SAP's McDermott Has Crafty Plan To Beat Oracle On Deals

Conversation heard between two SAP sales guys dishing up garbanzo bean salad on the lunch line at Sapphire. Salesman #1: "What's with this maintenance cost controversy? I don't hear customers talk much about it." Salesman #2: "Really? I hear about it all the time. I see deals getting smaller because of it." Well, they might want to talk to big boss Bill McDermott, who is plotting how to leverage the software maintenance-costs drama in a way that only a sales mastermind could.The overheard lunch-line banter sums up the SAP customer base. Some SAP customers continue to pay their maintenance bills without much thought, because that's what they've always done. Others, already feeling pinched by those maintenance bills, are unhappy SAP is raising rates for its new, supposedly better-than-ever enterprise support package, and those customers also are spending less on software licenses. With IT budgets so tight, the second group has grown larger in size in recent months.

So SAP agrees to a very interesting deal with its worldwide user groups: For those not already paying the 22% maintenance rate for enterprise support, it'll gradually raise them to that rate-but only if 100 test customers see a 30% improvement in such things as total cost of ownership with SAP's new (and more expensive) enterprise support offering, based on key performance indicators (kpis) established by a third party.

McDermott, who is president of global field operations, said in a May 12 interview at the Sapphire user conference that he sees this deal helping SAP win deals against Oracle, which charges a standard 22% maintenance rate.

Oracle would never devise a conditions-based maintenance increase, McDermott argued. "They can't do it because they have a different business model," he said. "If you listen to (Oracle CFO) Safra Catz, you hear her say Oracle is doing so well because maintenance fees are liquid gold for them. It's liquid gold until a customer says, 'What can SAP do, and let's give SAP a call to see if they can do better.' "

Okay, so that's a bit of a stretch--we know maintenance is a huge funding source for SAP, too. But numerous interviews at Sapphire indicated SAP really is trying to be a better business partner to customers, and more in-tune to their cost pressures.

"I will give SAP a ton of credit, because they listened to the feedback of their customers," Abbe Mulders, CIO at Dow Corning, told me at the conference. "Enterprise support has been a very controversial issue over the last year. But SAP didn't have to put those metrics in place. No one else in the industry today has any kind of measures on maintenance dollars."

Ah, and Mulders is thinking strategically about those maintenance performance measures, too. "So it's setting a trend here, and it'll be interesting to see what other vendors do," Mulders mused. "It might give us customers a little leverage at the end of the day."

Paul Kaczmarek, CIO at Elizabeth Arden Red Door Spas, has seen some improvement in his relationship with SAP in recent months. He was having some trouble for awhile because all he had was an outside SAP sales rep who was hard to reach on the phone, and would stop in every six months to check on things-an then try to sell Kaczmarek more software. Recently SAP added an inside account manager to Kaczmarek's account, who sits at a desk and can be easily reached by phone to answer questions, but is less focused on getting him to sign on for the next big deal.

Kaczmarek does think the quality of SAP's enterprise support needs more work, however. When there's a problem, the SAP support team too often sends him an email that they can't get into his system, which must feel kind of like Bill Murray constantly waking up to "I Got You Babe" on the radio in "Groundhog Day." Also, some of the support response comes from Europe, which can delay getting problems solved because of the time difference in workdays.

Yep, how SAP does on these performance measures will be interesting. It could be a good sales tool in pitching new accounts, that's for sure, but SAP has its work cut out for it, too.