12/1/2009
07:54 PM
Bob Evans
Bob Evans
Commentary

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:

"The price increases concern single accounts and therefore are a mixture of price reductions and, in part, price increases." Now I don't know about you, but if I'm faced with a price increase and can choose whether that increase comes across as a price reduction or a price increase, I'm gonna go with lower price 100 times out of 100. It would be a huge mistake for SAP to try to hide behind the fact that it's a German company, and therefore can't really coordinate its messages for the German market with those for the U.S. market. That's a lot of nonsense: its customers are global, its partner ecosystem is global, its pricing and fee structures have to be global, and it shouldn't be too terribly difficult to have its communication be globally consistent as well.

THE UPSHOT: Is SAP raising fees or isn't it? Is it offering flat-rate pricing or isn't it? With SAP, it's hard to tell. At that meeting two months ago at SAP headquarters, I asked the very helpful and professional PR team about a different news story in a German magazine that had a member of SAP's extremely powerful executive board saying that the company was going to offer customers flat-rate pricing. The SAP PR folks said that the article stands on its own, and declined further comment. So is the company going to offer flat-rate pricing? One executive board member says yes, but the company overall says no comment. That is of course every company's right, but it makes it kinda tough for customers when they don't know if prices are going up, down, or sideways. You can read about that here in "Global CIO: SAP Is Testing Flat-Rate Pricing For Large Enterprises". It seems to me that SAP has some good things to tell its customers, and it would be good for everyone involved if SAP would just come out tell those things in clear, globally consistent, and unambiguous terms.

4) One of the best enterprise-software analysts in the world, Ray Wang of the Altimeter Group, wrote in a blog post called "SAP Should Still Be Given Credit For Undertaking A Huge Endeavor" that SAP's moves took foresight and courage. Referring to SAP's attempt earlier this year to unilaterally raise support fees, Ray's blog says in part, "Despite attempting to raise maintenance fees in the middle of one of the worst global recessions, the SUGEN agreement with SAP is a good faith gesture and a step in the right direction. While this is not a legally binding agreement, the deal calls for SAP to limit increases until demonstrable results from the KPI’s have been achieved. This is not an easy challenge but a few props should go out to SAP because: (1) SAP’s embarking on a risky but unique program to show value; (2) Benchmarking 100 global customers against 10/11 KPI’s creates data consistency challenges; and (3) Agreeing to present results in the face of public opinion takes courage."

THE UPSHOT: There's a time for all things, and the time for anger and pushback was early this year, and SAP customers expressed their feelings plainly and clearly. And the big thing is, SAP was at least willing to step back and, it would appear, to listen—that's a good first step. An even better second step would be to continue seizing the initiative and begin building out a flexible and customer-centric tiered support system—if SAP does that, then the anger will be forgotten and it will be celebration time for CIOs around the world. And it will also be time to watch Oracle closely: if SAP claims this first-mover status, can Oracle afford to stand pat?

5) In counterpoint to Ray Wang's take on the SAP announcement, Strategy Analysis CEO and SAP expert Helmuth Gumbel casts a skeptical view over the SAP announcements and says they reflect ongoing internal confusion and disarray, as well as lingering detachment from customers. Here's part of the analysis offered by Helmuth in a recent post: "Today, both SAP and DSAG, the German SAP user group, issued press releases. Both on Enterprise Support. While SAP talks about significant progress with the KPI-project, DSAG expresses hopes for more realistic definitions and broader samples. The two are just no more on the same page. SAP recognizes the impasse and hopes to fix it next year. Until such time, all pricing decisions have been suspended. DSAG expects that there may be room for a total revision of the SAP support offerings--even down to standard support. This is a clear win for the users. However, it leaves those users in an uncomfortable state who have either agreed to price increases or opted for Enterprise Support. Clearly, they have been too fast to give up."

THE UPSHOT: Helmuth knows SAP and its team and its methods extremely well so it would be unwise to discount his skepticism. And he's right that there's a lot of messy details to address, and that some customers will feel tricked for having moved too soon while others will feel trapped for not having moved soon enough. But with many thousands of customers, there's no clean and precise way for SAP to move on this, so I think Helmuth is seeing this glass only half-empty.

One final thought: a few weeks ago, I spoke for about half an hour with SAP global chief communications officer Herbert Heitmann. In the course of our conversation, one of the things he said was, "We know that we at SAP have not always done a good job of communicating with the public about who we are and what we are doing. We are working very hard to change that."

I hope Heitmann succeeds, because SAP's customers have a lot—a whole lot—riding on SAP and its future directions. And when SAP can't or won't clearly and plainly articulate its plans and decisions, it sure doesn't make it any easier for those customers from all over the globe to plan for the future and have confidence that SAP will be a force of positive innovation for them going forward.

In that respect, January's announcements from SAP should be extremely interesting—and I hope the company's communication about those announcements doesn't end up leaving customers wondering whether the news is good or bad.

RECOMMENDED READING:

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

Global CIO: An Open Letter To SAP CEO Leo Apotheker

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

Global CIO: Have Oracle And SAP Hit Tipping Point With 22% Fees?

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

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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