No Yawn Intended: Enterprise Applications Giant Introduces a Mid-tier Support Choice

Event Summary

A recent series of articles has highlighted—at great length—the price for value conundrum which has long affected both enterprise applications vendors and users (see Is There a Panacea for Enterprise Software Pricing, Yet?). On one hand, vendors would like to have well-oiled business models that promote stable and recurring revenue streams, which in turn ensure future product and service enhancements. To be fair, one should also acknowledge the revenue recognition guidelines that publicly owned US companies have to abide by, which promote the current perpetual software licensing, service, and maintenance arrangements. Also, there are "pricing potholes" even within the more recent and creative initiatives (such as "value-based pricing," "pay as you grow," "on-demand," and so on) that might even, in the end, result in unforeseen costs and become more expensive. These pricing mechanisms typically work well for smaller and simpler applications, but have thus far largely failed with the most complex enterprise-class applications.

User enterprises, on the other hand, demand ever more certainty, comfort level, and justification for what they are paying for, and why they are paying for it. Indeed, enterprise software purchase contracts are rife with "fine print" addendums (which are sometimes longer than the main body of the contract, and which exist typically to protect the vendor from any future liabilities), which customarily specify that the contract includes only the stipulated basic functional and service scope; for any additional module or service attention there is another pricing math applied altogether. For this reason, the client will likely pay far more in the end than if it had gone for "wall-to-wall" license and service arrangements up front.

To the end of mitigating some of the above traditional service and maintenance contractual pitfalls, and to underline its commitment to evolving to meet changing business demands, in early 2006 SAP (NYSE: SAP) expanded its portfolio of support services with the introduction of SAP Premium Support. Generally available on a global basis, this new offering provides an additional option for SAP customers seeking heightened levels of responsiveness, personalized attention, enhanced access to SAP expertise, and new opportunities to drive down information technology (IT) operating costs thanks to service continuity (in other words, thanks to minimization of interruptions).

SAP Premium Support is reportedly based on SAP customer and market research, which revealed increasing customer recognition of the importance of support, as well as a preference for ever closer engagement with SAP throughout the deployment life cycle. The offering provides a new option placed between SAP Standard Support, already a fairly competitively priced and packaged basic support offering, and SAP MaxAttention, a high-end offering tailored to match the specific needs of larger global enterprises. The intermediate support plan offers even faster issues resolution, annual IT assessments, and a designated support advisor, who serves as a personal, day-to-day contact for support-related topics.

Consequently, SAP now offers customers the following three distinct services offerings:

1. SAP Standard Support covers four areas: continuous improvement, quality management, knowledge transfer, and issues resolution. It also offers SAP Solution Manager and SAP Service Marketplace. Standard support is provided at 17 percent of the annual net license fee.
2. SAP Premium Support augments SAP Standard Support with a so-called service-level agreement (SLA), individual services, and a designated support advisor. It is offered at 22 percent of the net license fee.
3. SAP MaxAttention is offered to customers whose operations demand mission-critical, customized support. It includes a permanent on-site support team; an executive sponsor; and SAP Safeguarding, a service portfolio that manages the risks involved in complex implementation projects. A tailored program for each customer aims at keeping costs in line; helping ensure that the go-live date is met; and ending the implementation project with a technically strong SAP solution.

All enhanced support offerings are provided on top of Standard Support, which means that Solution Manager is available in all support scenarios. Based on SAP's ambition to continually improve the value of its solutions and to reduce operations costs, SAP Premium Support aims at delivering comprehensive technical and operational assessments, and actionable recommendations. Under the program, the assigned support advisor guides the customer through the implementation of recommendations, and helps ensure a closer relationship to SAP. In other words, for a 5 percent increase (of net negotiated annual license fees) over standard maintenance fees, customers are entitled to specific benefits:

• SAP provides an annual technical assessment and written plan to optimize the user's IT environment, support infrastructure, or business processes; potential risks and opportunities are identified, and the customer receives a formal report and individual plan for improvements. SAP pledges to provide Customer Competency Center (CCC) setup advice in the assessment section. Assisting customers in optimizing their CCC operation is a strong component of the assessment provided as part of Premium Support. As a corollary, support advisors can also assist the customer with CCC certification or re-certification steps, as well as audits.
  
  
• A support advisor (the individual in SAP's support organization who is designated for the account) works to help users understand the written plan, conducts periodic reviews of actions against the plan, and acts as a single support contact and customer advocate (including in the case escalations if there are problems with resolving a difficult issue).
  
  
• SAP guarantees response times for specific problem levels, which are based on SLAs. These response times also include time to corrective action. In addition to the right to institute the usual financial penalties for vendor under-service, the customer is entitled to visibility of the status and estimated resolution of the problem.

Market Impact

Some pundits might question the ulterior motive behind this initiative (by identifying it as a mere ploy by the vendor to generate more recurring revenue), and thus anticipate lack of interest and enthusiasm on the part of users. And some might try to find cases where the plan might not really be beneficial (or where it might be worthwhile rather to opt for one-time paid service on demand, given that users can already obtain the technical assessment and written plan for a consulting fee). However, some risk-averse prospective and existing customers who run complex business processes might still find it worthwhile to invest an additional chunk of money for their peace of mind, or to generate a feeling that they are somehow more "special" to SAP.

