If you were one of SAP’s biggest customers and you found out that SAP was giving big discounts to another big customer, pretty much because they asked for it, what would you do?

Assuming you have at least a room-temperature IQ, that is.

Wait a minute. Let’s be democratic. If you were one of Oracle’s biggest customers and you found out that SAP was discounting maintenance for the asking, what would you do? I mean, you’re an Oracle customer, you definitely have a room temperature IQ.

Still not sure what to do? Here’s a hint. The phone number at SAP headquarters is 49/6227/7-47474. At Oracle, it’s +1.650.506.7000.

“Wait a minute, wait a minute, wait a minute,” I hear you saying. “SAP didn’t start handing out discounts, did they? They raised maintenance prices; they didn’t lower them?”

Perhaps. But let’s try to apply that IQ of yours.

As I’m sure you know, it’s been an bruited about in the media that Siemens was seriously considering the possibility of dropping its maintenance contract with SAP, starting January 1 of this year. Their plan was to have a third party provide maintenance, possibly either IBM or Rimini Street. (For a representative summary of the situation, as reported in the press, see this Market Watch report.)

So what happened? As all of you big SAP customers realize, Siemens had to make a decision September 30. Well, here’s what we know. About a week ago, SAP issued a press release, saying that Siemens had in fact re-upped its maintenance contract for three years.

Case closed, right? SAP doesn’t ordinarily announce maintenance renewals, but the underlying tone was, “Well, we’ve read the stuff in the press, too, so let’s deal with those scurrilous rumors, and issue a press release. After all, Siemens didn’t just come back. They bought more.” End of story?

Maybe. But you’ll notice that the press release doesn’t actually say anything about how much they paid for the maintenance. Indeed, there’s a funny little line about, “based on SAP’s maintenance standards for large customers,” which seems to demand some explanation.

So, let’s pursue it a little further. Is there any further information anywhere about what Siemens actually paid? About the same time as the press release, a post appeared on the Sapience blog. The post said that Siemens had been paying 30 million euros, pre-deal and was now paying 18 million euros, plus some other concessions. If you value the concessions at zero, this is a roughly 40% discount.

Sapience is written by Helmuth Gümbel, an industry analyst who has been following SAP for longer than I’ve been in the business. Helmuth is not an uninterested party here; he offers consulting on how to pay less in maintenance. But he’s also a well-respected figure, a person who doesn’t just say whatever he feels like saying, true or not.

[Full disclosure: Helmut is also a person I regard as my friend, someone whom I see socially on the rare occasions when he's in town.]

So what is one supposed to believe? On the one hand, you can say, “Why believe an isolated blogger, especially when he has an axe to grind?” Then, you assume that the press release is giving you basically the right idea about what happened. On the other hand, you can say, “Where there’s smoke, there’s fire,” and assume that Helmuth (and the Enterprise Advocates, a group that discussed the Siemens situation in its recent webcast, have to have roughly the right version of the truth.

Helmuth isn’t the only source of smoke, here. Kash Rangan, an investment analyst at Bank of America/Merrill, estimated, recently, that 20-25% of customers get discounts on their maintenance payments. (The relevant figures are reproduced in the dealarchitectt blog.

No full disclosure required here. I have only a nodding acquaintance with Kash.

Of course, all this can be pretty muddy. American accounting rules tend to make it difficult for companies to give direct discounts on maintenance; basically, if a maintenance agreement is part of the initial license contract and the stated price of maintenance isn’t supported by objective evidence, companies are supposed to recognize the license revenue ratably, not all at once. If you give discounts, then your ability to demonstrate that the stated price is supported by objective evidence, is called into question. So, contra Kash and Helmuth, you could argue that SAP can’t be giving out discounts, because it would screw up their reporting.

But of course there are ways of discounting maintenance without actually charging less than the stated price. There is, for instance, a long, long history in the software business of handing out free seats, instead of cash, when customers are unhappy. (Both Helmuth and a cynical reading of the press release suggest that something of the sort may be going on here.) If pressed, vendors have also been known to reduce the basis for the maintenance charge and also to fiddle around with start and stop dates. I’m not saying that’s going on here–I don’t know–but I’ve been told by reliable sources that it has been done, at least by some companies.

If that were the case here, then Helmuth’s way of characterizing it is really the only sensible way to figure out what’s going on. You look at your outflow before. Then you look at your outflow afterward. The difference gives you a gauge of what the discount is.

So did Siemens get a discount? The plain fact is that we don’t know for sure, even with all that IQ, and won’t know unless SAP and Siemens agree to tell us, and even then we won’t know, because the one thing we can be sure of is that SAP will present the case in a way most favorable to them.

So, if we don’t know for sure, and yet it seems possible that in fact SAP is giving discounts, what should you do? Well, I have a suggestion. It’s 49/6227/7-47474. See what they say.

But don’t hide it. Post what they say right here. If SAP really is holding the line on disounts, well and good. But if they’re giving them out, don’t you think it’s time for you to get in line?

