Düsseldorf Inflation is driving corporate costs 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 expected to increase by 3.3 percent each year, according to contract terms that the group published without notice a few weeks ago.
That doesn’t sound like much, but over time it adds up to a significant premium: With a five-year contract, it’s around 18 percent. A fee of 50,000 euros per year increases to 59,000 euros during this period. There are also possible other list price increases.
With this, the software manufacturer attracts the annoyance of the customers. “Companies have to be careful not to have a rude awakening when it comes to the costs for their SAP systems,” said Thomas Henzler, board member of the customer organization DSAG, the Handelsblatt. “Reliable mechanisms” are needed for price development. “We expect the regulation to be reversed.”
Price increase comes at a sensitive time
The group justified the step with inflation. “In the last two years, SAP has not made any general price increases, in contrast to the competition,” SAP boss Christian Klein told the Handelsblatt.
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Now, however, there are cost increases that the company wants to absorb but are not passing on in full, 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 pressures one-to-one to customers.”
The manager also pointed out that the competition, mostly from the US, is doing the same: “In the cloud market it is quite normal to offer more functionality with each release and to adjust the prices over time. Our competitors do the same. We are currently considering how exactly we will implement this.” The group is therefore in contact with the user lobby.
The controversy comes at a delicate time. SAP is aligning the business model under Christian Klein with cloud products, which are now crucial for the stock market. A price increase has a direct impact on sales. However, disputes that make sales difficult could make business difficult.
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. Additional costs can also be incurred if data is transferred to the system of another software manufacturer – this controversial practice is called indirect use.
The group regularly adjusts the list prices. “All software manufacturers do it that way,” explained DSAG board member Henzler, who is full-time head of IT at the blower and compressor manufacturer Piller Blowers & Compressors – including Microsoft and Oracle, for example. “If things are fair, this mechanism reflects the cost development in the IT industry. We have to accept that.”
Significant price jumps are possible, however. This applies to the widely used S/4 Hana Cloud “Private Edition” program, in which the data is stored on a dedicated infrastructure.
SAP changed the fee structure here at the turn of the year. Companies with few users in particular are now paying significantly more, according to DSAG. “This adjustment will certainly lead 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 was already very low.
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SAP now also wants to increase the fees annually for new or renewed cloud contracts, automatically – similar to a graduated lease. This is a controversial topic among customers. “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 by the organization, in which more than 3,800 companies in German-speaking countries are organized, 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 wage costs. The Dax group itself offers a role model: the maintenance that customers have to book when purchasing software licenses is usually based on a wage cost index – if it reaches certain threshold values, there could be an increase in fees, reports DSAG.
Elsewhere, however, the conditions are unlikely to be better: many software manufacturers do it similar to SAP. “These annual price increases have long been common in the industry,” said Joshua Greenbaum, founder and CEO of EA Consult. Other software manufacturers sometimes have surcharges of seven percent or link them to a price index.
“Price policy always has a psychological effect,” said the analyst. However, the license fees are only part of the total costs. The introduction and integration of systems into the IT landscape of a company involves a great deal of effort. When in doubt, support with implementation and change management is more important than the fees – despite all the complaints.
More: “Everyone feels the pressure on margins” – where SAP boss Klein sees opportunities for new growth