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SAP Infuriates Users With Single High Priced Support Program

SAP has made a bold move by moving all SAP customers to a single higher-priced support program regardless of the customer size or software utilization. The new Enterprise Support program was unveiled in February, rolled out in May, will begin to transition all customers by January 1, 2009 and will be fully implemented by 2012.

SAP is taking a one-size-fits-all approach to ERP software maintenance whereby clients of all sizes will be forced to an Enterprise Support program irrespective of their company size, IT budget or ERP software utilization.

The new program will begin transitioning current customers to the Enterprise Support plan this month (July 2008) at no additional cost, however, pricing will be phased in for service at the rate of 8% annually over the next four years, beginning next year in 2009 and continuing until it reaches the standard cost of 22% of the ERP software license fee.

According to Mark Cordrey, VP of SAP, Active Global Support clients will pay 18.4% of ERP software license fees in 2009, 19.8% in 2010, 21.4% in 2011 and 22% in 2012. Software industry analysts have suggested that the German software giant is forcing this move because it needs to boost revenue in the face of profit margin pressure from rival Oracle and because of the delayed launch of its software-as-a-service ERP system, Business ByDesign.

Existing SAP clients previously had the option of selecting Standard or Premium support plans. However, SAP announced in February that it would market only the Enterprise Support program to new clients. The next phase is to push all existing customers to this level of service. While 22% annual maintenance is not considered an excessive figure relative to the norm in the enterprise software industry, there is a concern that this will be more than some SMBs (small and midsize businesses) are willing or able to pay.

ERP support costs

In fact, several analysts and market watchers believe that this move could further fuel companies to switch to ERP SaaS (software as a service). Reduced total cost of ownership (TCO) is one of the most commonly cited benefits of SaaS ERP systems.

It’s an important question whether “overall is the industry served by charging an average 22% maintenance cost for enterprise software,” said Josh Greenbaum, principal analyst with Enterprise Applications Consulting in Berkeley, CA. For SMB companies that can only afford basic levels of support, requiring them to enroll in a program “for a 22% maintenance burden is not cost-effective,” Greenbaum added. “These are companies that more and more will be looking at on-demand options for that very reason,” he said.

Forrester Research analyst Ray Wang commented SAP’s move is driven by the increasing complexity of customer’s IT and application infrastructure and by a pressing need to bolster top line revenue. One of those pressing reasons is what Wang said was the "failure of the Business ByDesign (SaaS) 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. Oracle's strategic planning has forced SAP to respond with a comparable profit margin growth plan. Combined with the recent payout to i2 and the pending TomorrowNow legal issues, SAP has been left little choice but to respond with an ERP software maintenance fee increase to achieve its needed double-digit earnings growth.” Wang recommends that SAP customers evaluate third party maintenance providers and prod SAP user groups to protest the price increases.

In late June 2008, SAP agreed to pay supply chain management (SCM) software manufacturer i2 a sum of $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 site. SAP has reluctantly admitted to wrongful acts by its staff, however, is trying to mitigate the legal liability.

SAP suggests that the cost of Enterprise Support is lower than the average annual ERP software maintenance fees charged by other software manufacturers. Cordrey said that the phased-in price increases will help make Enterprise Support affordable for customers of all sizes. Enterprise support provides a 24 by 7 service-level agreement (SLA), recurring quality checks, support advisories, and advanced support for implementing ERP system enhancements.

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tags Tags: SAP ERP software, enterprise resource planning systems, support costs

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ERP Headlines is the ERP (Enterprise Resource Planning) software industry leader in online news and information delivery. ERP Headlines delivers reader-focused relevant content in the areas of ERP Industry Events, ERP Software Selection Insight, Software Implementation Experience, ERP Software Analysis, ERP Software Reviews, Best Practices, Case Studies and other aides which collectively contribute information, intelligence and insight for ERP industry practitioners and participants.

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