$US1000 a Seat

Upgrades cost more for smaller companies. A major ERP upgrade will run about 18 per cent of the original installation cost, according to an AMR Research survey. For companies with 500 users of ERP software, the average cost was $US533,594 or about $US1000 per user. For companies with 2000 users, the cost was $US1.2 million or about $US595 per user. For large companies with more than 8400 users, the total came to $US2.6 million or $US300 per user.

- SOURCE: AMR RESEARCH JANUARY 2002 SURVEY OF 109 COMPANIES WITH AT LEAST 2500 EMPLOYEES

SIDEBAR: SAP's Big Freeze: Market leader stabilises some enterprise code

In response to customer complaints, SAP, which invented and now leads the market for enterprise software, has decided to stabilise the core components of its R/3 ERP software suite, which it will call R/3 Enterprise, for at least five years. Customers can upgrade to the newest SAP components, such as its APO supply chain product or its CRM software, without having to touch R/3. In the past, SAP upgrades have required replacing all components of the software each time.

Of course, SAP's new policy also means that R/3 users cannot expect any significant new functionality. They must also pay a licence fee for the new components, such as supply chain and CRM. SAP argues that these components require a significant investment to develop and represent technology that is outside traditional ERP functionality. Such enhancements merit new licence fees, even from existing customers (who get a credit for the R/3 software they've already purchased), says Arne Schmidthals, vice president of product management for R/3 Enterprise. But Schmidthals acknowledges that customers have argued that the APO supply chain product, which is heavily integrated with and reliant upon the core ERP software, should be included in R/3 Enterprise.

In a sense, SAP is a victim of its own success. It blew away its competitors by combining a bunch of formerly standalone products for different functional areas of the company (finance, HR, manufacturing) into an integrated package. So should every new software component it develops be lumped together in the traditional way? Schmidthals thinks not. Still, it's a shift from the days when customers that paid their yearly maintenance fees got new functionality free in the next release. As all the major ERP vendors move to "componentise" their products - in part to make it easier to upgrade individual pieces rather than the whole package - the "maintenance fee buys all" philosophy is vanishing.