Can more SAP users win concessions on SAP Enterprise Support?

SAP's decision to allow customers in Germany and Austria to maintain their existing support contracts raises a wide range of questions for other users.

SAP's decision to allow German and Austrian customers to maintain their existing support contracts until 2010 while continuing to roll out the Enterprise Support price increase for everyone else has made an already contentious move more confusing.

SAP maintains that contract laws in Germany and Austria necessitated the deal, and it won't extend the break to users in other countries. And while some analysts think SAP will stick to its guns and continue rolling out the enhanced but pricier support offering next month, others see an opportunity for negotiation.

It's a rare case for sure. Vendor contracts typically play out the same way domestically and internationally, but this is an instance in which they don't, as one attorney pointed out. And the controversy brewed up by the introduction of Enterprise Support is something of an anomaly for SAP, which is very careful about managing its relationship with its customers, according to AMR's Jim Shepherd.

"If [a support fee increase] was happening with Oracle, no one would even notice," said Shepherd, who is vice president of research at Boston-based AMR Research. "[SAP] is a very low-key company, and they're careful about the things they do. And their whole business model is based on a very long-term relationship with customers."

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What happened in Germany and Austria?

Because of legal contract issues, German and Austrian SAP customers will be allowed another year of support under the terms of their old contracts. The deal applies to customers in Germany and Austria on older releases, who haven't yet upgraded to ERP 6.0.

In order to switch customers from a current support contract to Enterprise Support, the law in Germany and Austria requires that the original contract be cancelled and a new contract written, Shepherd said. It sounds as if SAP decided that rather than go through that contract cancellation process with thousands of customers, it would instead let people defer the price increase until 2010, he added.

But, according to SAP, all other customers will continue on the path to Enterprise Support, which will increase support fees from 17% of net licensing fees to 22% over the next four years -- 18.3% in 2009, 19.8% in 2010, 21.4% in 2011, and 22% in 2012. That includes German and Austrian customers who have already upgraded and accepted a new support contract.

SAP said the new support package was necessitated by increasingly complex technology landscapes. It was enhanced to include such services as 24/7 mission-critical support and given the goal of solving any problem, regardless of whether or not it's with SAP software.

What about other SAP customers?

Shepherd thinks the rollout will continue as planned because users in other countries lack the legal loophole, and the clout, to force concessions like those won in Germany.

"I don't think this will cause SAP to make a Christmas announcement, 'We're going to defer the maintenance increase.' I don't think they're capitulating," Shepherd said.

"That has also been a very, very vocal set of users and, obviously, some of SAP's oldest users, who felt they didn't have enough warning and notice that their maintenance price was going to go up," he continued. "This could be a situation where SAP has decided that [it will] take advantage of this legal situation to quiet down the German user group."

Legally, it would be difficult for customers in the United States and many other countries to force a deal like that won in Germany and Austria because the laws that allowed German and Austrian customers to mount the challenge simply don't exist.

SAP probably uses contract language that gives it the right to impose a unilateral price increase for maintenance, according to Hillard M. Sterling, an attorney with Chicago-based Freeborn & Peters LLP who specializes in information technology litigation. Assuming that's the case, he said, there's no law in the United States against unilaterally raising those support fees at any time.

"There's just no law a customer could hang its hat on," Sterling said. "The laws [in countries other than the U.S.] effectively bar SAP or any vendor from forcing those open-ended contractual terms. Across the pond and elsewhere, there's a little bit more willingness to interfere with the free market."

But some analysts think customers can win concessions and should take a cue from the vocal way the German user group (DSAG) approached the introduction of SAP Enterprise Support.

"Every customer in North America and everywhere else should demand of SAP that they renegotiate their contract right now, given the economic uncertainty and the challenge people have getting value from SAP," said Rebecca Wettemann, vice president of Boston-based Nucleus Research. "For SAP to raise maintenance when they did shows they're out of touch with a lot of the key business practices and needs of their customers."

ASUG (the Americas SAP Users Group), the world's largest user group, took a different route when SAP announced this past summer that nearly everyone would move to SAP Enterprise Support. Instead of protesting like the Europeans, ASUG held a series of webcasts to introduce customers to the new offering, and executives were even quoted in the press release announcing it.

ASUG later joined DSAG and user groups worldwide, however, in an SAP User Group Executive Network (SUGEN) task force charged with conveying user concerns about the support changes. SAP is teaming up with SUGEN to establish key performance indicators (KPIs) for things like customer awareness and customer satisfaction of SAP Enterprise Support. And while SAP hasn't said whether it will use these KPIs to adjust the pricing, it has said that SUGEN and SAP will jointly evaluate the progress of these KPIs against customer expectations on a regular basis and adjust the continued rollout of SAP Enterprise Support until the quality measures are achieved.

ASUG and SUGEN members did not return requests for comment on the developments in Germany and Austria.

SAP, its customers and SAP Enterprise Support

SAP has maintained all along that the new support package will deliver better value, and many analysts have agreed with them. Recently, at an event in New York City, co-CEO Leo Apotheker brought up the topic unprompted, saying that the new support package will lower customers' TCO because SAP is providing proper IT landscape support, and there will therefore be a whole bunch of services customers won't need anymore.

"I will shock you by saying that I believe that by having provided Enterprise Support … we will actually bring the cost of ownership for customers down," Apotheker said at the event.

Still, some analysts see this time as an opportunity to restore the customer-vendor relationship that SAP is famous for.

"[SAP has] got to figure out what the model is," said Forrester Research's Ray Wang, vice president, principal analyst with the Cambridge, Mass.-based research firm. "Or global companies will probably buy in Germany."

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