With Siemens asking for and apparently getting a huge break on SAP maintenance costs, it is time to take a look once again to take a look at the whole issue. Understandably, there is a lot of emotion and name-calling and confusion around this; it’s not quite the health-care debate here in the United States, but the real issues have been buried under rhetoric in a strikingly similar way.

SAP Charges for Improved Support

Let me first state SAP’s position as sympathetically as possible. SAP believes (quite correctly) that the customer’s TCO (total cost of ownership) ought to go down, as software and hardware gets better and cheaper. It also believes that if it does something that would help TCO go down, it should get a share of the benefits.

Who would disagree with either point?

Roughly two years ago, therefore, it introduced a series of software and support improvements that it believed would indeed reduce TCO. These improvements largely revolved around a newly improved version of the Solution Manager, a piece of software that is supposed to do what its name implies.

The Solution Manager (or Sol Man, as it is called familiarly) was actually introduced roughly ten years ago. In its original version, it was a separate piece of software (one that ran on its own Windows box) that one used to communicate with SAP support (filing bug reports, etc.) and to monitor the performance of your SAP installation.

In the version introduced two years ago, the Sol Man EE (or enterprise edition), it did considerably more: it allowed you to do more extensive monitoring, test and manage upgrades, and even document your business processes. This new edition also beefed up the connectivity with SAP Support, so that support could use it to troubleshoot your installation more rapidly and effectively.

When SAP introduced its new, higher-priced Enterprise Edition support package, it placed the Solution Manager EE front and center. In every speech and every press release, it wasn’t, “We’re raising prices because Oracle got away with it.” It was, “We’ve developed new tools and support services based on those tools, and we’re increasing the cost of maintenance, because the maintenance has improved.”

The tools it was referring to were the various components of the Sol Man EE, and the improved support services were made possible by and delivered through the Sol Man.

To sum up, SAP’s position is that it is improving enterprise support by providing customers with new and better support tools. It is in the software business. So it is only reasonable for it to charge for those tools. That it charges via a maintenance price increase rather than by charging for the product itself is reasonable, presumably, because many of the benefits involve improved services, which are provided through the maintenance contract.

The Customer Reaction

It’s just a plain fact, of course, that nobody paid much attention to this. It took me, for instance, almost a year (until John Krakowski’s excellent presentation at ASUG last May) to figure out what SAP was getting at when it talked about new tools. (Before that, I wrongly, but honestly believed that the talk about tools was pure hand-waving.)

Other commentators on this, like Vinnie Mirchandani or Ray Wang or Dennis Howlett , may have gotten to a proper understanding of the argument faster than I did, but for the most part, they didn’t try to address its merits.

Today, for instance, the Enterprise Advocates, gave a webinar on Reducing SAP Maintenance Costs. (The Enterprise Advocates include the aforementioned three, plus Frank Scavo and Oliver Marks.) Not once during the main body of the talk did they even mention SAP’s recommendation for reducing maintenance support costs, which is to implement the Solution Manager and use it.

I don’t blame the advocates for this; it’s not their job. But I do blame SAP. If the Sol Man is what justifies the price increase, then SAP need to explain this in clear language.

Once SAP fails to do this, the Advocates and the SAP customer base are entitled to believe what you and I would believe when somebody offers an unclear explanation for something that seems to require some explanation: they dismiss the explanation that’s offered.

At some point, though, it does seem that someone should give SAP the benefit of the doubt and ask the question that SAP wants you to ask, namely, “Can the Sol Man EE deliver so much benefit that it justifies the maintenance price increase?”

If the answer is, “Yes,” that would of course be the best thing all around. Customers would have a clear path to reducing maintenance costs. SAP would have a product that keeps its customers paying maintenance. Total cost of ownership would go down.

And the Answer Is…?

Over the past four months, I’ve spent a fair amount of time finding out what I could about the Sol Man. I don’t have access to the documentation (all 1000 pages of it), but I do have the more public documents that SAP has issued, and I have talked to a number of Sol Man users and consultants.

What I found out is so complicated, and this blog is already too long. So I’ll delay a full report to another post. But here’s the answer in a nutshell:

1. To get the benefits of the Sol Man absolutely requires significant investment on the part of the customer.

2. It does not appear to be the case that the Sol Man was designed with the goal that SAP now has for it top of mind. It appears to be a product that was designed to be one thing that is now being turned to a different purpose.

3. The areas of benefit that the Sol Man promises are indeed important, and it is at least possible that customers can get significant benefit from it, if they put in the work.

4. At the end of the day, though, it appears to this humble observer that SAP needs to put more skin in the game.

Hope all this whets your appetite for the next post on the subject.

Home Depot and Twitter

October 20, 2009

Some thoughts on how (at least one) corporation is reacting to the promise of social networking, in particularly Twitter.

