1/15/2010
08:41 AM
Bob Evans
Bob Evans
Commentary

Global CIO: SAP Blows Huge Opportunity With Timid Support Changes

SAP is overblowing its new support plan, which gives customers only marginally more choice.



Business is all about opportunities, and SAP just blew a big one. After summoning the institutional will to address its ancient pricing structure in light of today's dramatically different customer requirements and desires, SAP missed a golden opportunity to establish itself as the clear market leader over Oracle as SAP chose to make only minimal changes in its support pricing.

Yes, SAP deserves some credit for offering its customers and prospects a second option for support and maintenance—any alternative, however humble, is far more than Oracle's one-size-fits-all approach. But after all the melodrama of the past several months—user-group revolts over SAP's earlier plan for monolithic price increases, followed by peace talks that promised KPI-driven price changes to be announced in December, followed by a postponement for a month so that SAP could reconsider its reconsiderations—it's hard not to feel underwhelmed by SAP's new plan.

That new plan involves two versions of support: the company's traditional and much-loved Enterprise Support, and the newly arrived but clearly unloved stepchild called Standard Support. I say "clearly unloved" because if SAP itself can't be excited about the product, how the heck can it expect customers to get all whipped into a lather? To prove my point, check out this less than ringing endorsement for Standard from the SAP executive whose team is responsible for it:

"Standard Support is really a reactive offering for our customers; if they've got a problem, we'll fix it," said Janet Wood, vice president of maintenance.

Steady there, Janet, steady—you keep pumping up your products with that type of passionate enthusiasm and the customers will be beating your door down. (And for extensive background on SAP and its support policies and corporate strategies, please be sure to check out our "Recommended Reading" list at the end of this column.)

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You can learn the full details of the announcement in this excellent news analysis by my colleague Doug Henschen, who's editor-in-chief of our sister site Intelligent Enterprise. Doug's analysis includes the above comment from SAP's Wood, who went on to contrast the "reactive" Standard option with the "proactive" Enterprise option:

"Standard Support also includes enhancement packages and new releases but the Enterprise Support offering is proactive, so it's about working with customers to see issues before they experience a problem," said Woods.

In addition, Doug offers this insight about what the new SAP support offerings mean for CIOs:

Bowing to customer complaints about economic hardships, SAP also has frozen prices for existing Enterprise Support contracts at the 2009 level of 18.36%. The plan to gradually increase that rate will resume in 2011, bringing Enterprise contracts to 22% by 2016 instead of 2015, as previously planned. . . .

The change is a victory for SAP customers, user groups and the many who complained bitterly about the application vendor's July 2008 decision to increase maintenance and support fees from 17% to 22% over five years. But it's not a complete victory in that the Standard Support option—which was available only in Germany, Austria and Switzerland in 2009 but will be reintroduced worldwide—is set at 18%, a 1% increase from 2008 rates. What's more, Standard Support will be subject to inflationary price increases—a common practice but one that does not apply to Enterprise Support through 2016.

Those numbers underscore my contention that this minimalist approach allows SAP to put a check-mark in the box that says "customers say they want more support and maintenance options" without really advancing the long-term interests of its customers. Technically, SAP now offers tiered support options; practically, customer options are extremely limited.

It's as if McDonald's rolled out a new soft-drink policy along these lines: "We now have two and only two drink sizes and prices: Sumptuously Supreme and Not As Good. Here are the descriptions:

"--Sumptuously Supreme is 48 ounces and comes with a lid, a straw, free refills, your choice of flavors, your choice of ice or no ice, drink-holder, swizzle sticks, sweeteners, and a thank you from the order-taker. Its price is $2.00.

"—Not As Good is 40 ounces and comes with a lid, one ice cube, and a small napkin. Its price is $1.85."

I guess my main problem in all of this is SAP's apparent belief is that the world hasn't changed much in the past five or 10 years, and that the business model it rode to such phenomenal success in its first few decades existence will endure forever, regardless of changes in technology, competition, customer requirements, and global business climate. And that out-of-touch mentality is precisely what has caused SAP to miss this golden opportunity, and to miss it badly.

SAP could have positioned itself as the global enterprise-software company that has not only the widest range of superb technology but also the one with the most modern and customer-centric business models. But it didn't.

SAP could have positioned itself as the enterprise software company that is willing to share risks and rewards with its customers in everything from products to services to support to new-product development. But it didn't.

SAP could have buried Oracle as a serious contender for the top spot in global enterprise applications by clearly and unambiguously using a truly tiered support and maintenance structure—one with more than two barely separated price points—to differentiate itself unmistakably from Oracle's monolithic 22% for all. But it didn't.

SAP could have given its customers and prospects the incentive to throttle back on their evaluations of alternative vendors and approaches, including SaaS and other cloud models. But it didn't.

SAP had the chance to truly remake itself in the minds of its customers and prospects worldwide. But it didn't. And as a result, in today's tumultuous business-technology world, SAP might well learn that an opportunity is a terrible thing to waste.

RECOMMENDED READING:

Global CIO: Why SAP Won't Match Oracle's 22% Maintenance Fees

Global CIO: Where Do Oracle's Profits Come From?

Global CIO: Will SAP Move To Tiered Maintenance Fees?

Global CIO: SAP Is Testing Flat-Rate Pricing For Large Enterprises

Global CIO: An Open Letter To SAP CEO Leo Apotheker

Global CIO: Will Oracle Or SAP Blink First On 22% Maintenance Fees?

Global CIO: Oracle And SAP Race For Mid-Market Opportunities

Global CIO: SAP Eliminates All-Up-Front Payment Requirements

Global CIO: SAP Preps For Cloud Future Via New Intel Partnership

GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
or write to Bob at [email protected].

 

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