SAP Announces Q1 Results & A New Plan for Enterprise Support

For Q1, SAP's total revenue came in at €2.4 billion, a decrease of 3% compared to the year prior, while software licenses plummeted by -33% to €422 million. This compares to a -12% decline in Oracle's software licenses for their March quarter, giving some credence that Oracle may have a temporary edge in selling acquired point-solutions in an economy where company's are not looking for "big bang" suites...

When looking at software licenses for SAP by region, EMEA performed "best," declining by -27%; Americas by -35%; and APAC by -50%!

Changes to Enterprise Support:

At the time of its earnings announcement, SAP also announced changes to its Enterprise Support program, where the company will prolong the maintenance fee price increase schedule by 3 years, to reach 22% maintenance fees by 2015, instead of 2012. The other added stipulation is that in coordination with SUGEN (SAP User Group Executive Network), SAP and SUGEN will be measuring 4 central business value areas (with a number of KPI's behind each) related to the value delivered from Enterprise Support, including:

• + Business Continuity
• + Business Process Improvement
• + Protection of Investment
• + Total Cost of Operations

If these KPI's are not met, the maintenance price increase will be slowed down and/or halt; it is not exactly clear how this will work until we see it in practice, but there is a cap of +3.1% increases per year. The overall strategy for SAP is to create a 30% savings around support services based on these SUGEN KPI's over 4 years, while the price increase, 30% in total to reach 22% maintenance fees, will go over 7 years.

Given the amount of recent frustration by SAP customers on the price increase (announced in July 2008), along with the economic meltdown that hit later in 2008, SAP had to do something before Sapphire... or it risked being verbally whipped by their customers in a very public forum! Now, SAP can claim at Sapphire that "they feel their pain" (SAP Americas laid off nearly 1,000 employees alone, according to the Q1 results!) and will only do price increases when a greater amount of savings is delivered to its customers. Makes sense on paper!

This should at least stave off awkward situations at Sapphire, but the true measure of success will of course come from the customers. What will the quarterly KPI report look like from SUGEN? Will customers believe it? Will customers themselves be able to see their own individual support savings so easily?

This is ground breaking territory, not only for SAP, but for the overall ERP market, since customer scrutiny of maintenance and the value that these fees bring has been on the rise, along with some very different value models such as SaaS. If SAP succeeds, they'll have happy customers and higher margins. If they fail, it could place even more pressure on the traditional "license + maintenance" software model. We'll have to wait and see on that, but SAP has taken a great first step!