Negotiating with SAP Would you like a License

Negotiating with SAP: Would you like a License to Thrill? Hosted by Derek Prior, Ph. D Gartner Research

Hosted by l What are the SAP licensing models Key Issues and maintenance options? l How can enterprises negotiate bestin-class deals with SAP and protect their investments over time?

my. SAP Business Suite Pricing Model: Functionality / Price Hosted by Named User fees (4 categories) Developer Professional Limited Prof. E 3800 ? Up to E 5700 E 1600 (mobile E 800) Employee E 400 l my. SAP FIN l my. SAP HR l my. SAP PLM l my. SAP ERP l my. SAP SRM l my. SAP SCM l my. SAP CRM Software Engine fees: (e. g Purchase Order/ Sales Order Industry Solutions based on industry metrics)

my. SAP Pricing Models: The introduction of my. SAP ERP Hosted by SAP R/3 Enterprise or other single solution List Price for Professional User: E 2550 for R 3 enterprise to E 5000 for CRM my. SAP ERP my. SAP Business Suite List Price for Professional User: Approx E 3000 -E 3500 List Price for Professional User: E 3800 CRM, SRM PLM SCM HCM, Financials Just R/3 Enterprise or Full Net. Weaver : EP, XI, BW, KM, etc CRM etc Net. Weaver : Web Application Server (Web AS)

SAP Maintenance Hosted by l Standard offering (17%) • Technical Support and Rights to New Versions • 2 Early Watch checks and either SAP Going. Live Check, SAP Going. Live Functional Upgrade Check, or SAP OS/DB Migration Check. l Max-Attention Service Level offering (20%) • Guaranteed response time for very high priority incidents • Safeguarding for up to 2 mission critical projects and named contact in SAP support services l Max-Attention On. Site offering (23%) • Above plus two full-time on-site consultants

Software Maintenance Trends Hosted by $$ User Vendor Maintenance l Increased maintenance fees l Maintenance starts day the license is signed l Separation of technical support from rights to new versions l Removal of technical support during warranty period l Decreasing level of service in standard offerings l Ramped or stepped maintenance disappearing l Selected versions not included in maintenance l Maintenance policy changing at vendor will l Vendor cancellation for convenience l Shortened support periods for prior version

SAP Maintenance Cost: Five Years Hosted by Assume 50% Discount on the $4, 000 Software: $2, 000 Initial License Cost. 8% Cap Negotiated for Five Years Maintenance and Support at 17% First Year: 2001 Second Year: 8% cap Third Year: 8% cap Fourth Year: 8% cap Fifth Year: 8% cap Total Maintenance: Maintenance and Support at 20% Maintenance and Support at 23% $ 340, 000 $ 367, 200 $ 396, 576 $ 428, 302 $ 462, 566 $1, 994, 644 $ 400, 000 $ 432, 000 $ 466, 560 $ 503, 885 $ 544, 196 $2, 346, 641 $ 460, 000 $ 496, 800 $ 536, 544 $ 579, 468 $ 625, 825 $2, 698, 636 Year 6: Maintenance cap is over, based now on “then-current” list price: $4, 862, 025 Due 2006 $876, 544 $972, 405 $1, 118, 266

SAP License Terms to Negotiate: ‘For Your Eyes Only…’ Hosted by License Model Choice of e-business platform = all SAP applications or solutions = CRM, or other single application. Fee for three role-based, named users. Automated B 2 B transactions charged via software engines based on sales and purchase orders. Maintenance: 17 - 23 percent Top Five Terms to Negotiate: g Full 100 percent credit for R 3 investment, and for future conversion from my. SAP ERP to my. SAP Business Suite if required. g On larger deals, minimize uplifts outside Euro-zone countries g Understand ‘indirect access’: Specify exactly when licenses for external systems accessing SAP software required, be particularly careful with BW (Open. Hub) g Right to outsource g Rights to custom-developed code

SAP Interface Fees ‘From SAP, With Love…’ Real-time/Batch Synch/Asynch Interface OUT Data Extract to Other 3 rd Party Application, eg Data. Warehouse Sometimes Free, Sometimes not!! Interface OUT Not Free ! Hosted by Sometimes Free, Sometimes not!! Interface OUT SAP Open. Hub. R/3 or R/3 Ent. BW All my. SAP Apps - 3 rd Party Interface IN Data in from any ISV or Legacy App Free ! Not Free ! Interface IN Data Load. Interface IN Free !

Hosted by Example of onerousfor Changes in Charges term and condition: “If the licensee decided to change from one supported Technology database to another supported database, the cost for doing this will be horrendous. ” Likely way presented in the contract: Database: Oracle (or any other specific database listed) Example of solution (not legal advice): ”Licensee may transfer this software, at no additional cost, to any hardware platform, software operating system, or database that the vendor supports for this software. ”

Maintenance Reinstatement Fees: ‘Maintenance Is Forever? ’ Hosted by Onerous term and condition: “If you drop maintenance, but after a year, want to re-start it, you are subject to whatever we want to charge at the time, and you will have absolutely no leverage. ” Likely way presented in SAP agreement: “In the event Maintenance is declined for some period of time, and is subsequently requested or reinstated, SAP will invoice Licensee the accrued Maintenance Fees associated with such time period plus a reinstatement fee. “ Example of solution (not legal advice): “Licensee can resume software maintenance for lapsed periods by paying an amount no greater than the support fee that would have been due if software maintenance had been continued over the lapsed period. ”

Hosted by Onerous term and condition: Software Compliance: ‘The Auditor “We are going to send you software that you are not that Loveduse this software in error, you will be Me…’ licensed to use. If you out of compliance with this contract, and woe to you if we audit. ” Likely way presented in an SAP agreement: “Licensee may only use the program modules referred to in the definition of software even if the licensee is technically able to use other modules from the software supplied. ” Example of solution (not legal advice): “Licensor shall not ship any software to licensee that licensee is not authorized to use. ”

SAP Negotiating Levers: ‘Never Say Never, Again…’ Hosted by Increased discounting, but new g customers treated better than g installed base g Only 25% of installed base has g converted to my. SAP licenses. g These were larger customers with strongest rationale to upgrade. Believe the next 25% will take more g convincing g Time of year (Year end December) g Portal deals Size of deal (average deal size in 2002 approx Euro 420, 000) Credible competition Industry vertical (process knowledge) Geography/Mid Market (reference account)

Pay-as-You-Go Agreements vs Buying everything up-front. . . Hosted by l Evaluate against buying exactly what is needed l Establish minimum licenses to be retained after contract term l Ensure that licenses are transferable without limitation l Include new functionality and products in agreement l Build in flexibility to accommodate business change

What’s in a Suite. . . ? Hosted by my. SAP Business Suite? ? ? Industry Solutions Master Data management x. Apps XI for non-SAP apps

Six Steps of Preparation for Licensing with Hosted by SAP 1. Establish a negotiating team with representation from all participating business units. 2. Define requirements over two to three years with focus on funded projects. 3. Perform a physical inventory of SAP licenses and existing contract terms; understand new models and terms. Compare with new proposal. 4. Determine whether purchase can be made under existing agreement. Weigh re-licensing benefits against loss of favorable terms. 5. Balance additional discount with potential shelfware. 6. Leverage competition.