There’s never a good time to hear that one of your suppliers is raising its prices, but some times — like now, as economies tumble — are worse than others. So customers of SAP could be forgiven for not being enthusiastic about the news that the German software firm plans to “transition” them to a new software maintenance package starting next year. Not only does the news affect CIOs, who will have to get their heads around the new support package, but also CFOs, who will face a rise in their IT bills.
The €10 billion firm recently announced that its customers will be moved from existing maintenance packages to the new Enterprise Support scheme. SAP calls it a “next generation” offering that will meet customers’ “evolving needs” through continuous quality checks and around-the-clock support. Uwe Hommel, executive vice president of SAP’s Active Global Support division, claims that the new package reflects the importance of updating companies’ IT systems and software. “Today, if such a solution fails, the company fails,” he says. But there’s a price to pay. A typical SAP customer shelling out the equivalent of 17% of its contract value in maintenance fees will have to pay 18.3% in 2009, and as much as 22% by 2012.
Some SAP users are angry that they’re being charged more for a service they don’t necessarily want. In a research note published in September, analysts at JPMorgan wrote: “Given the challenging economic environment, we are not surprised that customers are resisting the maintenance rate hike.” They added that the German firm runs the risk of customers negotiating harder on new licence purchases, or even looking elsewhere for alternative products and maintenance.
Sure enough, at Rimini Street, a California-based firm which supports legacy software and systems from big IT players including SAP, spokesman David Rowe says that as soon as SAP announced its maintenance price hike, “our phone started to ring off the hook” with calls from mid-market manufacturers up to Fortune 50 companies. “The consistent message is unhappiness with the SAP maintenance increase,” Rowe adds.
SAP says it knows customers are under pressure to save money, hence its decision to introduce the price rise incrementally. But shouldn’t companies have a choice as to whether they want the new levels of support? Hommel again emphasises the business-critical nature of IT support, comparing the new offerings under Enterprise Support to safety features such as an airbag in a car. But others are less convinced. Alan Bowling, chairman of the UK and Ireland SAP Users Group, puts his own twist on SAP’s analogy — regardless of a car’s safety features, “when I go to a garage, I have a choice of which model I buy,” he says. SAP must be hoping that a lack of choice for CFOs and CIOs getting to grips with Enterprise Support doesn’t drive business away.
Tim Burke is senior editor at CFO Europe.