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Monday, February 04, 2013

SAP Goes Back to the Well for a Maintenance Fee Hike

Jarret Pazahanick alerted me to an email that went out this morning to SAP partners, announcing a unilateral price increase on standard support, for new maintenance contracts signed after July 15, 2013.

The email reads, in part,
To be able to provide the same level of support in the future, we will change the maintenance rate for new maintenance contracts with SAP Standard Support from 18% to 19%, effective July 15, 2013.

This moderate adjustment does not apply to any existing maintenance contracts for SAP Standard Support closed before July 15, 2013. We also want to be respectful about budgets being planned for 2013. Therefore, we encourage you to take advantage of the opportunity to place purchase orders with SAP Standard Support ahead of this change at the existing 18% rate until July 14, 2013.
I would point out that this is not a 1% increase in maintenance fees: it is a 5.5% increase (1/18 = 5.5%).

If I were an SAP customer, I would have four questions for SAP:
  1. What improvements in SAP support will SAP deliver to justify this 5.5% price increase? Can we expect our internal costs to drop by at least 5.5% as a result of SAP's improvements in its support program?
     
  2. What is the gross margin on SAP's maintenance business today, and how will that change after this increase is in effect? Maintenance is the most profitable segment in SAP's financial performance. Why should it become even more profitable? 
     
  3. How have SAP's cost of support increased to justify this increase in my maintenance fees? Normally the cost to support mature products decreases over time, as issues with the program code are resolved. Offshoring of application support and deflection of support activities to SAP's user and partner network also have introduced support efficiencies. Shouldn't SAP be considering a reduction in maintenance fees rather than an increase?
     
  4. Since SAP uses some of its maintenance revenue to fund development of new products as well as make acquisitions, will SAP provide these new products to customers at no charge? It seems SAP charges customers for new products twice: once, when it charges maintenance fees, and again when existing customers buy those new products. 
Several years ago, SAP customers fought back SAP's attempts to impose a maintenance fee increase by forcing all customers to move from standard support (at 18%) to enterprise support (at 22%). After a great deal of public outcry, SAP backed down.  Now SAP appears to be trying to impose a smaller price increase, with no apparent improvement in service, in hopes customers will not notice.

The only good news in this announcement is for providers of SAP third-party maintenance, such as Rimini Street.

Update: Chris Kanaracus at IDG News Service reports on the SAP maintenance fee hike. Larry Dignan at ZDnet also chimes in. Ray Wang provides more background and analysis.

Update, Feb 5: Dennis Howlett has a deeper dive, and he gets clarification from SAP on several issues. 

Related Posts

SAP backs down on 22% maintenance fees
Mad as hell: backlash brewing against SAP maintenance fee hike

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by Frank Scavo, 2/04/2013 10:30:00 AM | permalink | e-mail this!

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 Reader Comments:

Great questions Frank on an important topic for SAP customers. By all accounts this only affects a small amount of customers given that a "majority" are on Enterprise Support but wondering why SAP would stir up a hornets nest on maintenance and the value it brings.

I know that SAP HCM customers will be upset with ANY increases as many would like to see a decrease given SAP's strategic direction that for several key areas of HCM that SuccessFactors is where the innovation will be going forward and obviously it comes with additional licenses.

I thought Jon Reed summed it up very well yesterday on Twitter:

"SAP (+ other) on-prem vendors need to rethink support pricing/come up w/ smart new options,they're milking an aging cow"
 
what is the chance of a customer-owned (ala Vanguard for personal investment/retirement accounts) or non-profit foundation type of organization (ala The Document Foundation for LibreOffice), providing an open source ERP/SCM/CRM software suite at "at-cost" (ala Vanguard) pricing?

Are the top "Global 2000" CXO execs so "religious"/zealous in neo-liberal ideology, that 5% of these companies don't see the screamingly obvious ROI of each contributing 1% each to create & fund such an organization? Or perhaps these companies next-quarter extremist orientation prevents them to making investments that are obviously great ROI in a 5 yr timeframe?

Is it too idealistic to hope that such an organization would be a legitimate competitor to the SAP/Oracle oligopoly by 2020?

Mr. Scavo, would enjoy hearing your take/response to my questions in this comment.

Cheers
 
Your questions are really relevant. I would also like to point out some of the simple steps which can be taken for reducing first of all the license cost :
1. Locking users for inactivity on a regular basis
2. Making sure users are classified across all the system by proper license type
3. Having the the same first and last name in all the systems
4. Turning on the parameter so users cannot have multiple logons
SAP Audit |SAP Controls| SAP Security Audit

 
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