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Analyst, SAP dispute over reported support discounts reveals murky picture

Chris Kanaracus | Nov. 29, 2012
SAP and a financial analyst are at loggerheads over a recent report by the analyst, which said that a handful of customers had received substantial discounts on their software maintenance renewals.

Regarding Goldmacher's report, Abbarchi suggested that perhaps the customers cited in it were talking about something other than a straight discount on maintenance.

"Maintenance is calculated on the net price of licenses," he said. "So you can maybe discount the new licenses the customers is buying and as a matter of fact, you're discounting the unit cost for the maintenance."

In an email, Goldmacher said he stood by his report and that his SAP customer sources reported a "straight discount on maintenance. Period." Goldmacher declined to name the customers or provide access to them.

SAP spokesman James Dever raised the question of whether Goldmacher has a conflict of interest, given that his firm hosted an equity investor tour for Rimini Street, which is reportedly considering an IPO.

Goldmacher dismissed the suggestion. "I don't think I mentioned Rimini Street anywhere in my note," he said via email. "Geez, these guys are really getting nasty."

Dever also pointed to the fact that Goldmacher only professes to hearing from a handful of buyers, which amounts to an infinitesimal percentage of SAP's nearly 200,000 customers.

For its part, Rimini Street claimed it too has heard that SAP is giving discounts, partly due to Rimini's own influence.

"We have always seen some level of discounting from SAP on annual maintenance when SAP finds out that Rimini Street is competing for the business in an account," a Rimini Street spokesman said in a statement. "However, that discounting has definitely increased as SAP grapples with real competition from Rimini Street."

This is not the first time reports have emerged of SAP agreeing to discount maintenance. But the fervor with which the company has denied the practice is occurring speaks to how crucial maintenance revenues, which carry high profit margins, are to software vendors like SAP.

Oracle famously sued SAP after its former subsidiary TomorrowNow made illegal downloads of Oracle software and other materials in order to provide a lower-cost support option to customers. SAP admitted liability for TomorrowNow's actions and shut down the business.

TomorrowNow co-founder Seth Ravin subsequently formed Rimini Street, where he serves as CEO. Oracle has also sued Rimini Street on similar allegations, with that case yet to go to trial. Rimini Street has maintained its innocence.

In any event, all software vendors are facing threats to maintenance revenues, and from a variety of forces, said analyst Ray Wang, CEO of Constellation Research.

First, the option of going to a third-party maintenance provider allows customers to have a conversation about the cost of support with their vendor, he said.

In addition, "these customers have a lot of shelfware," he said. That means in negotiations, customers can seek to "park" old and unused licenses, taking them off maintenance, or trade them for newer functionality, Wang said.

 

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