A small earthquake happened today in the IT market. According to the German magazine “Wirtschaftswoche”, Siemens is considering to cancel its SAP maintenance contract, in favor of 3rd party maintenance services. Definitively a story with “lighthouse” character, however everyone should remember that for now, this is an unsubstantiated story (neither SAP or Siemens are commenting on the story), and according to our sources, SAP and Siemens are still in negotiations. SAP has offered one statement as follows:
"The current misinformation in the market provides incorrect information about the SAP Siemens relationship. SAP has and will continue to have a good, long-standing and very strong strategic relationship with Siemens; in fact, SAP is currently working with Siemens to deepen the relationship in a multitude of areas. Meanwhile, Siemens continues to leverage SAP solutions to manage its businesses around the world. Specific details of our relationship with Siemens will not be discussed in the media."
Nonetheless, this statement does not address maintenance, a very hot topic within the SAP ecosystem for several years now, given new weight with the entrance of Rimini Street offering SAP maintenance now, despite no public references as of now. For the SAP customer, the good news is that it is legal – both to quit the maintenance contract with SAP and to select a third party provider for these services (in Siemens case, they spend over $40 million in maintenance annually for their 160,000 user system).
But while it is possible, it is important to ask, does it really make sense for an SAP user? And does it make sense for the IT Services suppliers to develop such an offering (besides Rimini Street, it has also been mentioned by some bloggers that IBM and HCL are in the bidding)?
For Siemens, in Germany, almost every supplier of Siemens knows about the ongoing cost savings projects inside of the Siemens group, and this is just one of many... Siemens has used SAP ERP FI for many years – and their group SAP FI is almost a pure custom specific solution, an extremely customized & adapted application and far, far away from the SAP standard. So, Siemens shouldn’t cry too loudly about their maintenance costs, but rather should consider using SAP as a standard software (that’s what it is!) and not as a “development workbench." This would produce much more cost savings around what Siemens spends for the application management of SAP than for the maintenance. Furthermore, SAP ERP FI is absolutely critical for Siemens as a business, and I can't come up with any SAP customer (160,000 users!!) going into the 3rd party maintenance model. Of course the savings could be huge... but so can the potential for disaster (both for Siemens and the 3rd party maintenance services supplier).
In a nutshell, in my view, I just cannot imagine Siemens completely recalling their SAP maintenance, this just wouldn’t make very much sense.
For the services supplier, besides possibly damaging the relationship with SAP (losing favor, co-marketing/development, investment priority, etc), it is also a highly risky business proposition. While 3rd party maintenance may have the potential for high profits, up front profits are quite low and risky, especially when providing maintenance service to such large users with highly complex and adapted systems. It is also a market full of question marks, especially since Oracle roped Rimini Street into its TomorrowNow lawsuit...
Yet, maintenance is still a highly contested model today, especially due to the entrance of SaaS and its subscription based model, without upfront license costs. SAP has to reconsider its maintenance strategy: on one hand, SAP has brought its “enterprise support” of 22% in line with its competitors; on the other hand, the ongoing rumors and chatter about this topic shows that SAP needs to continue to take action to find a solution. But, from my perspective a “third party maintenance market” will only work with a tight cooperation of SAP and its services partners.
(This entry was produced in collaboration between Tobias Ortwein from PAC Munich & Peter Russo from PAC NYC)
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2 comments:
are you serious Siemens or any other company should not "cry too loudly about their maintenance costs" - whether they be SAP, Oracle, Microsoft or IBM or so many other mature enterprise sw products?
If you are investor focused I can see how you would justify the 95% margins on maintenance. But if you have any empathy for user organizations perhaps you should write more about why from their perspective it represents one of the most "empty calories" in IT budgets -
Maintenance costs should have been declining not increasing over the last decade given sw vendor offshoring, communities like SDN increasingly handling routine queries, and the support automation which reduces labor costs. Besides more excuses rather than products like BusinessByDesign and Fusion has been delivered in R&D in the last few years
Most big companies like Siemens write their own software, have their own call centers, have their own offshore centers - they understand sw economics far better than SAP, Oracle etc seem to give them credit for. Instead of insulting their intelligence its time for sw vendors to discount maintenance - otherwise others will. BTW - when it comes to autos, many surveys show independent garages do a better, cheaper job job than dealers.
Same applies to sw maintenance.
To reply to vmirchan,
All very good points actually, many of which I have made previously. However, what I (and Tobias) wanted to stress is that the complexity of some of the large SAP user systems is quite high. Along with highly customized instances, margins are far lower than what you mentioned (typically <30% from some past analysis that I've done on the larger users). Also, SAP's footprint has grown quite wide into middleware, BI, industry solutions, GRC, etc, etc... It is true that some customers do not use SAP so broadly, so I have always argued for maintenance fees tied to the complexity and number of modules (e.g. ~15% for FI, ~17% core ERP, 20% industry suites, etc...)
To take your autos comment, I do agree... but, it should be in strong collaboration between IT Services suppliers and vendors like SAP to deliver on maintenance support. This, ideally, would be in the best interest of customers.
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