This is a guest post from Amy Konary, Research Director for Software Pricing and Licensing at IDC (@mizkonary).
In January 2010, SAP announced that it would bring SAP Standard Support back, priced at 18%, which the company said in July 2008 that it would eventually eliminate. The last year and a half has demonstrated a couple of things.
• Today's customers have the power to push back on pricing and packaging decisions, and get results, even when really large vendors are involved.
• SAP listens to customers. There were moments, initially, when SAP seemed determined to plow forward with its Enterprise Support strategy regardless of what customers thought. In the end, however, it's clear that behind the scenes, SAP was listening with concern. The KPI program, while perhaps complex to implement and too new to show results, is a truly unique case of a vendor that is willing to put skin in the game when it comes to pricing and packaging decisions.
Before we continue about the recent announcement, here is a little context to bring us up to date. In the past 5 years, vendors have modified the definition of maintenance dramatically. Many, including SAP, have moved away from the term maintenance altogether in favor of 'subscription and support'. Most now include major upgrades as well for customers that are current on maintenance. Higher levels of support and even training are provided. Prices have risen to support this.
The challenge is that in the customer's mind, the idea of "maintenance" is still meaningful. Their thinking has no evolved as quickly as vendor's have away from a basic maintenance and towards a more robust support offering with a heftier price tag. There is also a good deal of customer cynicism around the maintenance dollars that they spend and the value they receive from them. It is no secret that the maintenance revenue stream is highly profitable for vendors, and that for many vendors in mature markets it is becoming the most significant part of their business.
It is not surprising then, that customers reacted as they did to SAP's announcement in July 2008 that it would eliminate SAP's most basic level of support and migrate all customers to its new support offering, SAP Enterprise Support, priced at 22% of license fee. SAP faced considerable protest from customers facing declining budgets and tighter resources due to the economic conditions. The negative response centered around customer's resenting a price increase (albeit one that took place over time) when the customer did not perceive that they needed anything more than what they had. Poor economic conditions didn't help.
After considering the negative response to the initial announcement, SAP made efforts to improve communications with customers around the merits of Enterprise Support. In April 2009, SAP and SUGEN (SAP User Group Executive Network) reached an agreement on a defined set of key performance indicators (KPIs) that SAP is now using to measure the success of SAP Enterprise Support and justify the price tag.
In December of 2009, SAP presented initial results from a group of 56 customers that had adopted Enterprise Support that showed an aggregate 4% improvement across a number of categories and measurements including business continuity, business process performance and total cost of operations.
Which brings us up to the present time. Given the discourse around Enterprise Support, especially around the time it was first introduced, this most recent announcement will lead some to conclude that SAP's Enterprise Support strategy was flawed from the very beginning. However, it isn't so much the mechanics of Enterprise Support that were flawed as the way that SAP went about rolling it out. There are some lessons learned here about price increases and customer behavior that SAP learned the hard way, and that other vendors should make note of.
• Don't assume your customers will "get it"- SAP believed and still believes that the Enterprise Support strategy was developed with foremost consideration of the best interests of its customers. While this is probably true, SAP executives undoubtedly assumed in a sort of patrician way that it's customers would accept the strategy from the very beginning as in their best interests just because SAP said it was so.
• Involve customers from the beginning, and don't underestimate the importance of a communications strategy. When customers didn't "get it" from the beginning, SAP had to do a lot of back-peddling after the fact, which is much less efficient (and less customer relation damaging) than if it had been done up front. SAP and SUGEN's KPI strategy is great. How would customers have reacted differently to SAP's initial announcement if the KPI strategy had been in place from the very beginning?
• Make sure you are a master of managing social media. SAP's Enterprise Support offering was one of the first major pricing and packaging related announcements by a major vendor after the mainstream proliferation of Twitter and the Blogosphere. Containment is impossible. As a vendor, you can pre-brief and work to educate/influence a select number of content generators, but it is impossible to get to everyone with a Twitter account.
Another factor that figured prominently in early days of the rollout of SAP Enterprise Support was the economy. This is not something SAP could control. At the time of the initial announcement, in summer 2008, it was impossible to predict how bad things would be by the winter of 2009. Major initiatives like Enterprise Support take months and months to roll out. When it was finally clear how bad the world economy was going to get, the battleship had already been turned around. Turning things back again would take a long time. Almost a year.
Stepping back for a moment, IDC thinks that the convergence of maintenance and support will continue, which SAP's Enterprise Support epitomizes. Furthermore, while much was made of the customer discontent supporting the launch of Enterprise Support, in general applications maintenance customers continue to renew their services. Even in this tough economic environment, IDC's Summer 2009 AppStat survey of more than 1,000 applications customers found that only 11% plan on discontinuing maintenance in the near future.
However, the lessons learned from SAP's handling of the Enterprise Support roll-out show us that the balance of power in the software industry has truly shifted from vendors to customers. IDC expects this particular announcement will not be the only vendor compromise we see in 2010.