SAP Tweaks Support Offerings

SAP will extend maintenance for its ERP 6.0 platform and other products until 2017, and in a partial olive branch to angry customers, has sweetened the feature set of its Enterprise Support service, the company said Thursday.

The maintenance announcement, which includes ERP 6.0 and any new core applications from SAP Business Suite, is an expansion of SAP's "5-1-2" plan. That system guaranteed regular maintenance on a product for five years, after which customers could opt to pay another 2 percent for an additional year, and following that another 4 percent for another two years. The new plan boosts the five-year period to seven years and adds an optional two-year extension.

Forrester Research analyst Paul Hamerman said that since ERP 6.0 has already been on the market for a number of years, some customers are starting to be concerned about the 5-1-2 window, and therefore, the extension should be welcome.

SAP is trying to ensure that customers can make long-term plans around ERP 6.0, and the move was not made in the hopes of locking down extended maintenance contracts, said SAP spokesman Bill Wohl.

"I don't think there's any other company in the industry that can give customers this kind of planning horizon," he said. Wohl added that even after SAP's maintenance windows close, customers on older platforms can contract for support from SAP on a one-off basis.

SAP had already made it clear that ERP 6.0 would be its strategic platform through at least 2010, announcing in 2006 that all new features during that time frame would come through optional, add-on "enhancement packages." The extended maintenance window for ERP 6.0 could mean the company intends to keep this strategy in place even longer.

"This is where we expect to be for some time," Wohl said. But the company will continue innovating aggressively through the enhancement packages, he said.

As for the changes to Enterprise Support, SAP is seeking to appease users who have protested loudly since July, when SAP announced that all customers would be transitioned to the richer-featured but more expensive offering.

But SAP is making no concessions on cost. Instead, the company is adding new wrinkles to the support offering, such as up to five days of remote advice from software architects each year regarding the potential value of enhancement packages and how they could be deployed.

But in other instances, the company is merely hoping to provide "additional clarification" on Enterprise Support's richer feature set, which includes "continuous quality checks" and a single point of contact for customers.

SAP has also repeatedly said the service is necessary due to increased complexity in customers' environments, and that it will result in a lower total cost of ownership.

A member survey conducted this year by the SAP User Group Executive Network (SUGEN), a group made up of representatives from SAP user groups around the world, found that 90 percent of respondents "have not yet realized the full extent of the SAP Enterprise Support offering, its value and cost justification," SAP said in a statement.

SAP and SUGEN are also going to work together to come up with key performance indicators for Enterprise Support.

The two parties will "jointly evaluate the progress of these KPIs against customer expectations on a regular basis and adjust the continued rollout of SAP Enterprise Support until the quality measures are achieved," SAP said.

SUGEN could not immediately be reached for comment Thursday.

One industry observer questioned the effectiveness of SAP's gesture. "Ultimately, this all seems to be shutting the barn door after the horse has bolted," said China Martens, an analyst with The 451 Group.

In addition Thursday, SAP said it will work with user groups on a migration plan for helping R/3 customers move up to ERP 6.0. Convincing customers to make that shift is a primary goal for SAP today; some 12,800 of its customers are on ERP 6.0, out of a total of 76,000, which includes those gained from acquiring Business Objects.

SAP Agrees to Delay Full Enterprise Support Price Rise

SAP has ceded to pressure from user groups, agreeing to slow the rate at which it applies a new tariff for software support. At the same time, SAP announced a series of key performance indicators (KPIs) agreed upon with the user groups to measure the value for money offered by the Enterprise Support program.

The final price for customers migrated from SAP's old support program to the new Enterprise Support service will now remain the same through 2015, at 22 percent of software license fees, compared to 17 percent for the existing service. That's an increase in support costs of almost 30 percent.

However, instead of applying the increase in four annual steps, SAP has now agreed to extend that to seven, a pattern which better fits with the company's seven-year maintenance lifecycle, the company said on Wednesday.

That means the cost of support will rise by an average of 3.1 percent each year, rather than 8 percent, with the final price increase now taking effect in 2015, not 2012. Reducing the annual rate of increase in software support costs was one of the user groups' key demands.

