Posted on www.netnetweb.com on January 10, 2010 at 10:12pm
This is an SAP Negotiation Alert
If you have an existing agreement or are considering a new agreement with SAP – watch out. New language is emerging that is extremely concerning.
Here is a quick summary:
SAP is including new language into Agreements, Amendments and Appendices which may limit the contractual rights of its customer, disallowing any future termination of maintenance and support services, of any software and users on an ad hoc or line item basis, or termination of any individual appendix. SAP is including new language that suggests the only way it will contemplate any kind of maintenance and support services termination is if it applies to all Appendices and licensed software. Clearly, SAP is addressing the recent market changes and responding to increased threats of competing support alternatives. This “all or nothing” approach seems to be aimed at eliminating a client’s ability to manage any kind of blended support solution.
In addition to this troubling development, SAP’s Enterprise Support Schedule, has some interesting new provisions:
SAP Enterprise Support offered by SAP may be changed annually by SAP at any time upon three months prior written notice. This gives SAP the unilateral right to redefine the service description (including material reductions in support) with no reduction of fees.
After the initial term, the Enterprise Support Fees and any limitations on increases are subject to Licensee’s compliance with the Customer Center of Expertise (CCOE) requirements
Interestingly, SAP is also apparently requiring its customers to “regularly engage” in a service planning process with SAP. SAP may claim that it is trying to get closer to its customers to improve the value of the relationship, but some of our Clients are concerned that this is simply a way to capture intelligence about the account that will be turned into downstream selling opportunities. Regardless, it is telling that SAP expressly states it will have the ability to raise your prices if you are found not to be in compliance, but there is no commitment that SAP will not raise your prices if you remain compliant.
Another mind-blowing apparent value grab is SAPs provision that penalizes its customers who do not establish and maintain a certified CCOE in accordance with SAP’s definition, (including any required recertification). SAP claims that it shall be entitled to increase Licensee’s then current “maintenance percentage factor then in effect” if the Licensee is found to be non-compliant, but does not specify the increase or how the increase will be determined or calculated! SAP further requires its customers to certify their CCOE through an audit, conducted by SAP, verifying compliance with the obligations set forth in the Agreement. For details of the certification and re-certification process, there is a reference to the SAP CCCNet in the SAP Service Marketplace, which presumably may be modified at SAP’s sole discretion at any time. This could be an attempt for one of the largest value grabs in the history of support services. Presumably, if clients are found *by SAP* not to be in compliance with SAP’s definition of the CCOE as modified *by SAP* at any time, then SAP could unilaterally increase the ‘maintenance percentage factor’ to whatever it wanted to. Ha! and you thought a 29.4% increase was outrageous.
SAP also extended the notice period of termination to 90 days. Presumably, customers that fail to provide notice at least 90 days in advance that they intend to cancel Enterprise Support will still be obligated to pay the entire upfront annual maintenance and support fees.
SAP is also requiring that for its customers to be eligible to receive Enterprise Support, that Enterprise Support is the only support and/or maintenance services received by Licensee for all SAP software licensed by Licensee. This means no mixed support environments, or customers will lose their rights to Enterprise Support (no mention of a pro-rata refund of the unused portion of support).
In summary, SAP appears to be continuing the oligopolistic behavior it borrowed from Oracle when it increased maintenance service and support fees by 29.4% (up from 17% to 22% of the net license value) with this move towards an ‘all or nothing’ Enterprise Support model. In addition, SAP has included more “responsibilities and obligations” (SAP’s own words used in their agreements) for their customers to comply with in order for them to receive the more costly Enterprise Support. Further, if SAP’s customers fail to operate their CCOE in strict compliance with SAP’s interpretation of best practices, including opening up their organizations to more inspection from SAP, then there is nothing to prevent SAP from levying additional increases to the maintenance fees immediately, as well as in future years. While SAP may be subject to, and held somewhat in check from public relations scrutiny, from a contractual perspective there is no limit on what SAP could charge customers for Enterprise Support.
