SAP discounts maintenance: Blip or start of trend?

Summary:A handful of large SAP customers appear to be garnering maintenance discounts of 50 percent on renewals, says an analyst.

SAP has been discounting maintenance for a handful of large customers, but it's unclear whether the moves are a blip or the beginning of the end of the maintenance cash cow.

Cowen & Co. analyst Peter Goldmacher said in a research note:

We recently spent time talking with a handful of large SAP customers that have received roughly 50% discounts on maintenance renewals. The original contracts were in the $5M-$10M range. While all of our contacts had different stories, there were consistent themes. All these customers were looking to reduce IT spend, they felt like SAP maintenance wasn't good value for the money, and they were actively evaluating lower cost alternatives. When these customers informed SAP of their intentions to cancel maintenance, SAP initially offered modest discounts, only to follow up with significantly larger discounts when the customers pushed back. Given that there was executive level engagement in these discounts, we infer that senior management at SAP is aware of the issue. If SAP institutionalizes discounts on maintenance renewals, it will put significant pressure on its margin profile.

It's clear that the maintenance cash cow will run dry at some point, but we don't know the timing. Third party maintenance firms such as Rimini Street and software as a service threaten SAP and Oracle revenue streams.

Goldmacher's take could either highlight the beginning of a trend or just an anomaly for the moment.

However, there's a vicious maintenance renewal cycle that could unfold for megavendors. For instance, reports of customers garnering 50 percent discounts could just lead to more pushback. In fact, customers could routinely demand discounts or walk to Rimini Street. SAP and Oracle will likely respond with discounts and moves to keep customers in the fold. At the very least, a cash cow may trim down a bit.

More:

Topics: Enterprise Software, SAP

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

zdnet_core.socialButton.googleLabel Contact Disclosure

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Related Stories

The best of ZDNet, delivered

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
Subscription failed.