The KPIs answer another of their demands: finding a common way for SAP and users to measure the value of Enterprise Support. When it introduced the service, SAP claimed that the increased price was justified by the improved services it offered over existing maintenance contracts.

The indicators cover four main categories: business continuity, business process improvement, protection of investment and total cost of operations.

They will be used in a joint benchmarking program that will track the satisfaction of a representative selection of SAP customers, chosen by SAP and members of the SAP User Group Executive Network (SUGEN), a talking shop for the heads of many of the world's largest national SAP user groups. An independent auditor will validate the results, SAP said.

The results of that benchmarking program will be keenly watched, as SAP has also agreed to delay future increases in the price of Enterprise Support until targets for customer satisfaction are met. SAP expects to meet those targets within four years, it said.

The deal isn't perfect, according to the Francophone SAP Users' Club (USF), one of the groups with which SAP negotiated.

However, USF is satisfied with the price compromise, which it said resulted from a marked change in SAP's position under pressure from SUGEN members.

The consensus on KPIs for the quality of service offered by SAP's Enterprise Support shows a real willingness on SAP's part to play the game in a field where no other software vendor has ventured, USF said.

SAP bangs drum for A1S hosted apps

SAP AG continued to build expectations for its hosted suite of midmarket applications, saying Thursday that it will release the product's official name in September and present some initial customers that have gone live with the service.

Known presently by a code name, A1S, the service will be a broad suite of hosted business applications for the midmarket, which SAP defines as companies with under 2,500 employees or less than US$1 billion in annual revenue.

SAP insists the product will be a first of its kind, addressing all the core needs of a medium-sized business, including sales, financials and procurement, with a service that can be set up quickly and managed remotely by SAP.

"It's not just for sales force support, it's an entire suite," SAP CEO Henning Kagermann said on Thursday, in apparent swipe at established hosted CRM (customer relationship management) player Salesforce.com Inc.

The service marks a new business model for SAP, however, and Kagermann was clear about the challenges the company will face in bringing it to market successfully.

"We should have in mind that we have never done a launch like this in our history," he said, during a conference call to discuss SAP's quarterly earnings. "It's not a product launch, and you should not compare it to a launch like a new CRM product."

SAP will be hosting the applications in its own data centers to begin with, enlisting partners later on. The vendor is also having to create Web-based sales channels to support a high-volume business and new support centers -- or what Kagermann called "service factories" -- to provide 24-hour telephone support.

The rollout will be a phased one, and the service is not expected to be widely available in September. Instead, SAP is working to get some reference customers in production with the software, "to show you this is real and not just a nice demo," Kagermann said.

"The next phase is the entire operational set up, which lasts through the end of the year. Then beginning next year we will see how fast we can achieve volume, how fast we can ramp this up," he said.

The plan is to offer the service widely to customers in the first quarter of 2008, said SAP spokeswoman Astrid Pvlchen.

A1S will be delivered primarily as a service, but SAP will also offer an "appliance" that companies can install on site if they think that will make their data more secure, Kagermann said. "They could cut the line if they want and run it locally," he said.

The service will benefit SAP's enterprise clients too, according to Kagermann. "They see an option to have alternative offerings from the same vendor for their small subsidiaries, and they see a huge opportunity to integrate suppliers of a smaller size, or customers of a smaller size, in an automated way, because is service-enabled for B-to-B (business-to-business) communication," he said.

SAP will compete with several hosted applications vendors, including Salesforce.com, NetSuite Inc. and even Microsoft Corp., which will start to roll out its Dynamics Live CRM service before the end of the year.

SAP hasn't said yet exactly how it will deal with the specific industry needs of customers without requiring them to customize A1S, although SAP cofounder Hasso Plattner offered some clues in a speech in May at the Software 2007 conference.

"There is a physical separation between the UI (user interface) and the application, to the extent that we can have multiple UIs for the same application," Plattner said. "We found that, in order to cover every industry ... from selling books to selling aircraft, that this is so different that you cannot do it with one front end."

