SAP CFO addresses the price hikes

It makes a certain kind of sense that a conference hosted by a wealth management firm would see the CFO of SAP grilled about what it’s now charging its customers.

Werner Brandt was the keynote speaker this morning at the UBS Global Communications and Technology Conference in New York this morning, and his main message was the one that one of my colleagues suggested everyone at the event would say: that these are challenging times, but IT is a strategic resource and there’s a pretty good expectation that many companies will continue to spend.

In the Q&A that followed, however, someone asked Brandt to respond to the outcry among SAP users over a decision made in July to transition all customers to its new Enterprise Support offering from Jan. 1st, 2009. Support’s great, but SAP will also incrementally ratchet support costs up to 22 per cent by 2012: “For example, subject to specific contractual limitations, a typical customer paying 17 percent of maintenance base for SAP Standard Support in 2008 will pay a rate of 18.3 percent of maintenance base for SAP Enterprise Support in 2009,” the company said at the time. ERP users are used to saying “ouch,” but not after years after they’ve finally finished their implementations.

“If you follow the headlines, you would think we are just raising prices for customers, but that’s not true,” Brandt told the UBS conference, which was audiocast. “We’ve come up with a completely new offering for our customers, and it has a new price tag attached to it.”

Brandt then did that numbers guys do best, which is use stats to their advantage. “We’ve had the lowest maintenance rate in our industry,” he said. “We haven’t raised it since 2000. Of course there were customers who were unhappy they now have to pay the maintenance of the installed base, if you will.”

The higher costs will be justified by the “higher content” SAP will deliver, Brandt added. He didn’t offer a lot of detail on what that higher content was, but he was probably referring to features in Enterprise Support such as “continuous quality checks” and a single point of contact from customers.

What’s interesting is that Brandt did not talk much about the announcement SAP made earlier this month about an extension to its so-called 5-1-2 plan, which guarantees regular maintenance on a product like its ERP 6.0 for five years, after which customers can pay another two per cent for one year, or four per cent for another two years after that. That is now a 7-1-2 plan. SAP also recently added a few new extras to Enterprise Support, such as an offer of up to five days for remote advice from software architects each year.

“We’ve talked to user groups and come up with an agreement to convince customers that this is the right way to go,” Brandt said. “There will be pre-defined KPIs where we can demonstrate that we have fulfilled that additional content obligation. We will have most of our customers accepting this.”

Umm, okay. But that implies SAP lead the charge, when my impression is that it was the SAP User Group Executive Network (Sugen) that wrestled the concessions out of SAP. A Sugen survey, in fact, showed that 90 per cent of SAP customers don’t fully understand Enterprise Support and why it costs so much. Brandt and other executives at SAP might spin this to suggest that all customers need is more education, but perhaps it’s more fundamental than that. Maybe if you spend thousands on an ERP system you expect that it should work without pricey support packages, and that even if you need those packages you shouldn’t be force-marched into paying for them.

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