Jarret Pazahanick alerted me to an email that went out this morning to SAP partners, announcing a unilateral price increase on standard support, for new maintenance contracts signed after July 15, 2013.
The email reads, in part,
To be able to provide the same level of support in the future, we will change the maintenance rate for new maintenance contracts with SAP Standard Support from 18% to 19%, effective July 15, 2013.
This moderate adjustment does not apply to any existing maintenance contracts for SAP Standard Support closed before July 15, 2013. We also want to be respectful about budgets being planned for 2013. Therefore, we encourage you to take advantage of the opportunity to place purchase orders with SAP Standard Support ahead of this change at the existing 18% rate until July 14, 2013.
I would point out that this is not a 1% increase in maintenance fees: it is a 5.5% increase (1/18 = 5.5%).
If I were an SAP customer, I would have four questions for SAP:
- What improvements in SAP support will SAP deliver to justify this 5.5% price increase? Can we expect our internal costs to drop by at least 5.5% as a result of SAP's improvements in its support program?
- What is the gross margin on SAP's maintenance business today, and how will that change after this increase is in effect? Maintenance is the most profitable segment in SAP's financial performance. Why should it become even more profitable?
- How have SAP's cost of support increased to justify this increase in my maintenance fees? Normally the cost to support mature products decreases over time, as issues with the program code are resolved. Offshoring of application support and deflection of support activities to SAP's user and partner network also have introduced support efficiencies. Shouldn't SAP be considering a reduction in maintenance fees rather than an increase?
- Since SAP uses some of its maintenance revenue to fund development of new products as well as make acquisitions, will SAP provide these new products to customers at no charge? It seems SAP charges customers for new products twice: once, when it charges maintenance fees, and again when existing customers buy those new products.
Several years ago, SAP customers fought back SAP's attempts to impose a maintenance fee increase by forcing all customers to move from standard support (at 18%) to enterprise support (at 22%). After a great deal of public outcry, SAP backed down
. Now SAP appears to be trying to impose a smaller price increase, with no apparent improvement in service, in hopes customers will not notice.
The only good news in this announcement is for providers of SAP third-party maintenance, such as Rimini Street
Update: Chris Kanaracus
at IDG News Service reports on the SAP maintenance fee hike. Larry Dignan
at ZDnet also chimes in. Ray Wang
provides more background and analysis.
Update, Feb 5: Dennis Howlett
has a deeper dive, and he gets clarification from SAP on several issues.
SAP backs down on 22% maintenance fees
Mad as hell: backlash brewing against SAP maintenance fee hike
Labels: 3PM, rimini street, SAP