SAP Raises Software Maintenance Fees for New Customers
Market realities, competition from Oracle, and maintenance and support complexity are the reasons behind ERP giant SAP's move to limit service plan choices for new customers of its enterprise software.
Whether Oracle's financial successes pressured SAP to alter its maintenance fees is known only to those inside SAP. Kendzie says that in keeping with SAP policy, "we do not to comment on speculation."
To its credit, SAP has historically offered some of the lowest maintenance fees in the industry. "SAP has resisted the temptation to raise support subscription prices for several years," Wang says, "focusing primarily on growing license revenues." By resisting that temptation and leaving its Basic Support offering at 17 percent, SAP had a "major competitive differentiator" when compared with Oracle, which, according to Wang, has priced its application support at 22 percent for several years.
However, Wang says, it appears that the maturity of the enterprise applications market and decreasing number of large customers, coupled with Oracle's success in achieving higher profit margins and investor pressure on SAP to grow top-line revenues and margins, made raising support prices inevitable.
"By raising maintenance fees 5 percent," Wang writes in the Forrester report, "SAP joins other large vendors in trying to extract more revenue from customers who lack reasonable third-party alternatives, without a corresponding increase in value."
A recent Forrester survey of 215 business process and applications professionals found that maintenance fees are still too high. The result was not surprising. "We are hearing many more complaints about maintenance than ever before," Wang says of Forrester's clients.
A Suggested Alternative to Maintenance Fees
So just what is a fair value for enterprise software maintenance and support? More than half of the respondents to a Forrester survey (57 percent) said that a fair maintenance fee should fall below 16 percent. And they'd be happy to pay that, Wang notes. "But when you actually look at what they paid, it's about 26 percent."
Those percentage points add up, of course: Every percent reduction in a $1 million deal equates to an annual savings of $10,000, Wang points out.
Vinnie Mirchandani is a former Gartner analyst and founder of Deal Architect, a consultancy that works with technology buyers in the vendor selection process. He contends that maintenance should be priced on tiered levels, not a one-size-fits-all rate.
For example, Mirchandani suggests that there's one category of customers who are content with the software's current release, just want bug fixes and application tweaks that come with base support, and have no desire to upgrade. They would pay 10 percent in maintenance fees.
A second category of customers (charged 15 to 17 percent) is one that plans to stick with the product and carry out upgrades, as well as receive base support. And a third category (charged full maintenance rates) is one that is looking for high-level support and all the bells and whistles—next-generation software-as-service (SaaS) and service-oriented architecture (SOA) applications, for example.



