SAP blinks 1st in fight with customers over maintenance fees

JasonC

A German publication yesterday announced that SAP was backing off, just a little, from its plan to force its enterprise customers onto a more expensive maintenance plan. SAP had announced that in the future offer one enterprise level maintenance and support plan which will be priced at 22% of the cost of the software. Customers will be moved (forced) to the new price level via gradual annual increases from the current 17% most of them pay. All enterprise customers were to be at 22% by 2012.

SAP users have been in an uproar and a number of the user groups have banded together to fight SAP on this. From 17% to 22% is a 29% increase in annual maintenance fees. Think about what that could do to an IT budget.

SAP was at first unsympathetic to the customer outcry. In fact when challenged about the price increase in a conversation with a group of independent industry analysts Doug Merritt, SAP’s EVP and GM of Business User Global Sales, delivered this terrific line in SAP's defense. “Oracle price-gouges customers even more than we do.” Seriously, he really said that. See http://blogs.zdnet.com/Howlett/?p=453

But yesterday SAP started singing a slightly different tune. In response to enormous pressure from the Germany/Austria SAP users group the vendor decided to let customers stay on the current plan (at 17%) through 2009, but indicated that price increases will start to happen in 2010. It's a small concession, one they'll likely have to offer now to all customers.

We in this community don't compete against SAP's enterprise products very often. Even so, I'd say a customer thinking of purchasing any of SAP's products should have some concern about a company that appears to make decisions to benefit its bottom line profitability at the expense of customers.

You might remember that SAP had previously purchased TomorrowNow and used that division to offer reduced price 3rd party support for those Oracle customers being forced to pay that ridiculous, outrageous 22% "maintenance tax" to Oracle (22% has been Oracle's standard rate for yeas). How quickly SAP has forgotten that paying 22% for maintenance and support is outrageous. But hey, in SAP's defense, Oracle price gouges customers more than they do (for another year or two anyway).

I'm curious if anybody in this community has talked to customers looking at leaving SAP over this price increase. Alternatively, is something you think can sway a purchase decision for a customer thinking of buying from SAP for the first time?


Jason Carter
www.partnercompete.com

Alex_Chow

Hmm... I haven't really competed with SAP enterprise yet. I do run into SAP B1 a lot though. Will this 22% enhancement be applied to B1 as well?

But 22% of a lot of money is a lot of money. It sucks for a corporation that spent millions of dollar on SAP implementation to all of a sudden faced with this fee increase. They're pretty much stuck in between a rock and a hard place.

Thank you for sharing this with the community! It's greatly appreciated!

JasonC

At this point SAP has said it has no plans to push these price increases on the B1 or All-in-one customer bases. How could they really? Nobody likes to switch software, but swapping out B1 for Dynamics or some alternative is just a bit less painful that switching from an enterprise SAP implementation after you've invested millions of dollars and a few years of implementation time. Besides, right or wrong the customers at that level view Oracle as their only alternative and know they'd get the same treatment. Up to the point of this concession yesterday, SAP's response to customer complaints had pretty much been Stop your whining already. It's not like you have any better options.

I realize I didn't share many links in the original message...here's some more source material for this story..
http://blogs.zdnet.com/Howlett/?p=555
http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9119232
http://blogs.zdnet.com/BTL/?p=11020
http://www.pcworld.com/businesscenter/article/149752/sap_users_support_debate_isnt_over.html

There has been some suggestion that SAP will see as much as an additional $60 million in revenue annually from this increase. What a great thing to do to your customers in a tightening economy. But it shows you how much more profit focused SAP is becoming under new leadership. They have what is reportedly a great Saas product in Business ByDesign which they will not launch because they cannot figure out how to make money on it and cannot risk a hit to the profit margins right now.

Jason Carter
www.partnercompete.com

Alex_Chow

This information is very useful to compete against B1. NAV partners can use the treatment to their Tier 1 customers as the basis for how they will treat B1 customers in the future.

Let's hope Microsoft will not go down that same route and jack up the enhancement fee because "everyone is doing it".

JasonC

Update: SAP apparently is not going to offer this in other regions. Dennis Howlett of course remains on the case (see http://blogs.zdnet.com/Howlett/?p=556) and spoke yesterday with Bill Wohl, Vice President, Field Communications SAP. Apparently there were some legal issues specific to Germany and Austria that had to be resolved. These required the company to tear up the existing contract and issue afresh so that it could impose the price increase. I see. SAP is giving these customers a one year breather on this 29% increase in maintenance fees, but plans to impose its will after that. It's not quite the change or heart or coming to their senses that it first appeared to be.

But here's a question for you. Those legal issues that are unique to Germany and Austria...do you suppose that's the truth, the whole truth, and nothing but the truth...or is this a preemptive public relations move to avoid having to make this same consession globally.

Thoughts?