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Risk

12/1/2009
07:54 PM
Bob Evans
Bob Evans
Commentary
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Global CIO: Will SAP Move To Tiered Maintenance Fees?

SAP's intentions are always difficult to discern, but it might be on the verge of revising the support/maintenance fees its customers love to hate.

Maybe in my old age I'm turning into a sentimental squish, but deep down I do believe that SAP, in spite of its remarkably ineffective communication strategies, is trying to figure out the right pricing strategies for licensing and support that will work for itself, its customers, and its shareholders. The problem is that the big German company's blunderbuss communication approach makes it next to impossible to know what SAP is in fact doing, what it intends to do, and what it is trying to avoid.

As SAP tries to find the most effective way to price its products, and as it evaluates whether it should raise its support and maintenance fees, and as it tries to add profitable SaaS products to its on-premise mix, and as all of those issues roll up into the overall revenue model on which the company will execute over the next decade, SAP is gamefully stepping out onto a tightrope without a safety net—a risky endeavor it could just as easily have avoided.

And that's why I think SAP—in spite of its bumbling and stumbling attempts to coordinate and articulate its various strategies—deserves significant credit for its attempts, however disjointed and misunderstood they might be. So what I'm going to try to do here is weave together as best I can the various threads of SAP policies and hope the resulting tapestry gives some indication of the big picture SAP has in mind for CIOs around the globe.

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1) Let me start with SAP's announcement yesterday morning that it is postponing for one month its decision on whether to raise its support/maintenance fees from 17% to 22%. Earlier this year, SAP had announced it was definitely going to raise those fees, but a storm of protest from SAP customers caused the company to back down from that fee increase and instead work with groups of customers to test various metrics (KPIs) designed to demonstrate whether SAP enterprise support delivered significant value to customers, or not. In yesterday's press release, SAP says, "the 2009 KPI achievements of the SUGEN SAP Enterprise Support program have shown clear value to participating SAP customers." It did not say whether the value shown reached the threshhold that, under SAP's revised plan, would trigger the increase in support fees. SAP said it wants to spend another month talking with customers and independent customer groups to allow it to "maximize customer value," and that "a decision on pricing for Enterprise Support has therefore been postponed" until January.

THE UPSHOT: Worst case for CIOs, SAP will crank up support/maintenance fees from 17% to 22% and claim that CIOs should be happy because SAP took an extra month before making that jump. I don't think that will go over so well, and I don't think that's what SAP will say. Instead, I think they're going to to take a first stab at offering tiered support pricing—it won't be as extensive as most CIOs would like, but it will be a step in the right direction, and it will give SAP huge momentum with first-mover status in this issue of extreme importance to those CIOs. If SAP makes a reasonable move toward broadly tiered pricing for enterprise support, it will be a huge coup for SAP because CIOs will regard it as a true flexible business partner that's willing to embrace the new risk-reward strategies that the next five years will require. But overall, this well-intentioned but vague and obtuse message from SAP does little to give CIOs right here and right now a real sense of what they can expect—and the sooner SAP stops playing these peek-a-boo games with its global customers, the better off everyone will be.

2) Are support/maintenance fees a big issue for SAP's enterprise customers and their CIOs? SAP finally took a public stand on this question by saying in the press release that SAP "recognizes the ongoing pressures bearing down on IT budgets in the current economic environment." Bravo, SAP! It was just two months ago in a series of meetings at SAP's U.S. headquarters outside Philadelphia that a longtime SAP communications executive hectored my colleague Rob Preston and me about my columns questioning the value customers perceive they are getting from the annual maintenance fees charged by SAP and Oracle. That SAP executive went on to say that he meets with SAP customers all the time and that they "never, ever" mention a word about support fees being too high. In fact, he said, some customers even tell him that SAP can and maybe even should raise its annual support fees.

THE UPSHOT: Any technology company that would try to deny that much of 2008 and all of 2009 have put significant stress on their customers' IT budgets is being uninformed at best and dishonest at worst. By coming out and admitting that it is at least aware of its customers' financial plight, SAP has taken a big step toward significantly enhancing the level of trust CIOs are wiling to place in it, particularly after another SAP executive earlier this year said that he wishes the company had raised the support fees to 22% a few years ago in order to support SAP's stock price. Nobody likes to be played for a fool, and that's exactly how SAP's customers were made to feel by that statement and by a startlingly similar one from an Oracle executive at exactly the same time. Perhaps the passage of almost one full year has opened their eyes to the fact that no matter how vital an IT vendor's products might be to its enterprise customers, those customers always have alternatives, and they also have long memories.

3) Two weeks ago, SAP admitted to a German magazine that it was raising licensing fees for thousands of customers using older versions of SAP software. But in typically mysterious language, the SAP spokesperson who confirmed the move in the German magazine offered this down-the-rabbit-hole riddle:

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