Cloud impact: SAP changes upgrade and maintenance policies

SAP released a short, but significant, press release describing changes to the upgrade policies on the company's flagship Business Suite product. The policy changes will benefit customers and appear to be an SAP reaction to market expectations shaped by cloud computing and software as a service (SaaS) vendors.

From the SAP press release:

SAP plans to make evolutionary and breakthrough innovations available in a non-disruptive fashion on a quarterly schedule for the product and solution landscapes that customers have today. The key concept of evolutionary innovation is the delivery of incremental enhancements to capabilities of the core suite of SAP software products. This will keep customers on the cutting edge in running their business. These enhancements will include state-of-the-art user experiences such as side panels, landing pages or process extensions to mobile devices. Business analytics connected to business transactions are also planned in order to help customers make better decisions and execute them faster. Additionally, breakthrough technology innovations like in-memory computing will drastically change the user experience in business processes involving large data volumes.

As a logical consequence of this approach, SAP will extend mainstream maintenance for the core SAP Business Suite 7 applications, including the enterprise resource planning (ERP) application SAP® ERP 6.0, by five years, from December 2015 through December 2020. This gives SAP customers long-term predictability and removes the burden of upgrades across the enterprise for several years.

STRATEGIC ANALYSIS

The new upgrade policy benefits customers while helping SAP battle increasingly strong market sentiment toward cloud computing.

By releasing enhancement packs, SAP lets customers add capabilities to their systems on a modular basis, without forcing a significant upgrade implementation. The new upgrade policy gives customers new features on a predictable, quarterly basis.

Extending maintenance for Business Suite is also beneficial for customers. When a vendor terminates the product maintenance period, customers must buy and implement an upgrade to continue receiving support. This forces some customers into an expensive upgrade simply to retain support, which is often essential on mission-critical software such as ERP. For this reason, support termination dates can be a contentious issue between vendors and customers.

It is also worthwhile noting that extending maintenance helps SAP avoid threats from third-party vendors that provide fee-based, "unauthorized" support. When a product reaches its support end of life, some customers may turn to these third parties rather than undertake a lengthy upgrade just to continue receiving official maintenance.

Despite the maintenance and upgrade benefits to customers, this policy change also reflects the market impact of cloud computing. On-premise software vendors, including SAP, increasingly face pressure to adopt certain practices and characteristics of cloud computing, such as faster implementation and greater predictability with upgrades.

It is common practice for cloud-based enterprise software vendors to offer upgrades on a predictable basis through the year. Unlike on-premise systems, these cloud upgrades take place behind the scenes, at the cloud vendor's facility, and are generally transparent to customers. Vendors of software as a service products therefore use regular, transparent upgrades as an important selling point when competing against on-premise software.

SAP consultant, Jarret Pazahanick, agrees that SaaS competition is a motivating force behind the announcement:

Extending the maintenance on the Business Suite to 2020 was a very smart and strategic move, because it provides customers with some stability and removes a core argument that the SaaS vendors regularly use against big and expensive ERP upgrades. This announcement buys SAP some breathing room to update the core of the Business Suite as well as get it running on HANA.

Another experienced SAP observer, Jon Reed, makes similar points:

Quarterly updates give SAP a chance to provide much more streamlined updates for customers. Testing will still come into play, so don't believe the "plug and play" hype that comes out of this, but testing can be focused on small chunks of functionality. This modular approach will keep IT and business users' eyes on the real prize - business opportunities.

Also, SAP getting on a quarterly release track helps them learn to act a bit more like a SaaS company which is where some of their toughest competition will eventually come.

Extending standard maintenance until 2020 is also a very smart move to give long term confidence in the ERP 6.0 investments customers have made. I would still like to see more differentiated support options from SAP but that's another story.

The policy shift offers clear benefit to enterprise buyers and may allow some organizations to remain with SAP rather than undergo a forced upgrade, at least for the duration of the extended maintenance period.

We should recognize this policy shift as one element in a broader SAP strategy to simplify implementations and upgrades, which includes programs such SAP Rapid Deployment solutions. The new policy is therefore part of SAP's larger reaction to general economic conditions combined with the company's need to demonstrate innovation in an environment where buyers increasingly seek the relative simplicity of cloud computing.

Disclosure: SAP is a current client