SAP Support Fee Increases Are Coming in 2017

We predict that SAP will begin annual support fee increases by 2017. This prediction is not something SAP has announced nor is it based on leaked information. It is a prediction based on an analysis of the factors detailed below.

To quote the great Winston Churchill, “the farther back you can look, the farther forward you are likely to see.”

Taking this wisdom to heart, we have endeavored to look back at SAP, explore the actions of its main competitor Oracle, study the recent economic climate, and then look forward into the future. Here is what we’ve found.

1.  Just like Oracle, SAP feels entitled to charge 22% for maintenance.

We saw this back in 2008 when SAP sent out letters to its customer base that Standard Support (17%) would be replaced by Enterprise Support (22%) in 2009. While SAP professed various customer benefits and requests for this decision, everyone knew the real reason was Oracle had already been charging 22% for years. SAP wanted an equal revenue stream.

2. Customer rebellion to the Enterprise Support increase was partly driven by the severe economic downturn that took effect shortly after the announcement was made.

The timing of SAP’s announcement ran up against a perfect storm of the financial crisis, the housing crisis, the 2008 Presidential election, and the forthcoming economic disaster that would lead to substantial layoffs and organizational downsizing. Not exactly the best time to increase fees. But we had the advantage of seeing SAP gradually change its sales approach and positioning of support policies (remember Premium Support at 22%, the precursor to Enterprise Support?) for a couple of years prior to the announcement. So this support increase had been in the making and the timeline decided well before the announcement was made. What SAP could not predict was the perfect storm that began to take hold in September 2008.

3. SAP has since been mindful not to increase support fees while the economy is sluggish.

SAP learned its lesson well, do not raise fees while customers’ businesses are hurting or be prepared to face a tremendous amount of backlash. Essentially, do not do anything blatant enough to offend your customer base to the point that they stop investing in you. The market spoke and SAP listened, as demonstrated by the firing of Leo Apotheker and extended ramp period for Enterprise Support to reach 22% to 2016.

4. SAP has modified language in its support fee protection clauses to “aggregated” or “cumulative” CPI.

SAP’s prior language effectively provided that annual support increases would be tied to the prior year’s increase in CPI, if SAP chose to increase support fees on its customer base. Now the aggregated language effectively provides that SAP may increase support fees based on cumulative annual CPI changes going back to the date of the last support fee increase or the execution of the specific license purchase, whichever is later. In effect, this means that if SAP does not raise support fees for 5 years, and assuming CPI increases 3% each year, SAP can raise support in year 6 by approximately 15.9% (3% compounded annually). SAP has explained to customers that this provision allows them to proactively budget for these downstream increases. This is like having an adjustable rate mortgage that will reset in 5 years – you know an increase is coming but you do not know how much or how you’re going to pay for it.

5. The Enterprise Support ramp period reaches 22% in 2016.

By 2016, a full 8 years after the economic crisis took hold and the Enterprise Support increase was announced, SAP is betting that economic conditions will be stable and customers will be accustomed to annual support increases from the 8 year ramp period.

6. SAP’s spin on the substantial support fee hikes will be about the sacrifices they have made out of respect for their customers.

SAP will claim that, just like any other business, annual increases are customary and necessary to keep up with inflation. But SAP was empathetic to the plight of its customers during the economic downturn by not charging annual increases for all these years, and thereby absorbing this cost until economic conditions improved. Therefore, if increases occurred annually as was originally planned, customers would be paying this amount in 2017. If anything they should be thankful they were able to “save” the customary annual increases during the economic downturn.

7. SAP can hedge against the outcome of Oracle’s lawsuit against Rimini Street.

Oracle is suing Rimini Street who is a provider of third party support for Oracle and SAP applications. Oracle is threatened by the potential loss of its monopoly for support of its software and is claiming Rimini Street has an illegal business model for a variety of reasons. SAP certainly has a vested interest in the ruling on this case. SAP is also probably loathe to bring its own lawsuit against Rimini Street considering Oracle was successful in suing SAP’s prior subsidiary company TomorrowNow, which was founded by Seth Ravin who is coincidentally the founder of Rimini Street. By 2016 the Oracle lawsuit against Rimini Street should be decided as well as any appeals that are sure to follow. SAP will have the benefit of knowing the ruling and seeing its market impact before it decides to raise support fees. Further, based on the decision, SAP can decide how aggressively they want to increase support fees and do a better job at more accurately reading what percentage increase will receive a grumbling acceptance versus an enraged customer base as was the case in 2008.

So while the dates and percentages may differ, looking into our crystal ball one thing is abundantly clear – SAP will increase support on an annual basis, it’s just a question of when and how much. Prudent customers should leverage future license opportunities to mitigate these support fee increases.

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