Earlier today the Twitterverse had a minor eruption when Ray Wang of Forrester sent out the following messages:
Hearing from SAP customers that there are new clauses that will force customers to commit to no Third Party Maintenance.
Large ERP vendors requiring companies to confirm they are not receiving support services except from that vendor. More than 1 vendor.
Suggesting to customers not sign away any third party maintenance rights in new contracts. This is uncompetitive!
Frank Scavo was all over this and makes the following points:
SAP's (and other vendors) audacity in this, if true, is at least three-fold:
SAP itself, until recently, has been delivering third-party maintenance for Oracle customers through SAP's TomorrowNow unit. So, apparently, SAP thinks third-party maintenance is a good idea when SAP does it for a competitor's products but not when others do it for SAP's products. If SAP's maintenance and support offerings are such a great value, as SAP has been saying lately, why does it feel it needs to contractually bind its customers from using third-party maintenance? Such contractual terms restrict fair competition. If a third-party maintenance provider is misappropriating a vendor's IP rights, as Oracle is accusing SAP of doing, SAP can legally pursue that service provider. Limiting the customer's choice is clearly against free market principles.
James Governor of Redmonk piped up with:
prediction: Oracle and SAP both to get hauled in by Neelie Kroes and EU competition directorate. maintenance hike + support services clause
and finally Dale Vile of Freeform Dynamics added:
@dahowlett @rwang0 That is outrageous if it is true
My own response is not worksafe. Neither is that of several of my Irregular colleagues I contacted on Skype. But what's really going on here?
First up, the contract terms that SAP is seeking to impose do, if that is indeed the case and if enforceable, prevent customers from going to third parties for maintenance. Clarification of the legalese confirms. That's un-necessary in many cases because despite the fact SAP has issues in its customer base on the soon-to-be-imposed maintenance price hike, many would not be actively seeking to go elsewhere. According to my Irregular colleague Prashanth Rai, 70% of budgets are in maintenance anyway. Whether it goes to SAP or ANO is immaterial - unless SAP is able to spin back and make a strong TCO case. Instead, SAP appears to be drawing attention to potentially onerous clauses. That is a serious mis-step.
Second, let's not forget that RiminiStreet has a competitive offering for SAP customers along the lines of that it already operates for Oracle customers. I've heard elsewhere that Oracle is spitting feathers that RiminiStreet is proving to be successful in its offering. In its recewnt earnings announcement, RiminiStreet said it had quadrupled booking the last year to $86 million. In Oracle speak, that's around $160 million it's not getting.
Finally - follow the money. In looking at SAP's over-arching strategy, it looks like it is turning itself into a services business. It's been told loud and clear by customers that the days of continuing mega deals are over. That crimps its ability to generate growth on the top line. My own estimates are that in the three years that will end 31st December, 2009, it will have seen a decline in software revenues of some 12%. All the talk coming out of Walldorf is of cutting expenses. That will compensate for loss of growth and help preserve the bottom line. And that's what they're trying to do - preserve their annuity asset.
However, if (and I stress IF) this is one of the pillars upon which SAP's strategy sits then it is a cack-handed way of going about it. Yesterday, Leo Apotheker, SAP co-CEO was all for talking up customer value. As an operations guy, I believe him. Yet today, it seems we have an example of the company shooting itself in the foot with the very customers who thought they had a real partnership with the company.
What should customers do?
- Just as Ray and Vinnie Mirchandani warned in recent posts: watch out for onerous clauses. They may not be enforceable but then why risk litigation fees in the first place?
- Get a good lawyer
- If your deal is located in Europe, check to see what the EU position is on uncompetitive practices. This will vary on a country by country basis but may be subject to over-arching legislation or decisions. Watch for example developments in the Apple-Orange case which is currently working through the courts. And don't forget what happened to Microsoft when it came up against Kroes.
- Evaluate the partnership you hold with your software vendor. Now more than ever it should be a true partnership, not one that is bound up in legalese that makes you feel like you're being taken to the cleaners.
- While this post is aimed at SAP on the basis of what we're hearing, the same goes for ANY vendor to which you have a strategic relationship.