Why SAP raised its fees

SAP's rationale for the move was a result of growing system complexities (with SAP and non-SAP applications) as well as SAP's recognition of its customer needs, says Kendzie. "Customers are asked to reduce the cost of their IT operations while ensuring innovation in parallel," he says. "The standardisation of operations is the only way to handle both challenges.

As such, Enterprise Support "offers increased service value considering the technology stacks and integration needs that exist today," Kendzie says. "It also provides mission-critical capabilities that mitigate customer risk." (Kendzie notes that there has been "no decision or communication from SAP to current customers" as to whether they will be forced to move from Basic Support to Enterprise Support.)

In the recent Forrester report, Wang notes that SAP wanted to eliminate multiple support offerings. "SAP cites the growing complexity of IT landscapes and the movement toward enterprise service-oriented architecture environments as key drivers for a more comprehensive, differentiated and streamlined support offering," he writes.

In short, Wang says, SAP's move "reflects their view that software maintenance has gotten a little bit more complex."

The Oracle factor

Another reason for SAP's shift had to have been the competitive financial pressures exerted by its chief rival: Oracle. During the last several years, Oracle's operating margins have hovered around 40 per cent, and the company's long-standing goal has been to increase that to 50 per cent, mostly by making strategic acquisitions. In its most recent quarterly announcement, Oracle CFO Safra Catz reported that operating margins had increased to 41 per cent compared with 39 per cent in the quarter the year before.

"Our operating margins are now substantially higher than our competitors," Catz said. SAP's 2007 year-end financial data showed an operating margin of 27 per cent last year. And those numbers, Wang says, needed to change. "They want to have some parity or at least get close in achieving those same margins," Wang says. Whether Oracle's financial successes pressured SAP to alter its maintenance fees is known only to those inside SAP. Kendzie says that in keeping with SAP policy, "we do not to comment on speculation."

To its credit, SAP has historically offered some of the lowest maintenance fees in the industry. "SAP has resisted the temptation to raise support subscription prices for several years," Wang says, "focusing primarily on growing license revenues." By resisting that temptation and leaving its Basic Support offering at 17 per cent, SAP had a "major competitive differentiator" when compared with Oracle, which, according to Wang, has priced its application support at 22 per cent for several years.

However, Wang says, it appears that the maturity of the enterprise applications market and decreasing number of large customers, coupled with Oracle's success in achieving higher profit margins and investor pressure on SAP to grow top-line revenues and margins, made raising support prices inevitable.

"By raising maintenance fees 5 per cent," Wang writes in the Forrester report, "SAP joins other large vendors in trying to extract more revenue from customers who lack reasonable third-party alternatives, without a corresponding increase in value."

A recent Forrester survey of 215 business process and applications professionals found that maintenance fees are still too high. The result was not surprising. "We are hearing many more complaints about maintenance than ever before," Wang says of Forrester's clients.