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Siemens cans SAP support

Rumors have been circulating for weeks that Siemens plans to ditch SAP for its ERP support. The story goes that Siemens had become fatigued with the situation.
Written by Dennis Howlett, Contributor

Rumors have been circulating for weeks that Siemens plans to ditch SAP for its ERP support. The story goes that Siemens had become fatigued with the situation. A recent heavy hint should have come from Siemens signing off a massive deal with SuccessFactors.

A report in wiwo.de (Babelfish translation) seems to confirm Siemens decision. According to the report, Siemens pays SAP 'more that €30 million' ($43 million) a year in support charges for its 160,000 users and wanted to reduce its costs. That's hardly surprising in the current economy. Apparently, Siemens has been considering alternatives from companies like IBM, HCL and RiminiStreet. The report goes on to say that SAP was not prepared to negotiate because that would send a signal to other customers at a time when SAP is trying to increase maintenance fees.

Ray Wang says:

Almost all SAP customers have end of year maintenance renewal terms.  As these organizations review their maintenance contracts going into 2010, it will be important to consider the role of third party maintenance in decisions.  Customers seek strategies to free funding up so they can address economic shortfalls and/or invest in innovation. But don’t expect vendors such as SAP to back off without a fight.

Elsewhere, I am seeing customers engaging in innovative tactics to reduce the initial license cost so they can peg back maintenance.

See also:

SAP pulls the trigger on higher support costs

Rimini Street ups the support ante: expands international support

A buy side response to the enterprise buyer's Bill of Rights (and a partial solution)

Zut alors! the French are revolting

SAP 'Mittelstand' customers upset at new maintenance charges

Taking the pulse of Oracle customers

Here is VInnie's take:

So, SAP has had plenty of warnings. To me, it was incredibly brazen (or naive) to

  • have acquired TomorrowNow to offer Oracle customers cut-rate third party maintenance, and not offer something similar to its own mature customers
  • try and push through an increase in maintenance over the last few months in the middle of one of the worst recessions in history.

Siemens’s message is clear. Forget 22% with KPIs, even 17% is too high as I wrote here.

This is bound to renew confidence among German, French and British customers in particular who have fought shy of upsetting SAP for fear they would not get the service they need. In my experience that's an empty threat but an indication of the extent to which customers feel they have all their critical technology eggs in one basket. Just as interesting will be ASUG's response. In the past, they have been largely silent on this issue.

While SAP has been the focus of much attention following its botched attempt to raise maintenance costs, it is not alone. Oracle boasts it plans to reach 50% net margin. This is based in large measure on being able to milk a legacy set of acquired technologies at the rate of 22% license cost. I have long argued that is unsustainable.

Regular readers will know that Ray Wang, Vinnie Mirchandani, Frank Scavo and myself have been persistent critics on the general issue of enterprise software maintenance costs. As Ray hints, there are certain things you can do to minimize your exposure. However, the devil is always in the detail. Expect to see more from us in the coming weeks. This topic is not going away anytime soon.

Finally, Siemens is also an SAP implementation partner. It will be interesting to see the extent to which SAP retaliates by withholding implementation opportunities.

UPDATE: Neither SAP nor Siemens are providing comment on this story. While the tone at wiwo.de suggests this is a done deal - and in that regard confirming what I've been hearing from a number of sources - Ray Wang suggests there is still room for negotiation. It's hard to see how the two sides can come to an agreement without there being a much wider impact for SAP.

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