SAP Under Fire, Again

It has been a rough couple of quarters for SAP, and until the general release of their SaaS offering next year, they continue to look like a clumsy, archaic old-timer. SAP solutions have for a long time been best-suited to large enterprises, and they are currently implementing a new pricing model to attract SMEs—a pricing model that is being doubted by some.

First, a look at their old pricing model: SAP has given customers volume discounts based on the size of the deal, and this was a successful method until it became apparent that implementations were typically unfinished by the projected deadline. As a remedy, SAP continued dropping software prices, and created agreements with large companies that allowed them to defer license audits and define their terms of use, paying in phases—SAP account managers would work with corporate CIOs, and were mostly flexible in their concessions because the important part was closing the deal.

Now, SAP wants to woo SMEs, and has to adjust their pricing models, especially in light of the rise of on-demand software models that offer more flexible subscriptions. They’ve reduced up-front payments, but there are still some issues. Helmuth Gumbel at Information Week notes that this does not solve the shelfware issues that the older model incurred, as it provides no guarantee that companies won’t have to spend big bucks on upgrades in the future. Gumbel also points out that SAP often replaces its pre-existing agreements, which is also not the most attractive attribute of an ERP vendor.

But mainly, the high-volume, high-discount, long-contract model is too clunky to entice many SMEs. SAP will most likely have to reduce contract lengths to get more SMEs on board with their on-premise systems.

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