- SAP and Oracle have engaged in a concerted effort to strip out value from the base support level.
- This means that the actual support cost for SAP and Oracle have dramatically increased.
When SAP and Oracle sell their software, they sell the software with base support. This base support has increased throughout the years to now rest at 22% of the cost of the license. This 22% is due on a yearly basis, and it is proposed that this support means that these vendors provide support for the application. However, as time has passed SAP and Oracle have stripped the investment from their support pushing their support to the 90% range in profit margin. In this article, we will evaluate the implications of this strategy for SAP and Oracle Customers.
The Scam of SAP and Oracle Support
In sales presentations, SAP and Oracle talk about how fantastic their support is, but the reality of their base support offering is considered by those that use the support to be quite poor. We use SAP support and it is mostly a waste of time, with SAP support representatives normally deflecting issues when they turn out to be broken functionality in SAP. Therefore, it is now very common to receive false answers from SAP on issues that would make it plain that SAP sales had misled customers. SAP and Oracle maintain ticketing systems, but the value of these is declining as well. English is normally a second language for those that work in SAP and Oracle support (due to gutting the support employment in the countries where most of SAP and Oracle’s customers are) so miscommunications and inefficient communication is extremely common.
So while customers get less and less from SAP and Oracle support, support is more and more used to push customers into doing things that these vendors want their customers to do.
This is explained by Ahmed Azmi..
“Oracle EBS 11 hit GA in 2004. Oracle pulled its premier support just six years later in 2010, then dropped extended support in 2013. That left customers, who had yet to upgrade, on what Oracle calls “sustaining support.” At each tier, the level of service declines but the price does not.
The capital cycle for ERP is 15-25 years. NOBODY immediately upgrades to a new release. It takes time to get a business ready for a significant implementation or upgrade, and some companies like to wait until the riskiest bugs are worked out. Other companies don’t see the ROI in the massive costs associated with these upgrades.
ERP vendors reduce or eliminate support coverage on prior releases to force upgrades and customers pay the same 22% for less and less support. Just like taking candy from a baby!
Ahmed’s statement regarding the adoption of new versions is reinforced by the following quotation from the book SAP Nation 2.0.
“Not all customers adopt every new SAP version. Even the most adopted EHP 4 research a peak adoption rate of approximately 35 percent, and three years after becoming generally available (GA). The time it takes a new version to reach peak adoption is approximately 18-24 months after GA. In addition, we can see that EHP 7 (the latest version, and the required version to support Business Suite on HANA as well as Fiori), has a steeper adoption rate and has the potential to become the most adopted version. Unlike Android or mobile applications, the expected upswing in ERP adoption is measured in years, not months.”
Support Conundrum and Support as a Surcharge
If the support is nearly all margin, with less and less offered in the 22% support cost, then it can be instead merely called a “license premium” or simply a surcharge. If it is merely a yearly license premium, now SAP and Oracle’s TCO substantially increases.
When we created online TCO calculators for SAP and Oracle, we did not consider this reality. When I was asked why IT departments have a hard time calculating TCO, first, they tend to lack the staffing, but second, the assumptions are complex. In this example, the TCO for SAP and Oracle are not higher than there were 10 years ago. Furthermore, I cannot ever recall the topic coming up that the base support is nothing more than a yearly surcharge. This means the customer has to expend more money/effort to get actual support and to fix issues.
The Rapidly Increasing Demand for Free Support
Because we publish so much material on SAP technical areas, one place that some SAP customers have reached out to is us. However, interestingly, after having spent so much money on non-existent support, we often get customers who don’t have any budget, but are looking for “help.” After we rejected a one month project where we would have been expected to fix all of their issues and provide training, they started sending us questions and asking us to guide them for free, as they lacked budget (they said). This customer is scrambling and using business resources to research the problems online. There is a lot of need for SAP help out there, but far less of a budget to fix these support problems. This is one reason why SAP projects are becoming less sustainable. And while we don’t get Oracle requests, given the similar disinvestment in base support, we think its highly likely that Oracle customers are seeing the same thing.
A New Marketing Program for 3rd Party Support Providers?
Given this reality, it seems that a likely future marketing logic for 3rd party support providers is the following:
“As SAP and Oracle’s support is now just a surcharge/tax (which means you should not expect anything more than continued upgrades), continue paying the tax, but hire 3rd party support to provide the actual support. This means that the yearly support cost is now 33% per year (22% for SAP an Oracle, and 11% for 3rd party support.) But this is the reality of SAP and Oracle support.”
This is reinforced by the following quote from the book SAP Nation 2.0.
“Another customer is TT Electronics, a $1 billion UK-based electronics manufacturer, whose CIO Ed Hefferman has been quotes as saying SAP Maintenance is effectively an added tax that I have to pay for no value in return. TT blends Rimini support while using savings to continue to buy a new SAP license for its ECC 6.0 environment.”
The complaints about the declining quality of SAP and Oracle support can be found on message boards, but as nearly all the information about SAP and Oracle is provided by either SAP and Oracle or biased entities (consulting partners or media entities that are paid by SAP and Oracle) these topics are rarely the subject of articles. This allows SAP and Oracle to continue to pull resources out of their standard support and make the actual support far higher.
Financial Bias Disclosure
This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.
Enterprise Software Risk Book
Rethinking Enterprise Software Risk: Controlling the Main Risk Factors on IT Projects
Better Managing Software Risk
The software implementation is risky business and success is not a certainty. But you can reduce risk with the strategies in this book. Undertaking software selection and implementation without approximating the project’s risk is a poor way to make decisions about either projects or software. But that’s the way many companies do business, even though 50 percent of IT implementations are deemed failures.
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Chapter 1: Introduction
Chapter 2: Enterprise Software Risk Management
Chapter 3: The Basics of Enterprise Software Risk Management
Chapter 4: Understanding the Enterprise Software Market
Chapter 5: Software Sell-ability versus Implementability
Chapter 6: Selecting the Right IT Consultant
Chapter 7: How to Use the Reports of Analysts Like Gartner
Chapter 8: How to Interpret Vendor-Provided Information to Reduce Project Risk
Chapter 9: Evaluating Implementation Preparedness
Chapter 10: Using TCO for Decision Making
Chapter 11: The Software Decisions’ Risk Component Model