SAP has altered its maintenance and support structure, eliminating its lower-priced offering and leaving net new customers with only one option -- support at 22% of net licensing fees.
Under the new arrangement, SAP is eliminating Basic Support, its cheaper option at 17% of license fees, and Premium Support, priced at 22% of licensing fees, and replacing them with Enterprise Support, which will also start at 22%.
"Enterprise Support represents what we have determined to be the optimal support model based on the solutions that are operating today, as well as feedback we've received from customers in offering Premium Support," said Mark Cordrey, vice president for SAP Active Global Support.
The new structure does come with some changes. Under Enterprise Support, customers have access to a support advisory group that is available 24 hours a day, seven days a week. Under Premium Support, customers had one named contact, available during business hours.
While the move brings SAP in line with its competitor, Oracle Corp., which also charges 22% of licensing fees for support, it comes at a time when Software as a Service (SaaS) and third-party support vendors are emerging and offering cheaper alternatives or no maintenance fees at all -- just a monthly charge for the software.
"At the end of the day, we still believe maintenance fees are really high," said Ray Wang, senior analyst with Cambridge, Mass.-based Forrester Research. "It's in line with what Oracle charges, but they're trying to offer more. We're not happy with the fact that maintenance fees have gone up. Today, most barely use their maintenance. They may get an upgrade or a security patch, but they're not engaged as they should be."
In fact, TomorrowNow was built on offering support for JD Edwards and PeopleSoft applications at a fraction of the cost of Oracle, at a time when users of those applications were concerned about rising support costs. That led SAP to acquire TomorrowNow in 2005. However, that move came back to haunt SAP when Oracle sued the company for inappropriate downloads of Oracle intellectual property. The case is ongoing.
Meanwhile, Rimini Street, a company formed by former TomorrowNow executives, emerged to also offer support for Oracle applications.
People have begun turning to alternatives like third-party support companies and SaaS, but there has yet to be an outcry over maintenance costs. That may begin to change.
"As people start to realize how maintenance dollars are being applied, we're starting to see more of this," Wang said. "Right now, what's keeping a lot of people from upgrading and pushing forward with SOA is they're spending a third of the budget on maintenance. If you're spending 20% to 25% on maintenance, that's the equivalent of buying new software every 10 years."
Wang added that the first two years are generally worthwhile for customers, but in year three, the value isn't there.
For Dan Lubin, who negotiated an SAP contract when he was director of information technology for Danvers, Mass.-based manufacturer Abiomed Inc., maintenance and support was a big part of the conversation.
"When you look at the TCO of the application, the one thing that stays with you forever is the maintenance cost," said Lubin, who recently changed positions. "We had better success talking about licensing and implementation than with maintenance."
Premium Support was just emerging as an option when Abiomed negotiated that contract, and the company got the Basic package. But Lubin doesn't think it would have made a huge difference.
"I think they still would have been in range," he said. "Obviously, less is always better than more, but at the same time, Abiomed invested in a Tier One platform like SAP because we wanted the breadth and depth of support a company like SAP could give us."
When the company got an upgrade of SAP's ECC 5.0 to 6.0, the new features and functionality that came as part of its agreement helped to make the full support package worthwhile, Lubin added.
No change to existing installations
SAP's change does not affect existing maintenance contracts and customers on Basic Support who buy additional licenses and modules under the old structure, with the exception of Business Objects customers, Cordrey said.
However, existing customers should "brace themselves for a price hike or prepare for some intense contract negotiations," Wang said, and he advises those with expiring Basic Support contracts to carefully evaluate their current level of utilization.