"In this new idea, we will have multiple front-ends for very specific user needs," he added.

SAP Admits to "Inappropriate Downloads" in Oracle Case

Responding to a lawsuit filed by Oracle Corp. earlier this year, SAP AG admitted on Tuesday that its TomorrowNow division in the U.S. made some "inappropriate downloads" from an Oracle Web site but said SAP never had access to the material.

In an about face from his previous position, SAP CEO Henning Kagermann also said Tuesday that his company is open to a possible settlement with Oracle, which has charged SAP with "corporate theft on a grand scale."

TomorrowNow was authorized to download materials from Oracle's Web site on behalf of customers, SAP said, but acknowledged that there were some inappropriate downloads of software patches and support documents. SAP announced new oversights at TomorrowNow, including the appointment of a new executive chairman, to avoid such problems in the future.

"Even a single inappropriate download is unacceptable from my perspective," Kagermann said in a statement. "We regret very much that this occurred."

The U.S. Department of Justice has asked for documents related to the case from SAP and TomorrowNow, SAP said, and the companies will cooperate with the request.
Background

Oracle filed a surprise lawsuit against SAP on March 22It alleged that TomorrowNow staff hacked into a support Web site for users of Oracle's PeopleSoft and JD Edwards applications and downloaded vast amounts of content, which SAP then used to offer Oracle customers cut-rate support services.

SAP had until midnight Pacific Time on Monday night to file its response in the U.S. District Court, Northern District of California, which is hearing the case, and filed the documents shortly before the deadline.

SAP will consider all options in the Oracle case including a possible settlement, Kagermann said in a conference call Tuesday. That marks an abrupt turnaround from April, when Kagermann said during the company's quarterly earnings call: "We have no intention to settle; why should we?"

The legal proceedings will likely have no impact on SAP's business in the U.S., Kagermann said Tuesday, vowing to continue its Safe Passage campaign to win customers from Oracle.
TomorrowNow Changes

The company launched a Web site where it will publish information related to the case, including court filings and a time line of events.

SAP also appointed a new executive chairman to manage TomorrowNow's operations and oversee compliance programs. Mark White, chief operating officer of SAP America, will take on the role. TomorrowNow workers will also get additional training to ensure they understand company's policies. TomorrowNow CEO Andrew Nelson will report to White.

TomorrowNow and other third-party support providers rely on their customers to provide passwords to access support materials from Oracle in order to make fixes, SAP said, suggesting it is a normal practice. But it reiterated that some inappropriate downloads did occur, without providing more information.

TomorrowNow provides maintenance and support to customers using Oracle's PeopleSoft and Siebel applications. SAP acquired TomorrowNow in 2005, around the same time Oracle closed its acquisition of PeopleSoft, which had previously bought JD Edwards.

The market for third-party support services for ERP (enterprise resource planning) and CRM (customer relationship management) applications has emerged in recent years. Companies such as TomorrowNow cater to customers using older versions of the software and charge lower maintenance fees than Oracle. Oracle is also in the third-party maintenance market, supporting SAP's older R/3 applications through a partnership with Systime Computers.

The original charges in Oracle's lawsuit included violations of the Federal Computer Fraud and Abuse Act and of California's Computer Data Access and Fraud Act, along with unfair competition charges. On June 1 Oracle filed an amended complaint, adding copyright infringement and breach of contract claims.

The complaints were filed against SAP, SAP America, TomorrowNow and 50 unnamed individuals Oracle said were SAP employees.

Oracle said it discovered the access to its Customer Connection Web site after noting periods of heavy download activity late last year. The vendor claims it found over 10,000 unauthorized downloads of its software and support materials, which it traced to an IP (Internet Protocol) address at the headquarters of TomorrowNow in Bryan, Texas. That IP address was connected directly to SAP's computer network, Oracle alleged.

The TomorrowNow staff accessed the support site by pretending to be Oracle customers, according to the suit. For one of those customers, Honeywell International, Oracle said it had connected many of the downloads to a particular TomorrowNow employee, Wade Walden, who previously worked at PeopleSoft.