The story begins at Home Depot late one rainy night. I am standing in the only manned checkout line, waiting and waiting for a teller who is checking and rechecking and rechecking. I can see the many self-service checkout lines, but I know better than that, and as all the other customers try those lines and #fail, I smile a little secret smile, as the line behind me gets longer and longer.

I am buying some containers and a cheap hedge trimmer, for my little, tiny hedge. The teller very carefully, painfully carefully checks the containers and then says to me, “ZASDFn avaerpih, awern p[i oubioub esters?” I have literally no idea what he’s saying. I say, “Pardon,” and I get another stream of syllables in some language I don’t know. “I don’t understand what you’re saying.” Again. “Just ring it up.” Again. “No, no, no, just ring it up.” Again. “I do NOT understand what you’re saying.” Again. “No, yes, whatever.” The word, “Yes,” works like magic. Up goes the hedge clipper and, as it turns out, up goes a warranty charge on my bill.

I can’t say at that point that I was the model of decorum and common sense that I try to be in my blogs. It is very late; the only reason I was there was that a neighbor had persuaded me to give him a ride to Home Depot. I will draw the curtain of charity, as Mark Twain says, over the rest of the scene, except for one moment. After I get in my last comment, the teller straightens up and says, “Thank you very much, sir; we appreciate your business,” in English that has only a trace of an accent.

This sounds unbelievable; I wouldn’t believe it if it hadn’t happened to me. I can only assume that tellers got a bonus for each unnecessary warranty they sold and that he had figured out an unbeatable technique.

So, the next day, I Twitter about it. I can’t tell the whole story in 140 characters; it was more a, “You can get ambushed anywhere” sort of tweet.
I don’t think Home Depot is listening, but in seconds, there was the response. “We’re so sorry we failed you; how can we help?”

A happy ending, an apologetic store manager, an upgrade offered on my hedge clipper? Of course not. You see, Home Depot wasn’t actually geared up to deal with my experience, weird and truly troubling as it was. It was only geared up to respond quickly when somebody twittered a complaint.

Now I understand this. I know that Home Depot is going through a tough time, that it is a troubled company anyway, and that thinking about the opportunities that Twitter suddenly offers is the last thing on their minds. I bet they’re patting themselves on the back just having somebody on staff who can read tweets and respond to them, and who knows, at this stage, maybe they should be.

All I’m saying is that they missed an opportunity. Obviously, they have a problem in their store operation, a pretty extreme problem. Obviously, it’s the sort of problem that might take a long time to ferret out. Here was somebody who had found a way to tell them at least that the problem existed and who would have been willing to explain. But all they did was view this tweet the way some politician’s handler would view it, as potentially bad publicity, which needs to be countered right away.

They could have done better.

Has it ever occurred to you that software salespeople get a bad rap? In the popular imagination, they have blood dripping from their fangs. But in my experience, that’s not what they’re like at all. don’t. The ones I know are pretty decent folk, live in the suburbs, maybe even coach soccer. Not one of them would actually throw their mothers under a bus in order to get the deal. At least, I don’t think they would.

So what accounts for this reputation? Well, in the course of writing this series of blogs on brittle apps, I think I’ve come up with an answer of sorts.

Start with a fact that you should know, but maybe haven’t paid much attention to. Good software salespeople don’t sell software. They sell benefits. They don’t try to confuse you with features or functions or architecture; they try to make you understand what those things will do for you.

This is what they should be doing. After all, the buyers of software don’t really know about or understand what the features do, and they don’t have the patience to figure out exactly how the features produce the benefits. You’re a CEO or CFO, you want to get to the point. What is the value that these products deliver?

Software salespeople have developed this reputation, I think, because people have discovered or heard or found that the benefits aren’t available. And they think the salesperson knew this all along and, like some snake-oil salesman was promising a cure for cancer in order to wrest the last dollar out of some old lady’s handbag.

But in my experience, that’s not what’s going on at all. The salespeople actually have a fairly rational, if optimistic view of their product. They know that the products are designed to achieve certain benefits; they can see themselves how the design could work; and they probably know of customers who have achieved the benefits they should achieve. At worst, they’re like a Ferrari or a Jaguar salesman, who focuses on the riding experience and doesn’t feel it is incumbent upon him to bring up the repair records.

People like Dennis Moore would go even further in the software salesman’s defense, and perhaps they’re right. They would say that the salesperson is more like a good physical trainer, who can genuinely promise to get you in better shape if you’ll work out. If after you buy, you don’t want to put in what it takes to get the benefits, that’s your problem not theirs.

So is Dennis right (assuming he would agree with the words I’m putting in his mouth); when somebody buys software and underutilizes or puts it on the shelf, is it entirely their problem. Well, no. I think it would be if they realized how brittle these applications really are. But in my experience, they rarely do. They buy this Ferrari, go out on a Sunday afternoon, and only when they find themselves riding back next to the tow truck driver, do they find out what they’ve bought.

So whose problem is it? Well, I’ve already gone on too long. You’ll have to wait until the next post.

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