SAP forces customers to pay for increased service
First prices rise for decade will hit users hard.
By Chris Kanaracus, IDG News Service | Published: 05:10, 17 July 2008
SAP customers will be paying higher bills from the start of next year. The German software company has said from 1 January, customers will be "transitioned" to the vendor's enterprise-level support, a change that will result in increased level of service but also higher fees.
SAP first announced the enterprise support offering in May. It will replace the Standard and Premium support options, and includes "a 24/7 service-level agreement, continuous quality checks, support advisory and advanced support for implementing SAP ERP enhancement packages and support packages."
Current customers who are "transitioned" will start receiving some enterprise support features now but won't see price hikes until January, SAP said.
The increases will be phased in gradually until 2012, eventually reaching the enterprise support level of 22 percent of licence fees. For example, a customer who is now paying 17 percent for standard support will see that rise to 18.3 percent in 2009 for enterprise support, according to SAP.
Forrester Research analyst Ray Wang said that competitive pressures from rivals such as Oracle were the likely reasons for the move. Although he also cited SAP's recent decision to scale back rollout plans for its on-demand Business ByDesign product for the midmarket. SAP has said it needs to first make sure it can derive enough profit from the offering.
SAP's "inability to scale BBD in a cost-effective manner and delays in moving BBD onto the new NetWeaver 7.1 platform have led to a major loss in potential revenue growth," Wang said.
Wang did note that SAP had held maintenance fees at 17 percent of licences for more than a decade.
On the other hand, many SAP customers Forrester has talked to "express minimal utilisation" of even the basic support offering, he said.
"Maintenance fees continue to erode the value of a perpetual licence. At 22 percent of net price, customers pay the equivalent of 2X their original licence cost over a typical 10-year ownership lifecycle," Wang added.
He recommended that customers begin weighing third-party maintenance providers, and start prodding SAP user groups to protest the increases: "This will be the real test of these users' groups effectiveness. It will become painfully quite obvious which individuals in leadership positions have been under the influence of SAP and which individuals will be willing to back the end users."
Mike O'Dell, chairman of the Americas' SAP Users Group, said that SAP had worked with ASUG members on the transition plan and those talks led to the graduated price increase time line.
SAP originally planned to move customers to the 22 percent rate immediately, said O'Dell, who is also CIO of building materials maker Pacific Coast Companies. "We weren't successful in blocking it. We would have liked to," he said. "We were able to get some concessions."
"I'm not going to tell you it's a good deal. From my company's perspective, we don't like to pay more for anything," O'Dell added. Pacific Coast has been on standard support, he said.
However, he said, "we have to be realistic about the fact that the price hasn't gone up in more than a decade and the reality is, costs have."
SAP's products are richer in features and more complex than in past years and therefore customers may require a higher level of support, he added.
