SAP and Oracle consolidate services and raise prices
SAP and Oracle, two of the largest business software makers on the planet, are taking steps to increase their revenues. SAP has announced that they will migrate all current customers to a one-size fits all support program. Businesses of any size will be forced to use Enterprise Support, and while no fees will be charged initially, the support plan will come with a price tag in 2009.
Currently, SAP charges customers annual maintenance fees of 17% of the cost of the initial software package. Starting in January 2009, that fee will be bumped to 22%. In addition to increased costs, customers will get more complete service which includes 24-hour support, continuous quality checks, and a risk reduction audit.
Oracle has also increased prices. In June the U.S. company announced a new price list which indicated a 15%-20% increase in prices for customers in the United States.
This increase in maintenance fees could present a problem for smaller companies. Most cannot afford to pay for service packages that they do not use, and the price increase may force them to drop Oracle or SAP systems. However, as the Wall Street Journal points out, “Businesses that have already invested in software from the companies can’t afford to rip the systems out and replace them with software from other companies.”
Despite the risk of losing customers, it seems that SAP and Oracle need the extra revenue during hard economic times. Both software firms face stiff competition from on demand rivals like SalesForce, and they may be necessary to maintain a high level of service. However, as Pacific Crest Securities Inc. analyst Brendan Barnicle told the Wall Street Journal, “Unlike price increase for food, fuel and many other commodities, the changes in software don’t stem from a shortage of supply or a rise in demand. They are attempts by software makers to increase their bottom lines.”
High licensing fees and maintenance costs are precisely the reason that many businesses are turning to Software as a Service (SaaS) options for their enterprise systems. Web-based business tools are affordable, usually priced per user, and do not come with burdensome fees for upkeep. SAP and Oracle will need to tread cautiously in future price increases if they want to survive in a SaaS world.
By Haley January Eckels
