SAP Earnings Down, But ERP Vendor Shows Recession Smarts

At a time when most enterprise software vendors are boldly clinging to their sacred cash cows, bowing to the all-mighty shareholder and ignoring some basic customer needs, SAP has recently displayed a refreshing blend of common sense, customer service and business smarts.

SAP has made a string of crucial announcements that, taken together, show managerial thinking and decision-making based in reality—not just blind adherence to the mantra “that’s how ERP always has been done.” Let’s take a look:

Yesterday, on April 29, SAP delivered its 2009 first-quarter results. The number that everyone in the software and financial community clung to was SAP’s 16 percent decline in Q1 earnings, year over year. However, software sales declined 33 percent, which was troubling in itself but not unexpected in this environment.

During a call with the financial community, SAP co-CEO Leo Apotheker noted: “It is obvious that in the current climate customers are trying to pinch every dollar, euro and yen before they spend it.” SAP execs blamed the declines on a restructuring charge related to previous employee layoffs. (For some fun, see SAP’s Bill McDermott shut down these slightly befuddled CNBC analysts trying to rain on his parade.)

That very same day, SAP announced that it “has modified the 2008 pricing program for SAP Enterprise Support,” delaying much-talked-about maintenance price increases. (The maintenance fees were supposed to go from 17 percent to 22 percent.)

SAP and its global federation of 12 user groups finally came to an agreement on key performance indicators (KPIs). These new KPIs are intended to spell out exactly what value maintenance fees actually deliver, and how that ties into SAP’s price increases.

This event, in particular, has been hailed as a big win for cash-strapped and frustrated SAP customers. SAP execs, not surprisingly, have trotted out the familiar marketing-friendly verbiage: “commitment to customers” and “game-changing standard for transparency” and “clear measurement of value” could be heard often yesterday.

Two other recent events also provide evidence that things are not “business as usual” at SAP these days. Earlier this week, SAP and Teradata announced their expanded partnership in combining Teradata’s data-warehousing and BI database technology and SAP’s NetWeaver Business Warehouse software. Back in March, SAP and Sybase announced a partnership to get SAP’s ERP and CRM applications on all kinds of mobile devices.

So what do these two deals show? A willingness on SAP’s part to not try to build everything themselves, a goal which SAP used to prize. Perhaps they’ve learned a lesson: Do what you do best, and partner for the rest.

For sure, I’ve been one of many who have been very critical of SAP’s, Oracle’s and other enterprise software vendors’ business plans and outrageous maintenance fees. But I view all of these recent SAP moves as small, but positive signs of change and an understanding of what their customers actually want—even though there’s clearly much more transparency needed.

Still, even in light of the maintenance news, others see the SAP glass half empty—or worse.

ERP guru Vinnie Mirchandani contends that these new KPIs may end up showing that the lower 17 percent maintenance fee could actually be too high. Maintenance, he writes, is “unaffordable at any cost.” Business software blogger Jason Carter has dug up troubling data showing that, since 2001, business software vendors have steadily cut the R&D spend that was coming directly from customers’ maintenance fees.

Enterprise software consultant and industry watcher Frank Scavo alludes to the fact that SAP had good reason to back pedal on its maintenance fees. “Current economic conditions are no time to be raising prices for customers,” he writes. “Due to the vendor lock-in effect, SAP might get away with it short-term, but at the risk of long-term customer relationships.”

In addition, Scavo notes that SaaS vendors are having more and more success in using on-premise vendors’ “excessive maintenance fees” as an opportunity to convert non-SaaS believers (for instance, the “end of maintenance” cries of Salesforce.com’s Marc Benioff).

SAP could have just stuck to its 22 percent maintenance hike and said “we’re not budging on maintenance fees.” That’s exactly what its chief competitor Oracle is doing.

But SAP didn’t. It changed course. Whether it was “forced” to, as many speculated, is not as relevant.

After Oracle’s headline-grabbing acquisition of Sun Microsystems, everyone was wondering how SAP would “punch back.” SAP is fighting back, for sure, but they’re doing it in with a series of direct jabs, rather than ill-conceived haymakers that would have less effect during the difficult fight ahead.

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