Wednesday, July 30, 2008

Mad as hell: backlash brewing against SAP maintenance fee hike

User anger is growing against SAP's announced increase in maintenance support fees: to 22% of net license cost, up from 17% previously. Computerworld reported last week on the negative reaction of SAP users in the UK and Ireland, as related by Alan Bowling, chairman of SAP's user group in those countries:
The mandatory nature of this change along with the increase in cost has received hugely negative feedback from our membership to date," said Bowling.

The backlash has been growing since SAP's announcement on July 16 to customers that Standard Support, which is currently included in all licensing and maintenance contracts, would be replaced by Enterprise Support.

The pricing will increase from 17% of contract value to 22% of contract value, immediately applicable to new customers and introduced in a phased way for existing customers. In real terms, this is a 29.4% increase in the support element of the contracts over the next four years, said the user group.
Dennis Howlett summarizes the general feeling emerging from SAP customers:
  • SAP’s communications have lacked clarity.
  • What was once thought to be a new customer only issue will likely impact all SAP customers with the exception of those with a cut off of €30 million in discounted license fees plus BusinessOne customers and those with specially negotiated terms.
  • The one size fits all argument is not accepted as appropriate.
  • There will be a significant amount of negotiation around individual contracts.
  • Business value has yet to be demonstrated as a justification for the price hike.
Joshua Greenbaum recounts his recent conversation with one SAP customer, "who was basically furious at the maintenance hike:"
“We've already done our 2009 budget, and this sure as hell wasn't planned,” she told me. For her company, a long-standing SAP customer that has deployed pretty much everything SAP has to offer, this change to 22 percent is not a trivial matter: “We’re talking hundreds of thousands of dollars here,” she told me. Needless to say, this user asked to remain anonymous.
On the other hand, Josh thinks that SAP's maintenance fee hike can be justified in terms of additional value being delivered through its new "enhancement packs," which SAP claims significantly reduce the cost and pain of upgrades as well as improved response time for service requests.

My view? Don't think SAP is alone in this money grab. It is merely matching the level of maintenance fees already charged by Oracle. This was exactly the sort of duopoly pricing power that observers feared would emerge when Oracle acquired PeopleSoft.

Long term, I think some of the second tier vendors, such as Lawson, IFS, Microsoft, and even Infor, should take advantage of the situation and highlight their lower maintenance costs. They should also look into developing more innovative support models. For example:
  • Authorized third-party support. Sell the rights to third-party service providers to provide service, giving them the rights to maintain maintenance versions on their own servers--in other words, a licensed version of what Oracle accuses TomorrowNow of doing.

  • Bare-bones support options. For example, sell maintenance contracts where a customer only gets access to new versions and upgrades, with no help desk support. Some older customers never need or want the support desk services--but they still want access to patches and future upgrades. Why should these customers pay for something they don't want? Or sell access to patches and regulatory updates without access to future versions. Or, provide an option to buy future versions.
Why software vendors haven't generally offered such options in the past is a mystery to me. Perhaps some have done so, and I just don't know about them. If you have information on such plans, please let me know.

Otherwise, SAP's and Oracle's pushing the limits of customer tolerance may be just what's needed to spur such innovations.

Update, Aug. 15. The LawsonGuru blog points out that at the same time SAP is narrowing its support options by forcing all customers to a higher, more expensive level of support, Lawson is widening its support options. Lawson's basic level of support with bronze, silver, gold, and platinum options. It's not clear whether the bronze level is as bare-bones as I would like to see, but still Lawson is moving in the right direction.

Related posts
Vendor maintenance fees: just say no
Reading the fine print on ERP contracts
High software maintenance fees and what to do about them

1 comment:

Anonymous said...

I work with Oracle and SAP customers and there's a huge difference between the two companies maintenance offerings. For example, with Oracle your 22% means you never have to buy the software again. Even though SAP customers now also pay 22%, they are asked to buy the software again - with each new significant release.