SAP’s Tiered Support Announcement Defuses a Contentious Issue

Today, SAP announced a tiered support offering which reinstates Standard Support as an option, in addition to the Enterprise Support offering that SAP put in place in July 2008. This announcement should help to defuse a contentious battle that has played out over the past 18 months, where customers pressed for SAP to reconsider its phased-in migration to higher-priced Enterprise Support.

For many years, SAP resisted the temptation to raise support prices from the Basic Support level of 17% of net license fees. Then, in 2008, it instituted a new Enterprise Support program that effectively raised support prices to 22%. First, the increase applied only to new customer licenses (February 2008) and then to all existing customers via a phased-schedule (July 2008). To soften the blow of the price increase for existing customers, SAP did a couple of things: 1) it phased in the price increase according to a graduated ramp schedule that plays out until 2016; and 2) it added some service level enhancements to the Enterprise Support package, such as quality checks and advisory.

Nevertheless, the mandatory migration to Enterprise Support was not well-received by customers. It triggered the development of a set of KPIs in cooperation with the SAP User Group Executive Network (SUGEN) by which SAP set out to prove the value of the enhanced support offering. The KPI initiative was not fully concluded prior to today’s announcements, which make it a moot point.

SAP’s new tiered support programs adds Standard Support at 18% of net license fees, subject to an inflationary factor tied to the Consumer Price Index. Enterprise Support continues to be offered at 22% of net license fees for new license agreements, but SAP promises no inflationary increases before 2017 on new licenses. Existing customers on Enterprise Support are paying 18.36% in 2010 under the graduated schedule. Customers may downgrade to the Standard Support offering priced at 18%, but will be subject to inflationary prices increases, so the cost difference in the two support programs will be minimal for existing customers. SAP also continues to provide additional, supplemental support services, including MaxAttention.

The bottom line is that the tiered SAP support offering benefits customers because it offers some choice based on support needs. It may also encourage other packaged application vendors to offer more support level tiers, which were more common a few years ago than they are today. Ultimately, customers would benefit most from unbundled, a la carte support pricing, but this is not likely to happen since customers are likely to gravitate toward lower-priced offerings and vendors will not put these revenue streams at risk. On-premise packaged application customers should go with the most cost-effective support offering, keeping in mind the business context of the application and the associated risks of business disruption.

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