SAP is moving all its customers to a single-tier Enterprise Support program regardless of size and IT budget.
SAP is taking a one-size-fits-all approach to product maintenance,
in which customers of all sizes will be switched to an Enterprise
Support program regardless of their size or IT budgets.
SAP will start transitioning current customers into Enterprise
Support this month at no additional cost, but it will start phasing
in pricing for this level of service at the rate of 8 percent per
year over the next four years starting in 2009, until it reaches
the standard cost of 22 percent of product license fees.
Current customers will pay 18.4 percent of license fees in 2009,
19.8 percent in 2010, 21.4 percent in 2011 and 22 percent in 2012, said
Mark Cordrey, vice president of SAP Active Global Support.
Analysts suggested that SAP is making this move because it needs to
boost revenue in the face of profit margin pressure from archrival
Oracle and because of the scaled-back launch of Business ByDesign.
Existing customers previously had the option of selecting Standard
or Premium support levels. However, the company announced early in
February 2008 that it would market the Enterprise Support program to
new customers. The company reported that more than 350 customers
have signed on to Enterprise Support. The next move is to transition
all existing customers to this level of service.
While 22 percent is fairly typical of what enterprise software
companies charge for support and maintenance, there is a concern that
this will be more than some small or midsize companies are willing to
pay. This move could spur some companies to switch to SAAS (software as
a service) applications if they are convinced it will save them money.
It's a valid question whether "overall is the industry served by
[charging] an average 22 percent maintenance cost for enterprise
software," said Josh Greenbaum, principal analyst with Enterprise
Applications Consulting in Berkeley, Calif.
For smaller companies that can only afford basic levels of support,
requiring them to enroll in a program "for a 22 percent maintenance
burden is not cost-effective," Greenbaum said.
"These are companies that more and more will be looking at on-demand
options for that very reason," he said. But then on-demand software
users will have to consider whether SAAS remains cost-effective when it
is used five years or more, he said.
However, Greenbaum said he believed that the move to a single
Enterprise Support program "in general should be a good thing for SAP
customers" since many of them are in the process of upgrading their
existing systems and buying new SAP products that are delivering new
"I think it's clear that these strategies are often potentially more
beneficial to the vendor than they are to the user community and the
onus is going to be on SAP to show these customers that haven't been in
Enterprise Support that it's advantageous to them," said Greenbaum.
Ray Wang, a Forrester Research analyst, said SAP's move is driven by
the increasing complexity of customer's IT and application
infrastructure and by a pressing need to bolster revenue.
One of those pressing reasons is what Wang said was the "failure of
the business ByDesign launch." The "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. Most
notably, SAP will not reach the 1,000 customer target by 2008 as
promised in its Q4 2007 earnings call."
Wang also took note of Oracle CEO Larry Ellison's statement that his
company was pursuing "an overall goal of reaching 50 percent margin and
20 percent earnings annual growth. The effect: SAP has had to react
with an equivalent profit margin growth strategy. Combined with the
recent payout to i2 and the pending TomorrowNow legal issues, SAP has
been left little choice but to respond with a maintenance fee increase
to achieve double-digit earnings growth."
In late June, SAP agreed to pay supply chain management software
maker i2 $83.3 million to settle a patent infringement lawsuit. Oracle
is also suing SAP, claiming that its TomorrowNow subsidiary stole
copyrighted customer support documentation and code from an Oracle Web
SAP contends that the cost of Enterprise Support is below the
average maintenance fees charged by other software companies. Cordrey
said that the phased-in price increases will help make Enterprise
Support affordable for customers of all sizes.
Enterprise support provides a 24/7 service-level agreement,
continuous quality checks, produce support advisories, and advanced
support for implementing ERP application enhancements and support
SAP officials said they decided to move existing customers to the
Enterprise Support program only after substantial discussions with SAP
user groups. SAP crafted the transition plan based on the
results of those talks, Cordrey said.