News Analysis

SAP improves customer relations, but still faces price and licensing issues

New leadership of German enterprise software maker SAP is pursuing a transformation agenda and a more customer-focused strategy in an attempt to rebuild trust.

Feedback at the UK & Ireland SAP User Group Conference 2010 in Manchester indicates that much progress has been made in the past year.

Maintenance row

Anger among users over SAP's plans to impose a single, more expensive maintenance plan for all customers has subsided in the light of a more conciliatory approach.

There was high praise too for SAP's apparent new willingness to listen, share and work more collaboratively with customers, particularly with regard to product roadmaps and establishing a two-way conversation with end-users.

Despite this progress, however, pricing and licensing remains a source of dissatisfaction for many of SAP's customers.

"Customers need a clear picture of what their pricing and licensing options are. It is fundamental to their budgeting process," says Alan Bowling, chairman of the UK & Ireland user group.

Without greater clarity and transparency around pricing, SAP could also run into problems with adoption of their off-premise on-demand hybrid solution, he says.

Connectivity issues

Duncan Jones, analyst at Forrester Research, says organisations increasingly seek to interconnect with each others' systems. SAP, like many other suppliers, needs to clarify licensing terms.

According to Jones, suppliers are cashing in because old internal licensing schemes are creating opportunities for them to charge organisations for connecting to partner systems, when they have already paid to use the software internally.

The "within four walls" licensing model is not appropriate anymore, he says, because that is not how businesses use software in the real world.

Unlike other big software suppliers such as Oracle, IBM and Microsoft, SAP has still to publish full price lists, says Jones, which is what most businesses would like so they can have some idea of what products cost.

"Otherwise, they risk finding out too late that what they are looking to buy is way more expensive than expected," he says. Although SAP is a lot less secretive about pricing than it was three or four years ago, Jones says there needs to be more transparency over pricing and licensing rules.

CEO response

Jim Hagemann Snabe, co-chief executive of SAP, who attended the UK & Ireland User Group for the first time this year, says he is aware of the problem.

"On the one side customers would like a very simple price list with as few items as possible, and on the other side they don't want to pay for stuff they don't use. So we need to find a balance between these two," he says.

SAP is constantly working on simplicity of the price list, he told Computer Weekly.

"Ideally, you have a main price concept which is the number of active users, and not what they use. And then the idea is if I produce more functionality, then maybe more people will use it instead of pricing every piece of functionality on its own," he says.

But the values of some functionalities cannot be described in terms of the number of users, says Snabe, such as payroll, for example, where the goal is that there are very few users.

"There you need to find other ways of describing the value, so that a large company pays for the value associated with solving a large problem, and a small company pays only for the value associated with a small problem. In that case, it is the number of payroll slips that counts, which is a reasonable simplification of the value creation," he says.

While Snabe says SAP will continue to work on simplifying pricing and licensing, he suggests the supplier may take another approach entirely.

"We will work on value discussions rather than price discussions only, because if we can articulate that you can save a hundred million in energy if you do energy management, then the price is less important," he says.

It will be interesting to see at next year's UK & Ireland SAP User Group Conference, whether or not, customers feel SAP has made a big a turnaround on the pricing and licensing issue as it did on the enterprise maintenance issue in the past year.

Duncan Jones believes the only way suppliers tend to make meaningful changes is if end-user organisations include their demands in licensing negotiations.

"Suppliers will never change if businesses keep accepting unfair policies," he says.

While user group organisations can apply a certain amount of pressure on suppliers, says Jones, they function at best as a "critical friend", but members of such organisations, whose careers depend on skill in a particular product set, are unlikely to force change by moving to competitors if their demands are not met.


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