PARIS, 29 APRIL 2009 - 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 per cent of software license fees, compared to 17 per cent for the existing service. That's an increase in support costs of almost 30 per cent.
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 per cent 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 first quarter earnings drop 16 per cent
SAP reported first quarter net income down 16 per cent year on year, and revenue down 3 per cent, as customers remain reluctant to spend on new software.Net income for the first quarter fell to €204 million (US$269 million as of March 31, the last day of the period reported) from €242 million a year earlier. SAP blamed the fall on a restructuring charge related to previously announced staff lay-offs.
Revenue fell to €2.40 billion from €2.46 billion a year earlier. Within that, software support revenue rose 18 percent to €1.25 billion, a rise somewhat offset by a fall in professional services revenue, down 9 percent to €649 million.
The biggest fall was in software sales, down 33 percent to €418 million. SAP blamed the decline on a difficult operating environment worldwide due to the global economic downturn.
It is unclear when buyers will regain confidence: "Visibility for software revenues remains limited," SAP said.
The company declined to comment further on the outlook for the rest of the year, sticking to the same forecast it provided in January. Back then it made no predictions for future revenue, citing uncertainty about the business environment.
However, SAP will have slightly lower software support revenue in the coming years than it had previously hoped. Following pressure from users, announced Wednesday that it has capped the price of its new Enterprise Support program at 22 per cent of the software license price until at least 2015. For existing users forced to migrate to that service from a cheaper existing service, the price rise will be spread over a longer period, limiting increases to 3.1 per cent a year, rather than the previous 8 percent a year, SAP said.
SAP repeated its January prediction that operating margin will remain around 25 per cent -- if full-year software and software-related service revenues at constant currency remain flat or decline by 1 percent from their 2008 level of €8.62 billion. While companies tend to hedge their predictions against adverse moves in exchange rates by assuming constant currency, in the first quarter foreign exchange movements acted in SAP's favor. In the first quarter, software and software-related service revenue remained flat, but excluding Business Objects support revenue that Business Objects would have recognized had it remained a stand-alone entity it fell 2 per cent -- and would have fallen 4 percent at constant currency, SAP said.
The company stated its results according to U.S. generally accepted accounting principles (GAAP), but said that from the end of this year, it will only use International Financial Reporting Standards (IFRS) for external communications. It will also use IFRS figures for internal reporting, forecasting and incentive-based compensation plans for staff, it said. SAP began preparing financial reports according to both GAAP and IFRS in 2007, to comply with German and European law.
The only difference in reported revenue between the two accounting standards concerns SAP's now-closed third-party software maintenance subsidiary, TomorrowNow. SAP's U.S. GAAP income statement shows TomorrowNow's revenue and income separately because it is a discontinued operation, but IFRS does not allow this separation because TomorrowNow is not a material operation, SAP said.
