SAP AG still has thousands of users on its R/3 ERP platform. Under a licensing structure introduced last year, dubbed 5-1-2, those users on 4.6C and older systems are facing either a maintenance shutout or a potentially significant support fee hike by the end of next year—a deadline that looms current for those users.
Faced with impending changes in their system support plan, many users are upgrading to SAPs newer platforms—Enterprise 4.7 or mySAP 5.0 (also known as Enterprise Central Component 5.0). However, others are taking a wait-and-see approach, particularly in light of recent shifts in the enterprise resource planning landscape.
“SAP is trying very hard to get legacy R/3 users migrated over. They dont want to be in a position where we have a dead piece of software. That opens up the decision five years from now, Does Oracle [Corp.] have a better solution?” said Scott Hicar, CIO of Maxtor Corp., who is currently on R/3 4.6C, which is facing the end of its Mainstream Maintenance support next year. “At end of life, do you pay more and get no enhanced functionality, or do you migrate? Were obviously being nudged by escalating maintenance costs.”
The questions Hicar said he and many of his contemporaries are asking is whether to upgrade to 4.7 (which brings little more than a maintenance extension); migrate to the next-generation ECC platforms; or do nothing and wait to see what Oracles Fusion has to offer.
“I dont see a scenario where we ever move away from SAPs core engine,” said Hicar, in Milpitas, Calif. “But five years down the road, assuming Fusion works, and where theyre competing with SAP, say with PeopleSoft, why wouldnt I buy that?”
At the same time, the jump up to 5.0 is a huge investment, and Hicar is questioning the business value. “Integration is easy today, so that isnt such an interesting buying proposition,” he said.
The fact is the modernization that is occurring with many ERP systems—such as SAPs NetWeaver, Oracles Fusion and Microsoft Corp.s Dynamics—will make it easier for users to swap out competitors components while still maintaining their core system.
At the same time, those major changes will also cause no small amount of consternation for users.
To modernize their systems, SAP and Oracle are componentizing their applications—breaking down the applications into usable parts that can be integrated with other components. Theyre both also placing their applications on top of their respective integration platforms (NetWeaver and Fusion), which will make it easier to swap out and integrate various application components, making interoperability, in theory, that much easier.
Oracle, meanwhile, has three separate ERP suites—E-Business, PeopleSoft and JD Edwards (plus Siebel) —and it is taking “the best of” functionality from each and rewriting into a super suite (Project Fusion). While Oracle is still going to offer “lifetime support” for those separate ERP suites, the prevailing notion is that no new upgrades will come once Fusion is in place, forcing users to choose to stay put with their current systems with no more value add or migrate to Fusion.
The Clock Is Ticking
Under the 5-1-2 plan, those software users that use SAP R/3 4.6C face the end of their Mainstream Maintenance contracts, which charges 17 percent support fees, by December 2006. Thereafter, Extended Maintenance is available for one more year, at an additional 2 percent fee. Following that, Extended Maintenance is available for two more years at an additional fee of 4 percent. Any support after that timeframe has to be negotiated on a case-by-case basis.
The same timeline holds true for 4.6B and older users, except they face the end of Extended Maintenance around Christmas next year.
There are some extensions available, but users need to start thinking of their next steps now, according to Jason Fox, director of enterprise solutions for SAP Consulting, a wholly owned division of SAP America Inc., which is a division of SAP AG.
“From a services standpoint you should plan on four to six months for our upgrade. If youre ready to go to 5.0, Id go now,” said Fox, in Boston. “A June timeframe is when [users] should start if theyre going to go with ECC 6.0—no later.”
Ideally, SAP would like to see its R/3 users upgrade to its next-generation platforms: either ECC 5.0 or the spring release of ECC 6.0—also known as mySAP 2004 and mySAP 2005, respectively—that brings with it the concepts of SAPs Enterprise Services Architecture and NetWeaver integration stack.
According to SAP Consultings Fox, 45 percent of SAPs nearly 30,000 customers are on 4.6C, while nearly 40 percent are on 4.6B.
“A very small number have adopted ECC 5.0,” said Fox. “But we do see a tremendous amount of people that are upgrading next year.”
As an indication of how many users will look to the newer platforms, SAP surveyed 400 R/3 customers to determine their upgrade plans. Of those on 4.6B and below, 77 percent said they intend to upgrade next year.
Much of those upgrades can be attributed to rising maintenance costs, according to analysts.
“Anybody who tells you that the maintenance de-support days isnt a factor is lying to you,” said AMR Research analyst Jim Shepherd, in Boston. “Part of the reason were seeing this shift of SAP customers from 4.6B R/3 to mySAP [ECC 5.0] is theyre running up against their support window.”
George DAuteuil, CEO of IntelliCorp, whose NetProcess software provides an upgrade assessment tool that determines gaps in a users environment, said he is seeing a large amount of his SAP customer base holding out on upgrades, or doing only basic technical upgrades to stay in compliance for maintenance.
“What we see is that as SAP expands its platform, at the hub of it still happens to be R/3 master data … that still sits on R/3 and has to co-exist [with NetWeaver],” said DAuteuil, in Santa Clara, Calif. “The customers have a slow adoption rate [to 5.0] because of the fact that its a major impact. They dont want to take the risk going forward.”
DAuteuil said many users are questioning what investment they have to make based on the value they receive. “I havent heard anyone say that there is functionality theyre not interested in. Theyre saying, That looks good, how do I get there? We dont see the risk as great as is perceived by the customer base.”
To this end, SAP Consulting announced this week that it intends to utilize IntelliCorps Assessor for SAP: Upgrade Edition tool in its upgrade offerings to help users better understand their needs in moving from R/3 to 5.0—and later, 6.0.
There are those users who see the rationale behind the 5-1-2 program.
Mary Vernier, senior project manager in IT for LSI Logic Corp., is in the process of upgrading from R/3 4.6B to ECC 5.0. Her team initially looked at moving to 4.7, but because the business wanted to move more toward Web-based functionality, LSI decided to go with 5.0.
Vernier, who used IntelliCorps software to determine where best to allocate resources—all are going to the upgrade project—said ultimately LSI determined it wanted to go to newer technology, with Java integration, and that meant taking the leap to ECC 5.0.
“Its logical to assume you cant stay on a software package forever,” said Vernier, in Milpitas, Calif. “We were in a situation that we were going to move into extended support—it wasnt an overwhelming factor, it was just a known fact. In order to keep up with the product, you have to upgrade.”