October 27, 2009
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?