Friendly Fire: SAP Flubs the Maintenance Business

You’d think, based on the timing, that Oracle was trying to deliberately make a PR run on what was looking like, and turned out to be, some pretty good news for SAP. The day before SAP’s nice looking Q2 earnings call, Oracle upped the ante in its lawsuit against SAP by claiming more direct executive involvement in the alleged theft of Oracle support IP by the now defunct TomorrowNow. It was a classic attempt by a determined rival to spoil some otherwise good news.

But if SAP has something to worry about in the PR department, they should look no further than their own backyard. There, smoldering like a summer fire in California, is a PR problem of major proportions, and one that isn’t likely to get under control for some time to come. A problem that, like most fires, is entirely man-made, or in this case, SAP-made, and perhaps equally avoidable.

The problem is SAP’s recent announcement that it plans to gradually increase maintenance fees up to an industry-standard of 22 percent, a move that was greeted with near universal opprobrium. Coming shortly before the announcement that SAP was killing off TomorrowNow, and today’s news of a very success quarter driven in part by a 29 percent (non-GAAP, constant currency) increase in support revenue, SAP’s move looks like nothing more than a blatant attempt to grab more revenues from customers who feel trapped into an unfavorable relationship by a greedy vendor.

It doesn’t have to be that way, but, trust me, that’s how many customers feel. I spoke to one recently who was basically furious at the maintenance hike: “We’ve already done our 2009 budget, and this sure as hell wasn’t planned,” she told me. For her company, a long-standing SAP customer that has deployed pretty much everything SAP has to offer, this change to 22 percent is not a trivial matter: “We’re talking hundreds of thousands of dollars here,” she told me. Needless to say, this user asked to remain anonymous.

While it’s specious to say that there is no way to hike maintenance without getting blasted by customers, there was another way to go about the maintenance hike, one that, while it might not have staved off all the criticism, due and undue, would have helped mightily in softening, or at least explaining the blow.

Here, in a nutshell, is what SAP should have done.

Start by defining carefully the value of the new maintenance program in terms of total cost of ownership, particularly when it comes to the upgrade process that is part of every SAP’s customer’s on-going plans. Customers I’ve talked to said they weren’t told whether there was any more value in paying 22 percent over 17 percent, though one assumes there might be something to be said by SAP about response times, more personal service, and other metrics that should be part of any discussion about raising maintenance rates. Somewhere in there could be the start of a “get more bang for your maintenance buck” discussion with customers.

Once there are some metrics on the table about why enterprise maintenance at 22 percent is designed to be better than the old 17 percent maintenance, SAP could start to talk about the value of its enhancement packs (EPs) in terms of upgrades and total cost of ownership. The EPs allow customers to perform complex functional upgrades using the much lower resource requirements typically used for more simple technical upgrades, and by doing so SAP is increasingly able to lower TCO by lowering the burden of an upgrade – the cost of which is up to the customer to bear, with maintenance fees only providing the actual software upgrade for free.

These EPs are part of a well-known SAP roadmap that should do a lot to change the TCO equation for SAP customers – and provide some strategic differentiation in the maintenance fee business: If SAP can articulate that EPs make it easier to upgrade, that might software the blow significantly when it comes to paying for a 22 percent maintenance hit.

Then SAP could look at bringing some of its partner ecosystem products into play by making them part of the maintenance/TCO equation, and thereby help promote the “more bang for your maintenance buck” notion. One company in particular, IntelliCorp, has a product set that can not only lower the cost of an upgrade but the whole life cycle maintenance of the SAP system. I’ve talked to a number of IntelliCorp customers over the last year, and every one of them tells me that this is a tool that can make a difference. The customer I spoke to whose 2009 budget just got busted by SAP’s maintenance hike is also an IntelliCorp customer, and her perspective is that this is a product that helps take the sting out of SAP’s maintenance burden.

Finally, SAP could elevate the whole maintenance issue in terms of its ecosystem and TCO, and make it more than just a service and support issue. Maintenance should be seen as much more than just a fee that pays for your support and upgrades. Maintenance is also about membership in a community – these are the dues that are paid to enjoy the rights and privileges of being in a club that, if SAP does its PR job right, has a raison d’être that includes a whole lot more than just free software upgrades and support. I personally think its high time that this concept of membership be added to the maintenance equation. Assuming a good case can be made for the value of membership, SAP would have a much easier time justifying charging more to be part of the club.

So, touché Oracle, the amended filing looks ugly. But it's nothing compared to the friendly fire SAP laid down when it jacked up maintenance rates without spending the time and energy to make a case for an increase in value commensurate with the new 22 percent rate. The case can be made for greater value, it should be made, and then let it be judged by its merits. Because otherwise maintenance is really just a line item intended to increase shareholder value – and that’s just not good enough for SAP, or anyone else in the enterprise software industry today.