SAP has tweaked its maintenance and support structure, eliminating its lower-priced offering and leaving new customers with only one premium-priced option called Enterp(企业资源计划2)rise Support, which provides for the first time round-the-clock support to SAP enterp(企业资源计划2)rise resource planning (ERP) customers. Maintenance fees have always been a cash cow for enterp(企业资源计划2)rise software firms. SAP argues that the price hike brings it in line with its closest software rivals. But are customers being over-milked?
SAP formally launched its new Enterp(企业资源计划2)rise Support maintenance and support package at its recent Sapphire user conference in Orlando, Florida. Enterp(企业资源计划2)rise Support combines tools, content and direct access to SAP global and partner support teams to facilitate adoption of enhancement packages, technical upgrades and ongoing maintenance. Both SAP and non-SAP environments are supported. Enterp(企业资源计划2)rise Support is anchored on SAP's Solution Manager portal software to provide continuous quality checks and risk-assessment and analysis services. The package also bundles in SAP's Run methodology, which structures and guides companies through their transition to new service-oriented architectures (SOAs).
By announcing Enterp(企业资源计划2)rise Support, SAP has effectively pulled the plug on its Basic and Premium Support options for new customers, which are priced at 17% and 22% of licensing fees respectively. That means new customers now have no choice but to buy SAP's 'optimal' support package. Admittedly they get a lot more, notably a pool of advisory support that's available 24x7 - with the Premium package only one named contact was available during normal business hours.
Maintenance and support fees have always weighed heavily into the revenue streams of ERP providers like SAP and Oracle. We estimate that recurring maintenance fees contribute on average 45% towards application software vendors' overall revenues. Plus it's usually the most profitable part of their business - we estimate a return of 75% profitability on maintenance alone after five years of software licensing. That's a lucrative income stream.
At a time when software license revenues are being squeezed, it's not surprising that SAP should try and look for its support business to shore up its revenue growth. SAP will also argue that the price increase brings it into line with the maintenance fee structure of arch-rival Oracle, which also charges 22% of net licensing for support. Since 17% was seen as a bargain for many companies, we feel this move is akin to SAP giving up a competitive differentiator.
SAP, however, pitches Enterp(企业资源计划2)rise Support as an attempt to shift away from tactical bug fixing to a more strategic, holistic support package that keeps pace with operational IT infrastructures that are becoming increasingly heterogeneous and composite in nature. SAP also feels the need to bolster the range and timeliness of helping companies resolve the inevitable glitches that might occur as they transition to an SOA.
All of this will be cold comfort to SAP customers for whom annual support and maintenance is a necessary evil - when calculating the TCO of an application, the maintenance cost is factored into the equation forever. In fact, companies that spend 25% on maintenance are really 'buying' the software twice over every ten years. But are companies really getting twice the value of their software investment? Probably not. And what about those customers that have been content with their existing Basic support? They certainly won't take kindly to paying a 5% premium over what they used to pay, regardless of whether SAP says they are getting a lot more for their buck. Moreover, in our conversations with ERP customers we found a general wariness of overp(企业资源计划2)aying for annual maintenance services that are underused. Many companies are really paying for upgrades or security patches and don't fully engage with their maintenance contract.
Ironically, the spend on maintenance - pegged at around a third of the software budget - might well be keeping people from actually upgrading and pushing forward with SOA.
In today's economic climate the trend seems to be towards cheaper packages rather than richer support. Therefore we advise SAP and other on-premise business applications software vendors to carefully consider their support and maintenance pricing, especially as new software-as-a-service (SaaS) vendors like Salesforce.com and NetSuite eliminate the need with support effectively built into the monthly charge for the software. Third-party support specialists like Rimini Street and TomorrowNow are also offering more competitive alternatives. TomorrowNow is currently owned by SAP and the launch of Enterp(企业资源计划2)rise Support suggests that it's not really interested in offering cheaper support. Therefore expect SAP to offload TomorrowNow soon, especially after its lawsuit debacle with Oracle.
At the same time there's no better time for SAP customers with expiring Basic support contracts to consider the extent to which they need and use such deep support. Admittedly companies that have spent millions on ERP software that is mission-critical to their core business will be ready to pay maintenance and support to make sure it keeps ticking. But at the same time vendors are desperate to keep them on board. So perhaps it's time to haul in your ERP supplier of choice for some serious contract negotiations.
