An SAP maintenance fees and support survey conducted by DSAG, the German speaking SAP user group, comes as a mixed bag of messages but one thing is clear. SAP needs to pay attention or it risks a continuing leakage of customers or, at the very least, reduced ongoing investment by its customers.
The good news is that survey respondents are largely satisfied that SAP continues to provide 'legs and regs' support within the context of the SAP maintenance fees they already pay. But a substantial 42 percent question the value of the more expensive Enterprise Support offering. From the press release:
As to the long-standing debate over whether Enterprise Support actually adds value, SAP still has a great deal of persuading to do – even though the figures have improved. Although nearly one-fifth of those surveyed expressed positive or neutral opinions about the "more expensive" support model, 42 percent of respondents don't believe it adds very much value.
Just as concerning, 40 percent did not provide an answer to that question.
SAP maintenance fees have long been a bone of contention. Ever since the company announced a substantial price hike back in 2008, it has represented a running sore among customers. It is a topic I have covered regularly from the point of view of the paying customer.
Related stories by me on SAP maintenance:
- SAP pulls the trigger on higher support costs (zdnet)
- SAP 'Mittelstand' customers upset at new maintenance charges (zdnet)
- SAP Standard Support price rise: why now? (zdnet)
The playbook is all too familiar:
- SAP imposes something new that appears to cost customers more money. SAP tries to justify on the back of improved support/features/simplification
- Disparate user groups grumble about the changes
- DSAG tries to compromise but ends up creating a ruckus
- SAP concedes some points but eventually gets its way
This time the game has changed. This time, DSAG has said something that should be of genuine concern that has been simmering below the surface for some time. DSAG reports that:
Criticism is increasing that SAP is mainly investing in innovations, whereas established SAP products such as SAP ERP are hardly being enhanced at all, or only moderately. This results in dissatisfaction among some users...
...In the area of the business functions, with which SAP provides new functions and enhancements, most users stick with the free-of-charge functions; a small number uses chargeable functions. The business functions model is largely intransparent for the majority of users, which is why they are only rarely activated: "As a result, many valuable functions are simply left unused," says Andreas Oczko, DSAG Chairman.
Understanding the findings
I spoke with Andreas Oczko earlier on the day. On the high number of no response to the value question, he said: "What you see in the survey results is typical among German speaking companies but we don't think this has any impact on the correctness of the findings." In short, a significant number of German speaking companies are reluctant to share value achieved.
I then asked about SAP's simplified price list, a current topic du jour where SAP has bundled a number of items and reduced the vast number of SKUs that made SAP pricing an impenetrable minefield for all but the most expert. "With the new simplified price list, the price for some functionality can appear to be 10x 20x the original prices. This is the bundling problem. For a new customer it may be simpler but for us you need to understand how something you invested in the past with certain investment expectations works out. So for us, while there may be new functionality, it may well only account for 5-10% of the whole." In these circumstances, DSAG expects to have dialog with SAP on how this works out for its members.
On innovation compared to support, DSAG has two positions. On the one hand its members see development of the existing software as something that should be included within maintenance. On the other hand, while it recognizes that SAP must innovate, there are concerns that SAP may be going too quickly for its members. This is a common problem where DSAG recognizes there needs to be balance.
However, there was a clear message: "The survey covers what goes on in the marketplace today. We need to derive the right steps going forward. Adaption to the state of technology must be included as part of the maintenance for standard software." In short - we don't want to pay for things that bring existing functionality into the modern age because the underlying functionality is still there. Fiori was the classic example.
The risks for SAP
SAP might draw comfort that having made their maintenance choices, customers will (largely) stick with what they've got. In many ways that is consistent with activity inside the Bell Curve which I discussed recently on the topic of change management. SAP can rightly draw comfort from the fact DSAG wants an active dialog with SAP. However, it cannot take that for granted.
However, as I talk to more people both inside and outside SAP, it is clear the market is not as clear cut. For as long as these kinds of question keep arising, there is always the risk that customers will re-evaluate and go elsewhere. Whatever DSAG may say, the fact that Salesforce, Workday and Netsuite all see Germany as a land of genuine opportunity should ring warning bells for everyone in the SAP ecosystem.
