Cowen & Co's hint at a general trend downwards in SAP maintenance revenue may be something of a stretch given the sample size used to arrive at its assessment. But the inevitable nose dive in this line item cannot be far away.
In an email conversation with Peter Goldmacher, he confirmed that every one of the companies he spoke with was able to secure a 50 per cent reduction in their annual maintenance bill but that as far as he is aware, none of that was offset by any benefit that might have been achieved through the acquisition of HANA database license replacements for Oracle. He said:
"I have yet to find someone swapping platforms for HANA, I have heard SAP is telling customers that it isn't investing in NetWeaver anymore and if they want to take advantage of better DB performance, they have to go to HANA. Makes a lot of maintenance paying NetWeaver customers unhappy."
That's not entirely correct. SAP is investing in NetWeaver Cloud and putting the Business Suite on HANA but my understanding is that the main development effort for the Business Suite has moved to Gerhard Oswald's organisation. That is where SAP services and support business is managed. It suggests that for all practical purposes, major development of the Suite is all but at an end. This is subject to work on the Rapid Deployment Solutions which themselves carry cost but which are meant to deliver high value via fast track implementation. In other words, SAP is now in a mode where it is squeezing every last drop off efficiency out of the Business Suite before putting it into sunset mode.
Let's be clear. Nothing so far should be a surprise and any sunsetting of the Suite is years away. But it does open up the question about what happens to SAP's maintenance revenue as SAP moves forward?
Right now, the emphasis is on HANA development which is consuming vast amounts of SAP resource in multiple product areas. This is an absolutely necessary part of SAP's development strategy and will be part of the charm offensive it uses when sweet talking customers into continuing to pay for maintenance. However, mass acceptance is anything but a slam dunk.
HANA development is proceeding across multiple dimensions with good emphasis on startup style developer engagement and encouragement. The database is being enhanced and SAP goes to market with both HANA and Sybase ASE. The Business Suite will be moved to HANA. There is cloud development in the mix.
Taken together, this represents the mother of all re-invention but it opens up the potential for many SAP customers to take stock of what they're likely to do over the next two or three years. Many will stand still and wait to see what shakes out of the SAP development hutch. Some - maybe 20 per cent will take calculated risks on HANA investment in the short term and happily fork over maintenance fees.
SAP is widely thought to be setting itself a goal of €1 billion in HANA related revenue for 2013. Assuming it succeeds, SAP can therefore afford to lose at least €200 million in maintenance renewals elsewhere without skipping a revenue beat and at least holding the line.
In the UK and Ireland, SAP's user group has been vocal in seeking clarification from SAP about what's happening strategically and where customers can expect to find value. A survey showed for example that:
...many users were facing the challenge of getting more value from their business data. 60% stated that they had challenges around the speed of processing and analysing data to give their organisation answers in the timescales needed. With SAP BusinessObjects working across heterogeneous environments there is technology out there that can help. Yet the survey revealed that there still remains a need for greater education and clarity around BusinessObjects, especially for those users who had previously invested in SAP’s BW and BI solutions. 70% of respondents stated they felt that SAP has not been clear enough about the cost of migrating from SAP BW and BI to SAP BusinessObjects.
The SAP answer is of course HANA but to date, SAP reports that globally it has only cut some 650 deals with fewer than 120 live. The company urgently needs to get customers live and talking about value if it is not to fall foul of ambiguities and uncertainty as the push customers need to consider maintenance alternatives.
In a very quick 30 second response, Alan Bowling, UKISUG chair said that he has not seen an intent by customers to shift their maintenance revenue or negotiate downwards. That's not to say it is not happening but if so then it is very much at a low level and being kept strictly under wraps.
Goldmacher contends that since approval of the deals he's seen comes from the highest level, it might imply a tacit policy to offer discounts, or at the very least a trend. I'm less convinced and especially so given the fact Ray Wang, CEO Constellation Research (Disclosure: I am on Constellation's advisory board) was in town at the UKISUG meeting delivering a keynote and workshop on maintenance negotiations.
As regular readers will know, Ray is anything but shy when it comes to dinging SAP on maintenance topics and yet I saw nothing in the Tweetstream to suggest a softening of SAP's position. Neither did I see that in evidence during a conversation with Jim Snabe, co-CEO SAP when discussing how SAP brings together its technology piece parts over the next couple of years.
RiminiStreet likes to stir the pot. Its official response:
As we have discussed previously, we have always seen some level of discounting from SAP on annual maintenance when SAP finds out that Rimini Street is competing for the business in an account. However, that discounting has definitely increased as SAP grapples with real competition from Rimini Street.
There is one scenario where appearing to take a maintenance haircut makes sense. If SAP can effectively switch that burden away from Oracle database license holders running SAP apps then it can provide at least some customers with savings but without battering its bottom line. SAP is not saying too much about how this works but is actively pursuing Oracle opportunities with a view to killing off that cost. Of course it is not as simple as like for like comparison but you get the drift.
Insiders at SAP say that without further detail it is impossible to test the veracity of Cowen's findings but they are not seeing this kind of activity in confirmed deals. They say there is no maintenance discount being offered nor a policy to offer discounts. Given what I heard from Jim Snabe, co-CEO last week on this topic then this does not surprise. Neither do I see this as more than a usual talking point in conversations among deal making colleagues. But then none of us sees the whole picture at any one time.
What Cowen is seeing may just be a testing of the waters by a few hardy campers. I would prefer to hear more from customers across geographies.
Looking forward and given the potential for SAP to appear as a database cost white knight while grappling with the twin pressures of SaaS vendors and third party providers, in a market where maintenance is under scrutiny: Is 50 per cent of something now worth more than 100 per cent of nothing? The answer should be self evident.