In February, SAP decided to increase the price of standard support on new contracts(opens in new tab), just
the latest step in the company’s troubled relationship with maintenance and its customers.
A few years ago, customers fought back on SAP's attempts to impose a maintenance fee increase(opens in new tab) by forcing all customers to move from standard support to enterprise support -- a 22% hike. After a public outcry, SAP backed down. Now, SAP appears to be trying to impose a smaller price increase, with no obvious improvement in service, in hopes customers will not notice.
The latest increase comes at a time when companies are desperate to cut maintenance and operating costs in order to free up budget for new initiatives. Most companies suffocate from the high and hidden cost of support and maintenance. It’s counterintuitive that although the cost to support mature products should decrease over time as product, integration and other issues are resolved, maintenance is being increased -- and for no apparent reason. Innovative companies should gain more out of selling new products/updates/enhancements and not by increasing maintenance.
We are all familiar with the advantages that cloud computing(opens in new tab) offers – reduced IT costs with no expensive, capital-intensive hardware and infrastructure and no expensive, time-consuming, staff-intensive upgrades. You pay as you go and access your finance, human resources, sales, and service applications through a web browser. Additionally you are able to realize the benefits of increased employee productivity, better inventory management(opens in new tab), increased visibility and better reporting, increased user productivity, improved customer satisfaction and increased sales. The list is long and too compelling to pass up.
However, many ongoing cost savings are not so obvious at the outset: implementation, customization, annual maintenance, and upgrades. According to a March 2013 study by sourcing advisory firm Constellation Research, the market for offering maintenance support for enterprise software is worth $125 billion. While this is great news for traditional ERP providers such as SAP, Microsoft or Oracle--since such maintenance contracts provide a sustained revenue stream for 5-10 years--what about the customers? Who is looking out for them? If a customer goes the third-party maintenance route, it
could involve possible monetary penalty by the enterprise software makers, if and when the customer decides to go back to vendor-provided maintenance or at the time of software upgrades. So, with on-site ERP maintenance contracts, it’s damned if you do and damned if you don’t!
Maintenance is a highly profitable source of revenue for traditional ERP vendors who treat their customers like a captive audience. These vendors can make more than 90 percent profit margins on maintenance fees. Despite their hefty price tag, traditional ERP systems do little to differentiate a business or make it more competitive. According to Forrester Research, 85% of SAP customers fail to see the value in their maintenance contracts.
So, why not consider a tried and trusted cloud model. Cloud computing has been one of the most talked about trends in the IT industry for several years now. Cloud represents a market-changing shift with widespread business impact. Companies of all sizes are now running their mission critical applications on the Cloud. According to John Madden, Principal Analyst IT Services at Ovum, cost remains a dominant motivator for cloud services investment(opens in new tab), as results from Ovum’s recent surveys demonstrate. However, recently there has been a noticeable shift in how some customers are approaching the implementation of cloud – from a tactical, short-term investment profile to one that’s more strategic, longer term, and transformational.
NetSuite case studies(opens in new tab) are replete with examples of companies of all sizes and across different verticals, who have gained significant ROI in terms of reduction in maintenance, seamless upgrades and easy customization with little to no IT resources. This is in addition to better inventory management, increased visibility and other benefits listed above. So, in this case, it’s simply damned if you don’t.