The SAP Support and Maintenance Series – Part 3 of 3 - What can customers do?
In the previous blogs I have tried to explain what SAP means by Support and Maintenance, and the commercial importance of this function to SAP. Having set that context, I want to bring up a few issues which I think will determine the future of this business line for companies like SAP.
The first point is whether customers have options to sign Maintenance contracts with companies other than the product vendors?
No, they do not. In spite of what Riminy Street and other similar companies may come up with, I strongly believe there are reasons why customers will not, actually cannot, terminate their AMCs. In the current circumstances, doing otherwise (signing an AMC with another service vendor) would definitely be a massive risk – imagine putting your complete SAP landscape maintenance in the hands of a service provider who does not have access to SAP’s future roadmap, who will not have access to patches and security updates, and if I assume correctly will be violating copyright laws by attempting to change SAP code, etc.
(However this option maybe realistic if customers decide to let go of their current IT landscape and plan a complete revamp one or two years down the line.)
There has been much written about service vendors like Riminy Street offering this alternative. Questions to think about – How big are these companies? What is their experience in such a business? How many large enterprises are their existing customers? What is their knowledge of the product? What is their local presence in the country you are located in? What is their knowledge of the local laws of this country? I can go on and on but you should get the gist. I believe that SAP / Oracle support cannot be replaced.
On the topic of the now-erstwhile rumor about Siemens canceling its AMC with SAP;I do not know what the reality was but if this was not a bargaining strategy and there was some truth in this then product vendors like SAP should have some concern, given what is mentioned in the earlier blogs. If and this is a very big if, a company like Siemens could find a service provider who can satisfactorily answer all the questions in the previous paragraph, it will not only create a huge impact and start a trend among all large customers who could be paying in excess of 10 Million USD annually for Maintenance, but it will also suddenly put at risk approximately 50% of high-margin, erstwhile guaranteed, ‘economic downturn–proof’ annual revenue for SAP.
A company like Siemens would be taking a huge risk even considering such an option. Was it a bargaining strategy? Again no one can say without knowing the facts. However, if SAP considers this move a threat, it means that SAP thinks that it can be replaced, which I find really hard to believe. There was an announcement on October 21, which said that Siemens has renewed its support contract with SAP for 3 years and also selected SAP SRM, thus expanding its relationship with SAP.
What I would be interested in are the factors driving customers to even think of alternate maintenance providers. When does the AMC come into effect? When licenses are bought or when they are used? If the latter, does it mean that I can buy 10 Million USD licenses on 1 Jan 2010, take 12 months to implement these products but still pay 2.2 Million USD (22%) in 2010 for Support which was not absolutely essential? Am I paying annual maintenance for my shelf-ware – licenses which I bought but currently have no use for? If so, can I give those unused licenses back to the product vendor and will it make economic sense to do so? Am I paying the 22% Maintenance on the catalogue price of the licenses or on the price I pay with the discounts, etc? And seeing current trends that that SAP and Oracle are giving heavy discounts on licenses, does it even make sense to avail these discounts when I end up paying 22% on the catalogue price?
However, given the fact that none of the customers have canceled their AMCs, it is obvious that they feel that the value of these AMCs is more or equal to what they are paying for it. But there may come a time when cost pressures and other factors may force these customers to relook at options, however risky they maybe. The time is definitely not now – is it going to be anytime soon? I don’t know. But things will definitely change – that’s certain. Till then – is this a supplier’s market?
