Düsseldorf Inflation is driving the costs of companies to record highs. Managers will also have to plan more for many SAP products in the future: the software manufacturer wants to introduce an automatic price increase for its cloud services. The fees are to increase by 3.3 percent each year, according to contract terms that the group published a few weeks ago without notice.
That doesn’t sound like much, but it adds up to a considerable premium over time: with a five-year contract, it’s around 18 percent. A fee of 50,000 euros per year will increase to 59,000 euros during this period. In addition, there are possible other list price increases.
With this, the software manufacturer attracts the anger of customers. “Companies have to be careful that the costs for their SAP systems do not wake up badly,” Thomas Henzler, member of the Board of management of the customer organization DSAG, told Handelsblatt. It needs “reliable mechanisms” for price development. “We expect the regulation to be reversed.“
Price increase comes at a delicate time
The group attributed the move to inflation. “SAP has not made any general price increases in the last two years, in contrast to the competition,” SAP CEO Christian Klein told Handelsblatt.
Now, however, there are cost increases that one wants to cushion, but does not pass on to the full extent, as Klein emphasizes: “The price is a lever, but not the only one.” For example, SAP is trying to reduce costs at the same time. “We cannot pass on inflationary pressure to customers one-on-one.“
The manager also pointed out that the – mostly US–American – competition is the same: “In the cloud market, it is quite normal that you offer more functionality with each release and adjust the prices over time. Our competitors do the same. We are currently considering how to implement this exactly.“ The group is therefore in contact with the user lobby.
The controversy comes at a delicate time. Under Christian Klein, SAP is aligning its business model with cloud products, which are now crucial for the stock exchange. A price increase is directly noticeable in sales. However, disputes that make it difficult to sell could complicate the business.
List prices are changed regularly
SAP pricing is a science in itself. The software manufacturer uses different metrics such as the number of users, revenue and access to a service. In addition, additional costs may be incurred if data is transferred to the system of another software manufacturer – indirect use is called this controversial practice.
The Group regularly adjusts the list prices. “This is what all software manufacturers do,” explained DSAG Board Member Henzler, who is the full-time IT boss of the blower and compressor manufacturer Piller Blowers & Compressors – including Microsoft and Oracle, for example. “If things are fair, this mechanism reflects the development of costs in the IT industry. We have to come to terms with that.“
However, significant price jumps are possible. This applies to the widely used S/4 Hana Cloud “Private Edition” program, in which the data is stored on a dedicated infrastructure.
At the turn of the year, SAP changed the fee structure here. Especially companies with few users now pay significantly more, as the DSAG says. “This adjustment certainly leads to complex price negotiations, especially in the small and medium-sized customer segment,” said DSAG Board Member Henzler. SAP points out that the margin in this segment had already been very low before.
Now SAP also wants to increase the fees annually for new or renewing cloud contracts, automatically – similar to a graduated rent. In the clientele, this is a controversial issue. “The concern about cost stability has been one of the biggest reservations about the cloud in recent years,” said DSAG Board Member Henzler.
In a survey conducted by the organization, in which more than 3800 companies are organized in the German-speaking countries, 45 percent of the members described the pricing of the Dax Group as little or not at all transparent.
An index as a basis for price increases?
The customer lobby demands that the adjustment should not be a fixed 3.3 percent, but should be based on the development of labor costs. The Dax Group itself offers a model: the maintenance that customers have to book when purchasing software licenses is usually based on a wage cost index – if it reaches certain thresholds, there may be an increase in fees, reports the DSAG.
However, the conditions are unlikely to be better elsewhere: many software manufacturers do it similarly to SAP. “These annual price increases have been common in the industry for a long time,” said Joshua Greenbaum, founder and chief executive of the analysis house EA Consult. For other software manufacturers, surcharges of seven percent or the coupling to a price index are sometimes practical.
“Pricing policy always has a psychological effect,” the analyst said. However, the royalties are only part of the total costs. Thus, the introduction and integration of systems into the IT landscape of a company involves a great deal of effort. In case of doubt, support in the implementation and change management are more important than the fees – despite all complaints.