SAP Goes Back to the Well for a Maintenance Fee Hike

February, 2013

This week, SAP announced a unilateral price increase on standard support for new maintenance contracts signed after July 14, 2013.

The statement reads, in part: “To be able to provide the same level of support in the future, we will change the maintenance rate for new maintenance contracts with SAP Standard Support from 18% to 19%, effective July 15, 2013.” (The 19% figure is calculated on the original license fee amount.)

It also states: “This moderate adjustment does not apply to any existing maintenance contracts for SAP Standard Support closed before July 15, 2013. We also want to be respectful about budgets being planned for 2013. Therefore, we encourage you to take advantage of the opportunity to place purchase orders with SAP Standard Support ahead of this change at the existing 18% rate until July 14, 2013.”

There are several important points that may not be readily apparent. First, all SAP products under standard support are within the scope of this announcement, with the exception of SAP BusinessOne, SAP’s offering for small companies. Second, this is not a 1% ncrease in maintenance fees, as one might assume: it is a 5.5% increase (1/18 = 5.5%). In addition, the price increase will affect a significant number of SAP customers. Although SAP claims 95% of new customers are choosing the higher priced “enterprise support,” a large percentage of SAP’s existing installed base is on this “standard support” program, which is being impacted by the price increase announced this week. Finally, although SAP points out that customers can stay at the 18% level by signing new maintenance agreements prior to July 15, this locks in customers to a longer contract period, taking away other options, such as renegotiating the number of users or considering third-party support, for the duration of the contract period.

In light of this price hike, SAP customers should be asking four major questions:

  1. What improvements in SAP support will SAP deliver to justify this 5.5% price increase? Can we expect our internal costs to drop by at least 5.5% as a result of SAP’s improvements in its support program?
  2. What is the gross margin on SAP’s maintenance business today, and how will that change after this increase is in effect? Maintenance is the most profitable segment in SAP’s financial performance. Why should it become even more profitable?
  3. How have SAP’s cost of support increased to justify this increase in my maintenance fees? Normally the cost to support mature products decreases over time, as issues with the program code are resolved. Offshoring of application support and deflection of support activities to SAP’s user and partner network also have introduced support efficiencies. Shouldn’t SAP be considering a reduction in maintenance fees rather than an increase?
  4. Since SAP uses some of its maintenance revenue to fund development of new products as well as make acquisitions, will SAP provide these new products to customers at no charge? It seems SAP charges customers for new products twice: once, when it charges maintenance fees, and again when existing customers buy those new products.

Several years ago, SAP customers fought back SAP’s attempts to impose a maintenance fee increase by forcing all customers to move from standard support (at 18%) to enterprise support (at 22%). After a great deal of public outcry, SAP backed down.  Now SAP appears to be trying to impose a smaller price increase, with no apparent improvement in service, in hopes customers will not notice.

The only good news in this announcement is for providers of SAP third-party maintenance, such as Rimini Street.