Update: SAP reverses decision, shakes up support structure

The company is ending the maligned Key Performance Indicator effort, once again giving customers a choice of support tiers

SAP said Thursday that it would once again offer customers a choice of application support tiers, in a stunning reversal of a decision that had rankled many customers worldwide.

In 2008, SAP announced that customers would be transitioned to a fuller-featured but pricier Enterprise Support service. But Thursday, the company said a lower-priced Standard Support option would now also be offered.

[ Discover what's new in business applications with InfoWorld's Technology: Applications newsletter and Killer Apps blog. ]

SAP also said that a planned incremental price increase for existing Enterprise Support contracts would not occur this year.

Current Enterprise Support customers will have the option of moving down to Standard Support once their existing contracts expire, and vice versa.

Despite the return to a tiered support structure, SAP believes that Enterprise Support "remains the optimal choice for most customers," CEO Léo Apotheker said during a conference call.

Due to the changes, a benchmarking program SAP had formed with user group leaders to create KPIs (key performance indicators) for Enterprise Support is no longer necessary, Apotheker said.

"We will, of course, continue to monitor the efficiency of Enterprise Support, but as a formal program, [the KPI effort] will be discontinued," he said.

In a statement, SAP laid out the differences in features and pricing between Standard and Enterprise Support.

Standard Support will provide "legal updates, problem resolution, knowledge transfer and quality management to keep SAP systems running. Enterprise Support includes those features and also "focuses on business continuity, business process improvement, protection of investment and accelerated innovation, and reducing total cost of operations (TCO) of a customer’s IT landscape."

Standard Support customers will be charged at 18 percent of their software license base, with adjustments made each year according to inflation, beginning in 2011.

Enterprise Support's list price is 22 percent. Contracts signed up to July 5, 2008, are subject to a previously announced incremental price ramp-up, which will bring costs to 22 percent by 2016.

If Standard Support customers decide to move to Enterprise Support before March 15, their fees would be 18.36 percent this year and then follow the ramp-up path. But if they sign an Enterprise Support contract beyond that date, they would begin at 22 percent.

"By expanding its portfolio, SAP is offering the choice that customers expect,” Mike Stoko, chairman of the SAP User Group Executive Network (SUGEN), said in a statement.

Overall, SAP's decision was "a move they needed to make," said Forrester Research analyst Paul Hamerman. "[Enterprise Support] had become such a contentious issue over the past 18 months. It was really dragging them down in terms of their perception in the market."

Another observer had a different take.

"More than anything else, it was the direct response that SAP got from its customers," SAP analyst and consultant Helmuth Gümbel said in a blog post. "CIOs from SAP’s premium customer network gave feedback that is hard to print and by November, SAP was facing a certain maintenance income loss of over 200 million Euros for 2010. The list of accounts that SAP in an internal analysis marked as 'maintenance at risk' was long, much longer than anybody had expected."

Meanwhile, SAP's decision to stop the KPI project "is a huge story in itself," said Seth Ravin, president and CEO of Rimini Street, which provides third-party support to SAP and Oracle users at discounted rates.

Enterprise Support support price increases were supposed to be tied to SAP successfully meeting the KPIs.

Overall, the effort put SAP in an "impossible position" of trying to prove the service's value to its broad customer base with metrics garnered from a small group of participating test customers, Ravin said.

"Most people knew they were going to fail with this move to 22 percent. The question was how they were going to save face," he said. "This was the only way they were going to get out of the KPI conundrum."

That said, SAP's decision to drop the KPI program isn't logical, if customers are to believe Enterprise Support is different from and provides more value than Standard Support, Ravin said. "I don't understand what one has to do with the other."

While the announcement represents good news for SAP customers, they will have to weigh whether they should go to Enterprise Support now, since inflation-based increases mean "they will eventually get to the same price with Standard," said Ray Wang, a partner with the analyst firm Altimeter Group.

It's also hard to predict how much inflation will rise in coming years, he added.

At a minimum, Standard Support gives customers time to consider third-party maintenance offerings from companies like Rimini Street.

It's not likely that SAP's move will serve as a bulwark against such providers, Hamerman said. "I'd say there's still significant interest in third-party support as an option."

That said, the overall percentage of customers on third-party maintenance is low because it means giving up upgrades, he added. Third-party services companies cater to customers for whom upgrades are not especially viable or desirable because their systems have too many customizations, Hamerman said.

It's possible, but not especially likely, that other vendors will follow SAP's lead and offer tiered maintenance options, since "the customer's tendency will always be to opt toward a minimum level of support unless they feel the system is really mission-critical," he said.

That could change if maintenance costs become a factor in deals SAP wins over rivals like Oracle, he added.

But Gumbel sees a potential sea change occurring.

"The genie is out of the bottle: SAP’s decision to backpedal may very well mark a point of inflection for the software industry as a whole," he wrote. "Negotiating maintenance down is 'in' -- it may very well become a key topic at golf courses."

Along with the shakeup to its support structure, SAP also announced a series of organizational changes.

A new Industry and Solution Management Board will be led by executive board member John Schwarz, and another board member, Jim Hagemann Snabe, will head up a Product Design and Development Board.

The company also announced leadership changes for its Asia-Pacific-Japan region and the Germany, Austria and Switzerland territory.

None of the changes seem particularly earth-shattering, Hamerman said. But speculation has been swirling in recent months about Apotheker's future at the helm of SAP, with rumors about whether he will be replaced. Apotheker's tenure has been troubled, given both the maintenance controversy and a concurrent drop-off in license revenues, Hamerman said. While there's no telling what will happen to him, "it's part of [SAP's] corporate policy to rotate out their CEOs periodically," he added.

This story was updated on January 14, 2010

Join the discussion
Be the first to comment on this article. Our Commenting Policies