SAP announced today that it will increase maintenance fees for customers on its lower-cost support option, moving them to an enhanced support offering that will cost 22% of their net licensing fees by 2012.
The change affects about 17,000 customers on SAP's Basic Support, offered at 17% of net licensing fees, according to Mark Cordrey, SAP's vice president of active global support. Customers receiving Premium Support, already 22% of net licensing fees, must also move onto Enterprise Support.
Customers will start receiving some of the extra features in Enterprise Support, like the enhancements to Solution Manager, this month. But cost increases won't start until January, taking place yearly on a fixed schedule -- 18.3% in 2009, 19.8% in 2010, 21.4% in 2011, ultimately reaching 22% of net licensing fees by 2012.
SAP said the change is driven by the increasing complexity of its own and other vendors' technology and customers' application environments, resulting in an increased need for support. SAP first revealed in February that it was eliminating its lower-cost support option and replacing it, as well as Premium Support, with Enterprise Support. At the time, SAP said the change wouldn't affect existing contracts.
"Customer need is driving this," Cordrey said, adding that SAP has 32,000 live NetWeaver installations and more than 10,000 customers that have upgraded to ERP 6.0. "Customers are finding they need more support."
Analysts say the customer-wide increase is an effort by SAP to raise more revenue.
"Right now, this is really just about increasing maintenance revenue" said Ray Wang, principal analyst at Cambridge, Mass.-based Forrester Research. In fact, after two or three years, many customers aren't even using the support.
Oracle, which also charges 22% of a customer's net licensing fees for maintenance, has created an incentive for other companies to try and achieve the same profit margins, according to Wang. Everybody's trying to get to the same level of profitability from a stock perspective, he said. Oracle, for its part, recently raised its list prices for its applications and database products, also an effort to increase margins, according to analysts.
But there is something of a silver lining in all this, Wang said -- in paying more, you'll actually be getting more from SAP.
"What they are offering is better than what the competitors are offering," he said. "By and large, it's not a good thing, but compared to the competition, for what's out there at 22%, they're trying to offer more."
Enterprise Support customers will have access to 24/7 support, continuous quality checks, an enhanced version of Solution Manager and a commitment to help them identify the root cause of a problem, regardless of whether it's with an SAP application or not.
Customers were informed of the change last week, Cordrey said, adding that a small number of large enterprises that pay more than 5 million euros (about $8 million) a year in maintenance won't be moved to Enterprise Support.
SAP is not worried that the higher-cost maintenance option will drive customers to third-party support providers like Las Vegas-based Rimini Street, which announced in May that it would provide support for some SAP software, Cordrey said.
"If you look back five years ago, customers had a single instance of R/3 with a couple of interfaces," he said. "We believe that the value that's delivered with Enterprise Support more than justifies the investment."