SAP Enters the 22% Maintenance Fee Fold!

SAP completed the highly anticipated move of applying its new "Enterprise Support" offering to all customers (except for specific contractual agreements on some larger accounts), phasing in the new 22% maintenance support fee over the next 3 years for R/3 4.6C and 4 years for R/3 Enterprise.

Enterprise Support has been touted by SAP as offering increased value to customers, since it covers not only the standard "support packages" that update legal changes and technical patches, but also the addition of "enhancement packs," which will allow customers on the Netweaver platform to add new functionality. Additionally, being that the SAP product portfolio has expanded to include BPP and SOA, the increased fee is linked to the support and development of this next generation eSOA platform.

On the other hand, it is also very clear that this is a simple "dollar and cents" move by a company that has a strong case of margin-envy to its closest competitors. Being that Oracle and SAP remain as the last major ERP vendors to the large enterprise space, why shouldn't SAP charge the same maintenance fees as Oracle, if they can get them?

However, the draw-back of moving into the same category as Oracle may open the flood gates to 3rd-party maintenance suppliers. To this point, these players, such as TomorrowNow (for the time-being, owned by SAP!), Rimini Street (started by a TomorrowNow founder) and NetCustomer, have focused their businesses mainly on the PeopleSoft, Siebel and JD Edwards customer segments; since the ability to offer cost savings to a customer on 22% maintenance fees is obviously an easier and more profitable business model than offering maintenance on SAP's old 17% maintenance fees. With SAP now in the 22% fee fold, these maintenance suppliers will certainly be attracted to serving this large market. The question now is whether SAP's product direction is attractive enough for customers to dismiss the maintenance savings in favor of moving to a more modern technology platform.

Microsoft's "SW+Services": How it Stacks up to SAP

Being that I just returned from the Microsoft Partner Conference (yes, lucky me... in Houston... in July!) and being that many of the readers of this blog have responsibilities going well beyond just SAP, including other consulting services practices such as Oracle, Microsoft Dynamics, Lawson etc, I thought it might be appropriate to do our first view of a Services Ecosystem that is not SAP.

In effect, with the skills crutch hitting the U.S. and other countries, all software vendors are competing for your (the IT Services supplieras) attention, focus and resources! So PAC believes it's always important to be aware of what's happening on all platforms! (sorry Axon ;-))

Here's a look at our key take-aways from the event. I will post the www.pac-online.com hyper link when its up; here's a short extract of the full commentary:


Microsoft’s Software + Services: the “Zune” of the IT Industry

Spending several days in balmy Houston, Texas in July, several PAC consultants attended Microsoft’s annual “Worldwide Partner Conference” (WPC), in order to understand where all business-related elements of Microsoft were headed. Top of the list as far as priorities included the state of Microsoft’s Dynamics business application unit, its burgeoning virtualization offering as well as the numerous explanations surrounding its jumbled Vista launch. In the end PAC was somewhat surprised with the forcefulness by which Microsoft positioned the “cloud” as the next frontier of computing to its partners; and at the same time, we were less surprised that in Microsoft’s worldview, the cloud can and will exist alongside on-premise, and that the movement to the cloud will take time.

Steve Ballmer explained it most clearly in his keynote when he stated that Microsoft would be moving from “the OS to a platform for the cloud” that can be a central place for development, storage, security, applications, etc.

Most importantly, from a technical standpoint, Microsoft will need to build a bridge between its traditional solutions and to those capabilities offered in a SaaS model, which in PAC’s opinion is a major challenge. “Cloud computing” represents not only a different business model, but also a different programming model. Vendors do not have the same criteria and imperatives developing on-premise software and SaaS, and again here, one can have a look at SAP’s Business ByDesign. SAP’s major challenge is to have the right skills and developers, which in many cases may be very different from the ones existing from their traditional products.

Despite these concerns, Microsoft got to where it is today, not by necessarily having the best software solutions (at least when first entering a market), but by having the best business model in the software industry. This business model, which is centered around volume, by focusing on software development and marketing, and parsing out sales, delivery and IT services to partners, has allowed Microsoft to funnel its immense profits into product lines until they actually are: good-enough, just-as-good or better than the competition. In this sense, “Software + Services” may not be a Zune, but perhaps another winning business model.

“Software + Services,” aims to offer both on-premise Microsoft solutions, which is still what the bulk of the market requires, wants and expects, along with either hosted solutions or in Microsoft’s terms “hosted multi-tenant” (they really don’t want to say SaaS, huh?). The openness of having a hosted offering as well as SaaS is very important since there are customers who would prefer to have their data separated physically, and either residing within the company or with a trusted partner. Retailers, with their customer data concerns, as well as the Federal government, where security is a top priority, quickly come to mind as some “SaaS dead-zones.” Additionally, many users of SaaS solutions would like to have on-premise versions of their solutions to work on when offline. By offering all three elements, Microsoft offers a vastly more interesting picture of the future for partners.

Full Article co-authored by:
Peter Russo – Senior Consultant, PAC New York
Lynn Thorenz – Consultant, PAC Munich