Possibly the most controversial contractual fine print items are service and support calls. But business-related problems inevitably arise daily from the use of software within any business environment, and they may result from flaws or bugs in the software, or from a misunderstanding about how the software works, or both. In any case, software customers want to be able to contact a qualified expert to discuss the issue and resolve it in a timely fashion, with minimal impact on their business—and they do not really care whether the issue arises from a bug or from user error or ignorance. Software vendors need to provide unlimited access to support services that include experts who are trained in detecting and fixing design flaws in the software, and who are able to explain—in lay terms—how to get the software to perform the strategic functions required by the customer. To that end, no one wants to plow through fine print to see how many calls the customer has been accorded free of charge, and within which time bracket they have to be resolved.

Given that SAP and Oracle have always been each other's pet peeves, it is not a coincidence that SAP Premium Support is offered at the current price of Oracle's counterpart standard support; and that at least should not leave many folks indifferent or drowsy. With the components of the Premium Support offering remaining intact, SAP is able to cover a subset of a landscape (so-called partial landscape coverage). Some larger and more alert mid-market customers might hence be attracted by the availability of designated SAP representatives who in the past were only available to their largest brethren. This will likely force other vendors to start dishing out their enriched offerings along similar lines.

Certainly, some question marks will arise at this stage, and SAP will have to flesh out many more support scenarios in order to attract masses of customers opting for the support plan. Details and explanations will be needed for prospects and customers with highly heterogeneous IT environments, including many legacy systems. Namely, will the users who have other mission-critical applications in place necessarily accept the suggestions of a support advisor who is also a support contact point for SAP? It will take time and many proofs of concept to develop the discerning users' trust that the advisors will act in the best interest of the customer rather than in the interest of bringing more business to SAP (possibly by recommending the replacement of niche competing applications with the SAP equivalent).

Even if the customer's best interests are in the advisor's mind, SAP will have to more vigorously clarify and detail support scenarios for the emerging complex IT environments that will evolve in the world of service-oriented architecture (SOA) and composite applications. This is particularly necessary given SAP's recent push to recruit many partners of SAP's Powered by SAP NetWeaver and Certified by SAP NetWeaver programs (see Multipurpose SAP NetWeaver).

The problem with any all-encompassing deal for managing anything as complex as global manufacturing and supply chain operations is that some users might end up paying an unnecessary premium: the vendor has to price it high enough to enable it to deal with the swath of possible problem situations in diverse IT environments. In other words, user enterprises that have no frequent problems or that are good at controlling them on their own, might end up paying too much. The minimum price for SAP Premium Support is about $30,000 (USD), which translates into customers spending more than $150,000 (USD) in software licenses annually. Only time will tell whether the costs are well within the market value. Nevertheless, the presumption is that these costs are based on SAP's vast experience, within which it has managed to come up with a profile of its typical Premium Support customer, including functional and service requirements.

Certainly, SAP advisor personnel will have to display deep industrial experience, business acumen, and multidisciplinary skill sets, since not only will they have to be intimately knowledgeable of the mix of SAP functional and technical features (and their interdependencies), but also of partner products, and perhaps the complete playing field (including competitive offerings). There are not many details at this stage about the current size and strength of the SAP Premium Support advisory roster.

Conclusion and Recommendations

More choice and personalized attention can only be a good sign for consumers, and prospective and existing customers, especially those with a majority of IT assets belonging to SAP (while not necessarily being homogenous SAP shops) should certainly evaluate this optional service agreement. After all, they have a stake in the health of their vendor and its ability to keep abreast of the latest developments, but a critical evaluation will allow them to better assess (or reassess) a likely ongoing relationship. The devil, as usual, is in the details, and every user company should conduct a thorough study to determine whether ensuring peace of mind is worthwhile enough to opt for the entire package, given that some of the elements of SAP Premium Support may be available piecemeal. Users should definitely approach SAP and ask for concrete instances of (for example) advisors' deliverables and proofs of concept; early adopter benefits; and conflict of interest preemption.

At the heart of all this, of course, is the notion of return on investment (ROI). This is not a new concept by any means, and is quite straightforward: it is the ratio of the benefits of a project, initiative, or purchase, to the associated costs and investment (see Whose ROI is it Anyway?). Performing ROI calculations might be easy, but deciding what figures to plug into the calculations can be particularly daunting, given that there are both tangible benefits (such as service uptime increase) and intangible, "soft," non-quantifiable benefits (such as user satisfaction or smoother business processes).

Generally speaking, there is hardly any valid reason why prospective and existing users should not challenge their software vendors to better address some of their legitimate requirements for more certainty and tailored attention as an integral part of the administration and deployment of their applications. There is no "one size fits all" solution to the problem, but as with any long-term contract, prospective clients should carefully review the fine print to understand the implications that the new or revised licensing and service contract will have on their future expenses.