Customers beware. This seems to spell out how SAP views its relationships with its customers quite succinctly. This seems to indicate that SAP wants to (i) charge higher costs, (ii) provide fewer options, (iii) enact more restrictions, (iv) require more obligations, (v) levy more future pricing pressures, and (vi) force you to surrender more account control.
With the emergence of competing market opportunities, and the momentum behind decompiling monolithic architectural approaches to a single sourced software supplier solutions for the entire enterprise application stack, one has to wonder if these new *company-centric* positions from SAP will have the desired impact or if the velocity of customer defection to viable alternatives accelerates.
Please contact us if you have any questions regarding any of your technology agreements or relationships.
Filed under: Hardware, Microsoft, Oracle, SaaS, SAP, Software, Subscriptions
There appears to be a significant amount of buzz around Web 2.0, what it is and how do you get some… If you do a Google search on Web 2.0, you are using Web 2.0 technology! Just by the fact you are reviewing this blog post means you are using Web 2.0 technology.
Why would a professional optimization firm write about Web 2.0?
The newest versions of applications, services and hardware touted by companies like IBM, Oracle, Microsoft and others are being sold as Web 2.0 necessities.
So what is Web 2.0?
If you click on some of the results from your “Web 2.0” Google search, many people say Web 2.0 is nothing more than a marketing spin on the natural progression of Internet technology. So why then are Enterprises being encouraged to pay premiums based upon marketing and hype? Continuing a tradition among technologists to buy the latest and alleged to be the greatest? Beyond that, we have no clue! But, we can try to put some context around what is Web 2.0?
Quite simply, one can look at a website or application as being Web 2.0 if it contains any of the following characteristics:
- A user centric customizable interface (i.e. use of widgets to customize pages)
- Community updates like those found in Blogs or Wiki pages
- Uses the Web as its delivery platform and is entirely browser accessible
- Allows for collaboration like that found in Instant Messenger or other Social Networking sites
- Utilizes user generated “Dynamic Content” for updates
- Software as a Service (SaaS) by definition, uses the Web as its delivery platform
- Provides for a rich use experience
Who can argue with those, almost like motherhood and apple pie (all good). Those characteristics are so all encompassing, almost all software fits into at least one of the categories above. Still, by using the latest buzz word and labeling products “Web 2.0”, technology companies are jumping at the opportunity to capitalize on the ambiguous definition of “Web 2.0” and trying to use it to compel buyers to pay a premium to obtain it. At NET(net), we consistently rally against hype and focus on business value received relative to financial investment expended. This is where Web 2.0 falls flat (in our humble opinion).
In advance of its annual Sapphire meeting SAP has bowed to the torrent of negative press and customer feedback on its mandatory shifting of support to Enterprise with an effective rate of 22% of net license value, which represents a 29.4% increase in support costs for SAP. As SAP customers undoubtedly know, the effect of the shift to Enterprise support is that the percentage of net license moves to 22% from 17%. While the target of the 29.4% increase continues to be 22%, the trajectory will be more in line with traditional annual increases. SAP has provided a revised progression towards the 22% target. Originally, the increase was to be carried out over 4 years, starting with an 8% increase in 2009 and increasing a further 8% per year until 2012 when it would increase by 2.5%. Under the revised timeline, the annual increases will be scaled back to 3.1% per year until the 22% level is reached. In addition to the timeline, again responding to pressure from the various SAP user groups, the improved services that SAP is advertising under the Enterprise model will be audited by an independent party to assess the value customer received.
Despite the movement on timeline, SAP remains silent on whether the pace of increase will abate once 22% is reached. As SAP continues down a path of fewer customer options for support, and a mandated support level at the 22% level, it’s hard to argue that the slant aligns more with Oracle’s policies than it does with the interests of SAP customers, and it is not unthinkable that price increases could continue in perpetuity. Check out NET(net)’s May newsletter for more on the “5 Things SAP Isn’t Advertising on Enterprise Support”.