Top SAP exec grilled on support price hike at software conference

IDG News Service - At a Goldman Sachs conference in New York today, Henning Kagermann, one of SAP AG's co-CEOs, faced a series of questions about a topic that the software vendor is eager to leave behind: its July decision to shift all customers to an expanded but also more expensive support program.

But Kagermann showed no indication that SAP is second-guessing the move, which has sparked a widespread outcry among the company's user base. "What I learned is, we could have communicated it a little bit better. That's the only thing," Kagermann told the audience during his session at the Goldman Sachs Software and IT Services Retreat 2008.

When SAP introduced the Enterprise support program in May, it said that only new customers would have to sign up for the new offering. But two months later, the vendor disclosed that all of its customers would be "transitioned" to the new support program, which replaces its existing Standard and Premium support plans.

Kagermann, whose presentation today was webcast, said the new support strategy played no part in a sudden drop in sales that SAP experienced in the second half of September, after the heightening of the worldwide economic turmoil. SAP later reported a 5% decline year over year in its Q3 profits and withdrew its fourth-quarter sales forecast.

"If you look to our performance in the third quarter, it had to do with the [sales] closure rate," Kagermann said. "Clients have not told us, 'Look, we are not making deals with you because you want to raise the maintenance.' Their argument comes back to, 'In this [economic] environment, we can't make a decision now.'"

He added that no customers will see increases in their support costs before January and that the higher fees will be phased in over the next few years.

Kagermann repeated SAP's consistent rationale for the support switch -- that IT environments are becoming more complex and that customers will end up lowering their total cost of ownership because of the additional support features included in the new program. According to SAP, the Enterprise support plan offers "a 24/7 service-level agreement, continuous quality checks, support advisory and advanced support for implementing SAP ERP enhancement packages."

Of course, SAP gets something out of the support change as well. Kagermann acknowledged today that the additional maintenance revenue will bring SAP a "significant flow of money" once the mandatory support change takes effect.

SAP isn't alone. Maintenance fees, with their relatively high profit margins, have become an increasingly strategic part of the revenue streams of many software vendors — especially with the weak economy putting a crimp in product sales.

Asked whether SAP will offer support discounts to try to help it land sales deals, Kagermann indicated that the company will hold the line on its maintenance fees. "We have to be extremely strict and clear and fair and transparent to all clients," he said.