SAP Hikes Software Support Prices Causing PR Nightmare

As business software company SAP desperately struggles to improve its operating margin, it recently announced an intended price hike of its standard software support contracts from 18% to 19% of the original software licensing. This is proving to be a deeply contentious and unpopular decision as its customers begin to ask what they are getting for their money.

Although the overall contract price increase appears small, it actually amounts to a 5.5% price hike, which is hard for many businesses to swallow. SAP has tried to limit the PR fallout by suggesting that the increase will only affect a relatively small group of SAP customers, since they claim that 95% of new customers adopt an Enterprise Support contract rather than the standard contracts to which the increase applies.

SAP’s Standard Support contracts serve to help its customers keep their business software systems active by fixing bugs, offering customer support and software upgrades when they become available. Enterprise Support goes further in that it includes everything that the Standard Support contract offers, but also comes with Solution Manager software which automatically monitors the customers systems and can make suggested changes to optimise them. The Enterprise package also offers IT operations best practice guidelines. Still, at the higher cost of 22% of the original software licensing, this constitutes more bang for the customer’s buck which is easily measurable.

However, for the SAP customers who retain the Standard Support contracts, they have yet to be convinced that the 5.5% price increase is justified in terms of providing better service. In order to change the general opinion on this contentious matter, SAP have begun to outline exactly how the service will improve for this supposedly small subsection of its customer base.  Once the price hike announcement was made, a SAP spokesman said:

“There is ongoing expansion of value, for example a continuous flow of innovation through enhancement Packs while SAP Standard Support is covering a broadening solution portfolio.”

The response so far to this announcement has been lukewarm at best as many customers are yet to see significant value for money on their investment. SAP has promised its shareholders that it will achieve an operating margin of 35% by 2015 but the company’s aggressive expansion in terms of hiring for SAP jobs and acquiring SuccessFactors and Ariba has meant that their operating margin has slipped to 25%. Considering that software support contracts made up around half of SAP’s total revenue last year (approx 8.2 billion Euros), even a modest increase of the price of contracts which supposedly affect a small minority of their customers will make a noticeable different to the company’s revenues this year.

As the changes have been announced a full five months before they come into effect, SAP has at least given their customers plenty of time to renew their support contract at the more favourable 18% rate.