SAP agrees to delay full price hike on Enterprise Support switch

Pressured by user groups, vendor extends phase-in of higher support fees to seven years

Bowing to pressure from its user groups as well as the realities of the economic recession, SAP AG today said it has agreed to slow down the pace at which it will increase its software support fees for customers that were forced to upgrade to its Enterprise Support program at the start of this year.

At the same time, SAP and representatives from 12 key user groups announced a series of key performance indicators, or KPIs, that they have agreed upon for attempting to measure the financial value of the Enterprise Support offering to customers.

The Enterprise Support switch has been a big bone of contention between SAP and its users ever since the plan was announced last year. In an initial attempt to appease angry customers, SAP sweetened some of the features of Enterprise Support last fall and extended the regular maintenance period for its core business applications from five to seven years. But the vendor didn't make any cost concessions then.

And today, SAP said that the ultimate price for customers that have migrated to Enterprise Support will still amount to 22% of their software license fees on an annual basis. That compares with the 17% fee that SAP charged for its Standard support program, one of two lower-cost offerings that are being eliminated.

But instead of applying the increase in four annual steps ending in 2012, SAP will now extend the phase-in period to seven years, a plan that the software vendor said better fits the new maintenance life cycle it announced last November.

As a result of the change, SAP said, support costs for migrated customers will rise by an average of 3.1% each year starting in 2010, instead of the 8% that users originally faced. Reducing the annual rate of increase was one of the key demands made by SAP's user groups.

The list of KPIs that the user groups agreed to answers another of their demands: finding a common way to assess the value of Enterprise Support. When SAP announced Enterprise Support last May, it claimed that the increased price was justified by the improved services that the new program offered over its existing maintenance offerings. But the user groups want to see proof of that claim.

SAP and the SAP User Group Executive Network (SUGEN) said jointly that the KPIs cover four main categories: business continuity, business process improvements, investment protection and total cost of operations.

The performance indicators will be used in a joint benchmarking program that will track the satisfaction levels of a representative sample of SAP customers, chosen by the vendor and SUGEN members. An independent auditor will validate the results, SAP and SUGEN said.

The results of that benchmarking program will be keenly watched, since SAP has also agreed to delay future increases in the price of Enterprise Support until specified customer-satisfaction targets are met. The company said it expects to meet those targets within four years.

The deal isn't perfect, according to the Francophone SAP Users' Club, which is one of the groups that negotiated with SAP through SUGEN. But the USF, as the group is known, said it is satisfied with the price-increase compromise, adding that SAP made a marked change in its stance on the issue under pressure from SUGEN's negotiators.

The USF also said that the agreement on the KPIs shows a willingness on SAP's part to go where no other software vendor has ventured before now in terms of measuring the value of a support program.

During a conference call about SAP's first-quarter financial results, which were also announced today, Co-CEO Leo Apotheker made a similar point and maintained that Enterprise Support "will become a competitive advantage" for the company.

No other software vendor "comes even close" to providing the level of insight into support costs that the KPIs will give customers, Apotheker claimed. "I have to tell you that by having [created the KPIs], the discussion with our customers has radically changed," he said. "It is not about price anymore. Now people are focused on extracting the value."

SAP reported that its first-quarter net income fell 16% from last year's level, while revenue dropped 3% as customers remained reluctant to spend large amounts of money on new software rollouts because of the economic downturn.

Software sales declined 33% year to year in the quarter to €418 million ($557 million U.S.), while support revenue rose 18% to €1.25 billion ($1.67 billion U.S.) and professional services revenue fell 9% to €649 million ($865 million U.S.). In a statement, Apotheker said the company's visibility on future software sales "remains limited."

During the later conference call, he said that users are still buying software but in smaller chunks than before the recession. "It is obvious that in the current climate, customers are trying to pinch every dollar, euro and yen before they spend it," Apotheker noted.

Copyright © 2009 IDG Communications, Inc.

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