In the latest SAP reported results, maintenance revenue rose 5%. How can that be when it is clear the secular trend for buying SAP on premises core solutions is declining? Part of the answer is found in the illustration at the top of this article where we see that this year, SAP benefits by an uplift of 3.5% for standard support. Also bear in mind that Germany represents about one third of all EMEA revenue. In the last earnings report, revenue was flat for that geography, compared to 2013.
Compare those facts with an earlier DSAG survey published February which stated:
Members' SAP budgets will rise 6 percent in 2014, as opposed to 11.2 percent last year, DSAG said in a news release. Members' overall IT budgets are also growing more slowly, going up 2.1 percent compared to 5.9 percent last year.
At the time, DSAG warned:
"DSAG members are pursuing current hot topics such as mobility, in-memory computing, and cloud, but are not only using SAP products to do so," group chairman Marco Lenck said in a statement. "Customers analyze their current situation precisely and then seek out the products that fit their company's landscapes."
DSAG expects a "customer first" attitude from SAP with respect to its product development efforts, Lenck added.
So while on the one hand, the DSAG community expresses concern over value, the reality is that they are voting with their wallets. That may change by year's end but the current trend does not look promising for SAP.
SAP must be concerned about this because the price increase graph shows that the price hikes come to an end in 2016. If the current trend continues then what?
I have repeatedly argued that unless SAP has something fundamentally new to offer by 2017 then things start to look decidedly ominous. This is because all current support contracts and terms effectively run out by 2020. Experience tells us that ramping anything new takes three years in the enterprise world, hence the need to be in market by 2017. I have seen nothing across the whole enterprise software landscape to persuade me that this trend will not continue.
SAP R&D - a black hole?
Which leaves me wondering what is going on at SAP R&D. Maintenance is a very high margin business - in SAP's case, around 90-95%. The team have a continuing mandate to squeeze cost out of maintenance and support as you would expect for software that at its heart is 25 plus years old. Yet a good number of DSAG customers are left wondering what they are getting for their SAP maintenance fees, in large part because of the co-mingling of new functionality and enhancements to existing.
HANA has been in the works for years, work on the Business Suite to get it onto HANA continues. Work on Simplified Financials continues. But none of that represents a fundamental shift. If DSAG is representative (and it usually is) then what are the 18,000 developers SAP has actually doing that would tell the world: 'Here is something groundbreaking, new, fresh and competitive?'
That may well be a very different question from those currently raised by DSAG which, by its own admission, represents businesses that are naturally conservative. Even so, SAP cannot be content to simply try protecting its existing customer base with tweaks to old software.
SAP - the listening vendor?
Despite the clear desire to service customers that I have seen over and over at first hand, it is obvious that big chunks of SAP are out of touch with what its customers want. If it was otherwise, then surveys of this kind, and many others we see from other user groups, would not come into the public domain.
DSAG says that these things are 'normal' and that in many ways, SAP behaves better than other software providers. While that may be true, it must also be a matter of deep concern that at the very heart of SAP's business, users feel that SAP continues exhibiting a lack of transparency. More broadly, it does not speak well of the industry as a whole that on the one hand is awash with money and yet seems to be so poor at matching value to expectations.
CEO Bill McDermott's message of simplification may sound attractive and welcoming. Everyone wants to see that hashed out into reality. But as this survey tells us, SAP continues to find it difficult to keep all its customers happy. Indeed, I would argue this DSAG survey is merely representative of long run problems that have been left unattended and which, when SAP tinkers, ends up raising more questions than they answer.
Competitors and especially those who operate in the cloud will look at this and smile. They will point to the fact that bug fixes and upgrades come as part of the contract with no additional cost penalty. That is true but then SAP will equally argue that its customers enjoy a much broader range of functionality then that provided by the cloud players. That won't last forever and as the trend to more standard software for back office ERP continues, SAP's ability to differentiate will wither.
Disclosure: SAP, Salesforce, Workday and Netsuite are partners at time of writing.