SAP Co-CEO Grilled on Maintenance Increase

During his presentation at a Goldman Sachs event on Wednesday, SAP co-CEO Henning Kagermann faced a series of questions about a topic SAP is eager to leave behind: its decision in July to move all customers to a fuller-featured but more expensive Enterprise Support package.

"What I learned is, we could have communicated it a little bit better. That's the only thing," Kagermann told the audience at the event in New York, which was webcast.

SAP had initially said only new customers would have to take the new support offering; its subsequent revelation in July that every customer would be affected sparked widespread outcry among the company's user base.

Kagermann showed no indication that SAP is second-guessing its move and said it played no part in a sudden downturn in business SAP experienced in the second half of September.

That is because no customers will actually start incurring maintenance cost increases until January, and the higher expenses will be phased in over the next few years, he said.

"If you look to [the drop in] performance in the third quarter, it had to do with the [deal] closure rate," he 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."

Kagermann repeated SAP's consistent rationale for the support switch -- that customer IT environments are becoming more complex than in the past and that clients will end up lowering their total cost of ownership thanks to the additional support.

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

Maintenance fees, with their high profit margins, have become an increasingly strategic part of software vendors' revenue.

Asked whether SAP will offer maintenance discounts as the company attempts to land deals on a monthly basis, Kagermann indicated the company will not. "We have to be extremely strict and clear and fair and transparent to all clients," he said.

Copyright © 2008 IDG Communications, Inc.

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