Wednesday, July 16, 2008

News Analysis: SAP Moves All Customers Onto More Expensive Enterprise Support

Margin Pressures Drive Maintenance Fee Increases
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.
Compared to the Rest of the Software Industry, Enterprise Support Does Deliver Relatively More Value...
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.
... However, Most Customers Barely Use What They Have.
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.
Your turn.
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:

(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.

220 comments:

1 – 200 of 220   Newer›   Newest»
Anonymous said...

This is an outrage. We need to get our UK User's Group to address this issue head on!

Anonymous said...

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?

Anonymous said...

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?

Anonymous said...

Is SAP any different from Oracle in this regard? We have the same issues with vendor lock in?

Anonymous said...

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.

R said...

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.

Anonymous said...

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!

Anonymous said...

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.

Anonymous said...

The DSAG has responded. They are good people and will support us. http://www.computerwoche.de/knowledge_center/erp/1868845/#

Anonymous said...

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.

Anonymous said...

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?

Anonymous said...

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.

Anonymous said...

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!

Anonymous said...

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.

Anonymous said...

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.

Anonymous said...

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!

Anonymous said...

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.

Anonymous said...

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!

R said...

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.

Anonymous said...

What do I do when my user group denies that anyone is complaining?

Anonymous said...

We used to be run by engineers. Now that SAP is run by Sales people, you can expect more of this to come.

Anonymous said...

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!

Anonymous said...

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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I still believe that some of the best venues to engage SAP are via the user groups.

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We used to be run by engineers. Now that SAP is run by Sales people, you can expect more of this to come.
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They had only gone a few paces when Hermione’s bandy-legged ginger cat, Crookshanks, came pelting out of the garden, bottle-brush tail held high in the air, chasing what looked like a muddy potato on legs. Harry recognized it instantly as a gnome. Barely ten inches high, its horny little feet pattered very fast as it sprinted across the yard and dived headlong into one of the Wellington boots that lay scattered around the door. Harry could hear the gnome giggling madly as Crookshanks inserted a paw into the boot, trying to reach it. Meanwhile, a very loud crashing noise was coming from the other side of the house. The source of the com¬motion was revealed as they entered the garden, and saw that Bill and Charlie both had their wands out, and were making two bat¬tered old tables fly high above the lawn, smashing into each other, each attempting to knock the other’s out of the air. Fred and George were cheering, Ginny was laughing, and Hermione was hovering near the hedge, apparently torn between amusement and anxiety.
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whatlivemom said...

"Mozilla has donated $5000 to the favorite charity of 12 Hollywood celebrities and will donate $25,000 more to the charity of whichever celebrity can raise the most for their cause.
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whatlivemom said...

Interesting read. The only thing G+ for business means currently is temporary higher SERPS. I've seen very little participation with users. Snag those consulting fees and make the killing while you can. This will be very short lived because businesses will robot post and users will start looking elsewhere when they want social content. G+ is participation driven - not business posts driven.
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whatlivemom said...

I remember when we were living in Ohio back in 2004 I was amazed how over weight the majority of the people were. But living there for 6 months I realized the lifestyle has a lot to do with it, with portions served at restaurant being Elephant size rather than human size it is not difficult to understand that people become HEAVY. We used to order 1
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A wonderful instance of hybrid realities. Here, of course, the pixels are materialized through some medium t...

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Smart indeed. Just wonder how they will address the painfully slow speeds so many airports seem to have... even if it's not their fault, if service is buggy, it makes them look bad [cheap?].
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Steve Garfield on pop culture and technology. Monday, December 19, 2011. Jon Bon Jovi is NOT Dead. "Heaven looks a lot like New Jersey" -jbj.Rest assured that Jon is fine! This photo was jus...
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Dream said...

“Mr. Crouch?” said Percy, suddenly abandoning his look of poker-stiff disapproval and positively writhing with excitement. “He speaks over two hundred! Mermish and Gobbledegook and Troll …”
“Anyone can speak Troll,” said Fred dismissively. “All you have to do is point and grunt.”
Percy threw Fred an extremely nasty look and stoked the fire vig¬orously to bring the kettle back to the boil.
“Any news of Bertha Jorkins yet, Ludo?” Mr. Weasley asked as Bagman settled himself down on the grass beside them all.
“Not a dicky bird,” said Bagman comfortably. “But she’ll turn up. Poor old Bertha … memory like a leaky cauldron and no sense of direction. Lost, you take my word for it. She’ll wander back into the office sometime in October, thinking it’s still July.”
“You don’t think it might be time to send someone to look for her?” Mr. Weasley suggested tentatively as Percy handed Bagman his tea.
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Unknown said...