SAP Slashes NetWeaver Developer Subscription Price

Citing the weak economy, SAP has cut the cost of developer subscriptions for its NetWeaver platform by roughly 50 percent, according to a post this week on an official company blog.

SAP began offering individual developer subscriptions for the technology about a year ago, in an apparent effort to draw additional interest. The company has been trying to move customers still on older systems onto NetWeaver-based platforms like ERP 6.0, and also working to resolve an SAP skills shortage in the job market.

"You may be curious as to the reasons behind this reduction," wrote Claudine Lagerholm, senior product manager for SAP Developer Network subscriptions, on Monday. "Since the launch, many of you have been vocal about the subscriptions program, particularly how it should evolve over time, the geographical expansion needed, and to some extent the pricing. We've heard some subscribers say that they've received a great deal of value for the money; however, we've also received feedback from others that the financial burden for individual subscribers was rather high."

"As you are all aware, the economic landscape has changed very drastically in the last few months, so we've decided now was a good time to adjust the pricing," she added.

NetWeaver Development License subscriptions now cost US$1,170 and €1,071, down from $2,300 and €2,082.50. A lesser-featured NetWeaver Composition License is now priced at $520 and €476, a reduction from $1,100 and €1,011.50.

The reduced-cost subscription package includes the same features and components as before, Lagerholm wrote. Customers who signed up or renewed on or after Sept. 1 will get a six-month extension to compensate for the price change.

Subscriptions are still only available to users in Germany and the United States. SAP is not ready to give a date for other country launches, Lagerholm said.

SAP's move brought a thumbs up from the U.K.-based SAP consulting firm Pixelbase. "On the whole a very good move by SAP, enabling more developers to gain access to the full dev suite at a much reduced price," states a post on the company's blog. "The only remaining fly in the ointment now is the restriction to Germany and the US."

Additional comment from SAP could not immediately be obtained on Wednesday.

SAP Exec: Belt-tightening to Continue, but Business Better

A top SAP executive on Wednesday said the company is "implementing a series of tough, tough actions to convert the company to a much leaner operation than it is today," but did not utter the word "layoff."

Speaking at a Credit Suisse technology conference in Arizona, John Schwarz, CEO of SAP's Business Objects unit, said SAP executive board member and Chief Operating Officer Erwin Gunst has been charged with leading the effort.

Gunst recently gained an additional measure of clout within SAP. Last week, the company announced he would take over as SAP's labor relations director on Jan. 1, replacing executive board member Claus Heinrich, who is leaving the company on May 31.

Gunst's purview will now include Global Human Resources, SAP IT and the SAP Labs network, SAP said.

"He's got a clean, complete carte blanche from [co-CEO Léo Apotheker] to go and look at every aspect of the business, to find ways to make us more efficient, more productive, more responsive, more agile, more able to respond to the market opportunities -- a more focused business," Schwarz said.

"In that context, even if the environment is tough -- and we expect it to be tough, frankly -- even if the revenue doesn't grow, we'll be able to at least protect, if not improve margin next year," he added.

SAP's profits fell 5 percent in the third quarter. Executives have said SAP experienced a significant drop in business during the second half of September.

The company has already made efforts to cut costs, including a hiring freeze, but so far has not announced any layoffs.

SAP spokesman Saswato Das declined to discuss Schwarz's remarks in any detail. "We're running a very tight ship and focused on delivering value to shareholders and customers," he said.

A source close to the company said Gunst's efforts are centering on business process improvements, cutting overhead and other measures, not layoffs.

Meanwhile, things are looking slightly up business-wise for SAP, Schwarz said.

"We've not seen a recovery of the selling environment to pre-September, but we've seen a predictable, manageable environment," he said. "We are closing deals, customers are buying."

The company is going after smaller deals, however: "We're not trying to drive multi, multimillion-dollar transactions, but more manageable chunks."

It is also trying to focus on customers in industries "where there's already an uptick taking place," such as health care and the public sector, he said.

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