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It seems that SAP is going beyond cost-cutting to strengthen its the bottom line.
According to a German magazine report, SAP is planning to raise maintenance fees for hundreds of customers who use older versions of its software. The report, published by Wirtschaftswoche, claims that SAP is invoking a never-before used cost-of-living index clause that’s tied to inflation in the German wages index.
According to SAP guru and blogger Helmuth Guembel, SAP sent letters to all of its Austrian and German customers that are still on standard maintenance agreements, notifying them that maintenance will increase to 20.7% (of annual licensing fees) for all agreements dated 2000 and earlier. Agreements reached in 2008 will carry an increase of 0.315%, Guembel reports.
Meanwhile, Bloomberg is reporting that the increases will be even higher, claiming that maintenance will rise from 17% of licensing costs to 22% by 2015.
An SAP spokesman is quoted in the Wirtschaftswoche article as stating that “the price increases concern single accounts and therefore are a mixture of price reductions and also, in part, price increases.”
On Oct. 28, SAP revealed that it expected its software and software-related services revenues to drop between 6% and 8% for 2009. In July, the company had forecast a 4% to 6% decline. SAP CFO Werner Brandt said third quarter software and software-related services revenues came in lower than expected due to “challenging” business conditions in emerging markets and Japan. The company said net profit rose 12% in the third quarter even though revenue had fallen 9%. Company officials cited cost-cutting efforts and a lower tax rate as contributing to the profit picture.
No matter how you slice it, the hike in maintenance fees for older (re: loyal) customers comes at a tough time as the economic picture is only just beginning to brighten. Wirtschaftswoche said older customers that don’t switch to newer versions of SAP’s applications or those who haven’t switched to the company’s incremental price structure will see the biggest price hikes. No doubt that SAP’s largest and most aggressive customers who try to negotiate concessions on the maintenance hikes will see some relief. Still, SAP has to have calculated that some percentage of customers will opt out and flee to other third-party support providers such as Rimini Street.
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