IT Cost Reduction Ideas: Software license agreement management – major backtrack by SAP

Posted by Gareth Everson on 10th February, 2010. Communications & IT.

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This edition of the ‘IT Cost Reduction Ideas’ series focuses on software license agreement management. SAP user groups have welcomed a pricing turnaround from SAP, the world’s largest business software company. It had intended to force customers to move from standard to enterprise support pricing. The package, priced annually at 22% of original license fees, was more expensive than the current standard support rate, at 17%.

Following a concerted and coordinated effort from groups of customers focused on IT cost reduction, SAP’s Enterprise Support package will no longer be mandatory for all customers as had originally been planned. Instead, the company will offer a tiered support model, effectively allowing customers to keep their existing support contracts. The reversal may have wider implications for software license agreements across the industry.

“We welcome this news from SAP and are delighted that it is offering greater choice to its customers and our members,” said Alan Bowling, chairman of SAP’s UK & Ireland User Group. The company says the option of standard support for software license agreements will still be available, albeit at an increased rate of 18%. The vendor is also to cancel proposed price increases for this year. It is a step in the right direction for IT managers keen to reduce IT costs.

Instead, the company will offer a tiered support model, effectively allowing customers to keep their existing support contracts.

The announcement follows a protracted dispute between SAP and its customers. The Enterprise Support plan was originally slated to cost 22% of license fees annually, at a time when the standard support rate was just 17% of license fees. SAP was forced to delay the introduction of mandatory Enterprise Support by vocal opposition from user groups – detailed in the December 2009 issue of Information Age.

Now the company says the option of standard support will still be available, albeit at an increased rate of 18%. New customers will be offered Enteprise Support at the 22% rate, while the price for Enterprise Support for existing customers will rise gradually until reaching 22% in 2016.

“We welcome this news from SAP and are delighted that it is offering greater choice to its customers and our members,” said Alan Bowling, chairman of the SAP UK & Ireland User Group, in a statement. “This move shows that SAP is listening to user groups, and therefore its customers, taking on board our feedback and making changes to meet the needs of all SAP users.”

Meanwhile, SAP also revealed that its revenue continued to fall during its most recent financial quarter; down 9% to €3.2 billion.

According to a statement, the software license agreement for Standard Support includes legal updates, problem resolution, knowledge transfer and quality management to keep SAP systems running, while Enterprise Support adds “business continuity, business process improvement, protection of investment and accelerated innovation, and reducing total cost of operations (TCO) of a customer’s IT landscape”. With a focus on IT cost reduction, decision makers will be relieved that they retain control over making the additional investment decision or not.

In a blog post, SAP market commentator Helmuth Guembel said the decision was down to a potential huge fall in revenue and it could well see an increase in moves by customers to renegotiate software license agreement terms they expect from their service providers in the industry as a whole. “CIOs from SAP’s premium customer network gave feedback that is hard to print and by November, SAP was facing a certain maintenance income loss of over 200m Euros for 2010. The list of accounts that SAP in an internal analysis marked as ’maintenance at risk’ was long, much longer than anybody had expected,” he wrote.

Could 2010 prove to be the year when the pendulum of power may favour those focused on IT cost reduction through structured and co-ordinated negotiations?