008, Enterprise System Spectator's Frank Scavo, "SAP Botching UP Support Transition"
- July 16, 2008, Irregular Enterprise's Dennis Howlett "SAP pulls the trigger on higher support costs" and SAP 'Mittelstand Customers Upset at SAP Maintenance Increases Computerworld Germany Link (for those of you who sprechen Deutch and Babelfish)
- July 17, 2008, The Register's Joe Fay "Comment on SAP forces customers onto premium support package"
- July 18, 2008, UK and Ireland SAP User's Group's Statement on SAP Support
- July 18, 2008, Cio WebLog's Scott Wilson, "SAP Jacks Support Costs"
- July 21, 2008, E-piphanies' Michael Hickins, "Tomorrow Now Comes Early"
- July 28, 2008, Irregular Enterprise's Dennis Howlett, "More dissent on SAP Maintenance Price Hike"
- NEW! - July 28, 2008, The Register's Chris Williams, "SAP Defends Forced Price Hike"
- NEW! - July 28, 2008 MyCustomer.com - Stuart Lauchlan "UPDATED: SAP customers furious at 29% hike in support costs
- NEW! - July 29, 2008, Enteprise AntiMatter's Joshua Greenbaum, "Friendly Fire: SAP Flubs the Maintenance Business"
- NEW! - July 30, 2008, Enterprise System Spectator's Frank Scavo, "Mad As Hell: Backlash Brewing Against SAP Maintenance Fee Hike"
- NEW! - July 31, 2008, Computing's Tom Young and Janie Davies, "Fury as SAP raises support costs"
(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers. All NDA's have been honored.)
Copyrighted 2008 by R Wang. All rights reserved.
23 comments:
This is an outrage. We need to get our UK User's Group to address this issue head on!
We're in the midst of a MaxAttention negotiation that has been painful and now this! We're not even finished with our upgrades to R/3 4.7. This is highway robbery!!! Who do we call at ASUG?
This is freakin ridiculous. We have our SAP rep coming by every 2 weeks with a new way to "help us realize the value" of our existing investment. Now they are asking for more money? Basically we are sticking on 4.7 and not doing the upgrade. We need a third party support option. What do you suggest?
Is SAP any different from Oracle in this regard? We have the same issues with vendor lock in?
Ray is there anyway you can funnel comments to SAP and find some alternatives to this chaos? We'd rather spend some money on new capabilities, not maintenance.
Hello! As you can imagine, this issues has generated a lot of interest today. A good piece of insight on ASUG came out this afternoon with Chris Kanaracus' conversation with Mike O'Dell, chairman of the Americas' SAP Users Group. http://www.infoworld.com/article/08/07/16/SAP_customers_forced_to_move_to_pricier_support-IDGNS_1.html
Basically it seems that they were able to push out the 22 percent rate increase which was a good concession. After hearing from a number of customers today, it may be best to see what else user groups can help with to manage the transition. This would be a great way for the user groups to demonstrate their value.
What will it take for SAP to invest our maintenance dollars in the areas and functionality they promised us 4 years ago instead of wasting it on SME initiatives that we do not benefit from? We're still waiting for basic things like configurators to work and for Duet to deliver some value!
Hi Ray! SAP's sales reps tried to sell us a MaxAttention deal last week and now they are back trying to tell us that even with Enterprise Support, we will still need extended maintenance. We are on 4.7 and I thought we would be fine till 2012.
I will send you an email to your personal email.
The DSAG has responded. They are good people and will support us. http://www.computerwoche.de/knowledge_center/erp/1868845/#
Maintenance revenue represents the largest component of SAP revenue. We are in the last days of major growth in the ERP model. ERP is now moving into the "laggard" stages where organic growth has slowed. Oracle has achieved growth primarily through acquisitions that hide the lack of organic growth. SAP has not. This phased increase of maintenance fees could obscure SAP's lack of organic growth.
It's unbelievable that SAP would first tell us your maintenance includes upgrades... then charge us for going to ERP 6.0. With that memory in play, they then say, we are putting you on 17% maintenance and we won't raise this like Oracle, then they go ahead and force us all on 22%. Where is the rationale in this? Are they really hurting for revenue this much?
It's amazing how the ASUG President completely caved on the issue and is now out there defending his position. Maybe he'll grow some balls and represent his user group instead of worrying about his enhancement requests and all the lime light he'll miss when he stands up to SAP.
my my my Mr. Strout at ASUG now looks really silly. Shame on him trying to defend a price increase as the head of ASUG. Will the real ASUG president please stand up!
SAP treat us no fair. We pay more and more every year and they give us less. We all need to tell SAP no. Maybe we all boycott SAP soon. They play no fair and we need to tell our sales people no more.
We have Bill McDermott out there trying to smooth things over. These execs at SAP really should stop trying to act like snake oil salesmen. They are worse than our politicians.
We should all rally at the next SAP User's group or event and protest the increase. Let's flood the Q&A with questions on what they will do to lower the cost of ownership of using SAP!
Seems like the European User's groups have the balls to stand up to SAP. Where is my ASUG dues going to? Something must be up when the people you pay to represent you decide to cave in on one of the most important member issues of our time.
SAP has gotten greedy. We've spent so much for maintenance and now they come back for more. We need to tell user groups to fight back!
I still believe that some of the best venues to engage SAP are via the user groups. These are independent membership based entities. As member's of these groups, you can become active and do the following:
1. Begin a special interest group (SIG), if one doesn't exist, on how to build a long term SAP plan and related long term ERP Strategy
2. Conduct a survey and share with each other results of how often users utilize SAP maintenance, where they use maintenance, and what value has been gained to date.
3. Seek delivery times for unmet functional promises. Pulling together by industry a list of requirements promised but not yet delivered via the user groups is a common success story.
4. Figure out how to partner with SAP in the long run and establish ground rules for maintenance increases.
5. Advocate for third party maintenance as that will provide a lot of choice.
What do I do when my user group denies that anyone is complaining?
We used to be run by engineers. Now that SAP is run by Sales people, you can expect more of this to come.
The nerve of these people to raise maintenance right after I paid to upgrade to ERP 6.0. On top of this, where's all the stuff we needed in 4.6c that was never delivered. I've paid a ton in maintenance to date!
Arrogance of SAP. Naivety of us the customer to buy into a sole source vendor strategy. We made the assumption our maintenance dollars would go to those enhancements that would impact our industry. Instead, they wasted US billions on NetWeaver and Business For Design, leaving us with huge maintenance bills.
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