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Risk

12/9/2009
08:49 PM
Bob Evans
Bob Evans
Commentary
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Global CIO: Why SAP Won't Match Oracle's 22% Maintenance Fees

Here are five reasons why SAP won't make the awful mistake of raising annual maintenance fees to match Oracle at 22%.

"We were spending 3% of our revenue on SAP. By switching to NetSuite, we reduced that cost to 0.1% of revenue."

With customers like these already looking for cheaper and simpler alternatives, will SAP customers perceive a hefty increase in support fees as a boost in the business value they're getting from SAP? I think not.

3) Cloud Computing's Inevitability SAP has one of the world's most technologically advanced and knowledgeable workforces and it has a staggering wealth of software expertise in every possible combination. And yet, it has no real cloud-computing solutions to offer its customers because the accompanying business model was less appealing to SAP than its current on-premises business with the wildly profitable margins on annual maintenance fees. There's nothing wrong with that—companies exist to maximize their profits and their opportunities. But they also exist to serve and delight customers, and SAP now realizes its timetable for getting Business ByDesign to market was dangerously off. So now it will be playing catch-up, and early adopters of Business ByDesign will be asked to deploy brand-new, never-used applications to run key parts of their businesses. In that context, does it sound like the right time to spring a 30% increase in annual maintenance fees (from 17% to 22%) on customers? Again, I think not.

4) The Bluff Gets Called If SAP were going to jack up annual fees, why wouldn't it have just done so last week? What's the big magic about a one-month reprieve? One astute software-industry guy I know says SAP was concerned that an increase at this time would create enormous blowback that could tarnish its quarterly numbers. Indeed—but I hope SAP's not expecting the reception in January to to be any better! If customers would have blown a gasket with a December announcement, then they will surely blow a gasket with a January surprise. In fact, it might be worse because they might perceive SAP had played them with talk of a customer-oriented delay to gather more input, etc., etc., etc. No, I think if SAP had the cards it needed, it would've played them.

5) A Lack Of Internal Discipline? Finally, a move of this magnitude would require incredibly buttoned-down internal organization, coordination, and message discipline: every executive and every division in every country telling the exact same story, with no variation chalked up to language or local custom or hard-to-control personalities or the new moon or anything else. And over the past several months, SAP has shown an astonishing lack of such internal discipline: one executive board member says one thing, one geography tries a new approach, new pricing schemes are rolled out here but not discussed there, alternative licensing models are alluded to vaguely but never explained, and more. SAP needs, above all else, to get its own internal strategies and messaging in order before it can reasonably expect to be able to spread the word to tens of thousands of customers around the world.

Your turn: if anybody's got five or one or 10 reasons why SAP should crank up its maintenance fees from 17% to 22%, send them my way and we'll post them right here in Global CIO.

RECOMMENDED READING:

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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