SAP will delay further maintenance and support fee increases until key performance indicators (KPIs) -- developed with SAP user groups to measure the value of those proposed increases -- are met, the vendor announced last week.
SAP has also agreed to stretch out the SAP Enterprise Support price increase until 2015. Under the original proposal, customers' bills would have increased in steps from 17% to 22% of net licensing fees over the next four years.
The next price increase -- slated for 2010 at 18.9% -- will go into effect only if the KPIs are met. But SAP "fully intends" to meet the KPIs set for this year, a spokesman said.
"We want to demonstrate our commitment to our customers," SAP spokesman Saswato Das said. "This is really a model for the evolution of software support."
The maintenance fee increase, announced in July, met with opposition from customers in SAP user groups, who then united and pushed SAP to prove its value.
SAP maintained that the price increase was necessitated by the growing complexity of its customers' systems, and that it was worth the money. Originally, SAP planned to increase support costs to 18.3% in 2009, 19.8% in 2010 and 21.4% in 2011, ultimately reaching 22% of net licensing fees by 2012.
But in the fall, SAP and the SAP User Group Network (SUGEN) -- representatives from user groups across the globe -- announced they would work together to come up with new maintenance terms.
In the new model, a group of 100 customers from around the world on releases of R/3 4.7 or higher will act as the benchmarks to determine whether SAP Enterprise Support is worth the money. The group will be selected by SUGEN.
SUGEN will track the value achieved by a group of customers in four categories: business continuity, business process improvement, protection of investment, and total cost of operations. Those KPIs will be evaluated in six months and then on a quarterly basis for the next four years, Das said.
These benchmarks will then be evaluated by an independent third party.
If the KPIs are met, price increases will proceed as follows: 18.9% in 2010, 19.5% in 2011, 20.1% in 2012, 20.8% in 2013, 21.4% in 2014 and 22% of net licensing fees in 2015. The cost increase this year, which has already gone into effect for many customers, is 18.36%.
No one will see an increase of more than 3.1% annually from 2010 on, SAP said.
"We are convinced that SAP Enterprise Support delivers unparalleled value to all customers and, as a demonstration of our commitment, we will provide tangible reductions in their operational costs on a defined schedule," SAP co-CEO Leo Apotheker said in a press release.
The new deal applies only to customers who purchased software with SAP before July 5, 2008.
User reaction positive
Calling it a "groundbreaking" agreement, the head of one of the user groups that was most vocal in its distaste for SAP Enterprise Support praised SAP for linking price, performance and quality after what he called "quite a difficult debate."
"I think the important thing to note is we've all walked away from this smiling," said Alan Bowling, chairman of the SAP U.K and Ireland User Group. "This is really a case of SAP putting its money where its mouth is."
The move marks a turning point for SAP, which appears to have quelled -- for now -- what has been something of an anomaly for the vendor: revolt from its famously loyal customer base.
"SAP was reaching a milestone where they really had to more and more prove their customer centricity -- they are there for their customers, not for themselves," said Joshua Greenbaum of Enterprise Applications Consulting. "I think [co-CEO Leo Apotheker] understands that challenge. I think it's a very good move for SAP."
The new proposal delays cost increases until a group of 100 customers on versions R/3 4.7 or higher achieve KPIs established by the SAP User Group Network (SUGEN), composed of representatives from user groups around the world. Meeting benchmarks in business continuity, business process improvement, protection of investment and total cost of operations will be the litmus test of whether to proceed with the cost increase.
That said, SAP "fully intends" to meet those KPIs set for this year, a spokesman said.
The group will be selected by SUGEN. Those KPIs will be evaluated in six months, and then on a quarterly basis for the next four years, according to SAP.
The next price increase -- slated for 2010 at 18.9% -- will go into effect only if the KPIs are met. After that, KPIs will be used to justify further cost increases through 2015. That's a three-year extension over SAP's original proposal of increasing maintenance fees to 22% of net licensing fees by 2012.
"Should the benchmarks succeed, customers may gain value," Ray Wang said in a written statement. Wang is an analyst with Cambridge, Mass.-based Forrester Research, who has been vocal about the maintenance fee increase since SAP announced it this past summer. "In any case, this is welcome news and provides a hard-fought win-win for the customer and the vendor-client relationship."
One of the problems with the initial rollout of SAP Enterprise Support was simply bad public relations, Greenbaum said. SAP didn't do a good enough job of justifying the change in price.
"What didn't get communicated is that there are definite ways SAP is delivering more value to its customers in the upgrade process," he said. "If they had played this card right the first time, they could have put a lot more positive aspects of Enterprise Support on the table than they did."
That is something SAP itself acknowledged yesterday. SAP executive Bill McDermott said there's always room for improvement in the way things are communicated, and that the company should have done a better job of making people understand SAP Enterprise Support. The agreement with SUGEN puts the company in a better place now.
"It really wasn't a matter of conceding, as it was re-inventing the whole customer support model," McDermott said of the agreements with SUGEN. "It's not a simple topic, and it requires a lot of conversation to build understanding."
Still, "re-inventing" the whole customer support model is the larger question that remains from this debate. Newer, cheaper ways of delivering software -- open source, Software as a Service (SaaS) and the cloud -- will continue to challenge the traditional maintenance structure, analysts agree.
"I think this is a good step," Rebecca Wettemann, vice president at Nucleus Research, said of the decision. "[But] the old, traditional 'I buy software, I pay license maintenance, and I may not get anything for it' is not an acceptable model anymore."
"This issue of, 'Why am I paying this enormous fee?' isn't going to die," Greenbaum said.
 |