I was at a dinner last week about technology and higher education, and the one thing the speakers all agreed on was that America's elite universities—Harvard and Princeton were the particular examples they cited—were just fundamentally and totally opposed to expanding the number of students they serve and this is a fixed point of the landscape. And then there's MIT: "on Monday, MIT is announcing that for the first time it will offer credentials – under the name 'MITx' – to students who comple...
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Two of the mistakes I've made over the years were to jealously guard my ideas for fear of someone stealing them and then to try and work on them in secret in anticipation of a big splashy product launch. Most of the things I've done that have been successful didn't need secrecy to work or tons of press to get going.
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The Burmese lifted the siege and pursued the invaders into Pu'er Prefecture, and defeated them there.[23] Ne Myo Sithu left a reinforced garrison, and returned to Ava in April 1766.[27]
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Karkaroff had a fruity, unctuous voice; when he stepped into the light pouring from the front doors of the castle they saw that he was tall and thin like Dumbledore, but his white hair was short, and his goatee (finishing in a small curl) did not entirely hide his rather weak chin. When he reached Dumbledore, he shook hands with both of his own.
“Dear old Hogwarts,” he said, looking up at the castle and smil¬ing; his teeth were rather yellow, and Harry noticed that his smile did not extend to his eyes, which remained cold and shrewd. “How good it is to be here, how good. … Viktor, come along, into the warmth … you don’t mind, Dumbledore? Viktor has a slight head cold. …”
Karkaroff beckoned forward one of his students. As the boy passed, Harry caught a glimpse of a prominent curved nose and thick black eyebrows. He didn’t need the punch on the arm Ron gave him, or the hiss in his ear, to recognize that profile.
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But Marcus, my friends are all on Facebook
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aaaaand that's why +Thomas Hawk is the man. i would tell you to follow him, but i'm relatively sure you already have :-)
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I think the lesson here is the thread careening out of control, barelling over a cliff and bursting into flames in the valley below with Jerry Springer calling the play-by-play. As 2011 comes to a close, I can't believe the hot topics are MG Siegler and SOPA.
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These services and apps were popular in 2011, do you or are you still using them? +1 the comment below.
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Unknown said...

Given the scale of the roll-outs we do at Google, they often take several days (or even longer). If we didn't announce or explain our improvements, users might get confused and speculate as to what the changes mean. So while it is a tough thing to balance, our approach on G+ has been to announce our changes shortly after we start to roll them out so that users that get the features right away understand what happened and so that our other users can understand what's coming.
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Indeed beautiful packaging / concept - just don't like having 3rd parties eval people.
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It’s toast now (thrown in the fire a few minutes ago, a new one ordered over the phone). But so much for the bills that needed to be paid this week. 2012 had better start getting its act together, as this is not an auspicious beginning.
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This is an outrage. We need to get our UK User's Group to address this issue head on!
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Unknown said...

we need to get you posting here more often. Google+ has a massive photography community who would really enjoy seeing your photos roll across their streams. Considering you were pretty active and engaging on Google Buzz I'm positive you'll find the Google+ platform and the people that fill it an awesome place to share your work.
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Now that's a cool use for SoundCloud! I usually just see people posting music but it's nice to see people posting talks and discussions. =)
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whatlivemom said...

The final belief is to believe in a fiction, which you know to be a fiction, there being nothing else. The exquisite truth is to know that it is a fiction and that you believe in it willingly." ~ Wallace Stevens in Opus Posthumous: Poems, Plays, Prose
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For the next few days, your Facebook News Feed will be filled with news about Facebook.
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It's not right, it's so wrong
Do we let it just go on
Turn our backs and carry on
Wake up, for it's too late

whatlivemom said...

Mitch Joel is a close friend, mentor and all around wicked smart guy. When he writes something, people listen and I'm excited that he has announced his next book called CTRL ALT DEL - Reboot Your Business (and Yourself) in a Connected World.
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The typical village had a pub or inn, shops, and a blacksmith. But many of these facilities are now gone, and many villages are dormitories for commuters. The population of such settlements ranges from a few hundred people to around five thousand. A village is distinguished from a town in that

yeu_yeu said...

Pharaohs often expanded them as part of their obligation to honor the gods, so that many temples grew to enormous size.[66] However, not all gods had temples dedicated to them, as many gods who were important in official theology received only minimal worship, and many household gods were the focus of popular veneration rather than temple ritual
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