Customers begin to question enterprise software value
There's nothing like a price hike in the midst of a recessionary economy to raise customer ire, as well as expectations as to what they're getting for their fees. SAP, perhaps more than any other vendor, is feeling that right now. By raising its maintenance pricing from 17 percent to 22 percent, with no perceived increase in actual value delivered, SAP has firmly placed itself on the hot seat, as CIO.com reports:
(Of) 203 customers Forrester interviewed, a whopping 85 percent expressed minimal utilization of (SAP's) Support offerings. In addition, SAP customers told Forrester that they just weren't seeing the innovation in product offerings from SAP that should have resulted from the collective billions they've been paying in maintenance dollars over the years.
Indeed, as the article goes on to suggest, SAP should have been lowering its maintenance pricing over the past few years, given that its actual costs of support have gone down. Fat chance.
This is why we need competition in the ERP (enterprise resource planning) market. Oracle brings this to SAP's doorstep, but these are mostly two birds of a feather. Neither has any interest in lowering customer costs because both have an incentive to raise prices on customers that have little ability to move to other offerings.
It would therefore be ideal to see Microsoft and open source move into ERP in a more concerted way. Microsoft is a proprietary software company but it does tend to lower prices when it enters a market. Open source, for its part, would put both pricing and innovation pressure on a market that has been content to collect monopoly rents for far too long.
The problem in ERP is that it's so mission critical that few enterprises are willing to take a calculated risk on competing solutions in order to save money. For this reason, perhaps enterprises are getting exactly what they deserve, after all. No risk, no reward.
Disclosure: SAP Ventures is an investor in my company.
Matt Asay brings a decade of in-the-trenches open-source business and legal experience to The Open Road, with an emphasis on emerging open-source business strategies and opportunities. Matt is vice president of business development at Alfresco, a company that develops open-source software for content management. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure. You can follow Matt on Twitter @mjasay. 
SAP and Oracle are going to continue to be the only players in their space for quite a long time to come: none of the other commercial vendors are even really seeking that kind of business - there isn't actually a lot of space for competing vendors when you're talking a market of only tens-of-thousands of businesses, and a product implementation time measured in years, and business requirements that are so incredibly complex that parts of the product are often re-written for every different customer.
The most successful Open Source projects come from comparatively static business requirements, and don't require a lot of complex knowledge above knowing servers and programming. They also have millions of customers and many many like-minded programmers contributing their code. This doesn't exist in ERP-land: you have very few customers to begin with, far fewer who will be willing to distribute any code improvements they've made to their systemd (ERPs are often at the heart of strategic advantage initiatives, so the customizations made to ERP systems become trade secrets).
We have yet to see Open Source produce an ERP that can compete with the likes of Sage MAS or Dynamics GP on anything but price, I highly doubt SAP is going to see any competition soon.
- by GroverOSS October 22, 2008 1:09 PM PDT
- This short-sightedness and lack of awareness about customer requirements isn?t limited to the enterprise software world; the telecom software business is facing many of the same challenges. Communications service providers began moving from proprietary, custom-build software to commercial off-the-shelf solutions over the last few years, in part to reduce their internal maintenance and operations costs; however, the last 12 to 18 months has seen a surge of M&A activity among operations support systems (OSS) and billing suppliers, resulting in many of the smaller vendors being acquired by behemoths such as Amdocs and Oracle. As a result, CSPs are once again being held hostage by high maintenance costs ? around 20% of license costs, on average ? with little to show for that high price tag.
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- by daftkey October 23, 2008 9:45 AM PDT
- Open Source offers no real opportunity at all, I'm afraid, and here's why:
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(9 Comments)As long as these large software suppliers continue to dominate the OSS and billing market, open source software represents the best opportunity for CSPs to reduce their internal operations costs while improving their ability to innovate. As CSPs transform their back office environments to enable flexibility and innovation in an increasingly flexible environment, they?re frustrated by vendor lock-in and high integration and maintenance costs. Open source software?with its promise of greater business agility and the ability to do true service innovation?becomes more appealing under those circumstances.
There has been a mass exodus away from in-house systems toward off-the-shelf systems for large enterprise systems, as companies recognize the expense and maintenance required to keep their in-house systems running. Most Enterprise-level Open Source projects are still far too immature to be practical in these businesses without a significant amount of customization. Open Source billing systems (to use your example) as they exist currently, would actually represent a much larger expense than anything available commercially, because of the time and cost investment required to develop it to the level required by these enterprises.
And here's the kicker - The idea that Open Source software frees anyone from lock-in, is actually largely a myth. The expense to switch away from one billing system to another would be prohibitive and would still require planning, large amounts of data conversion, and a lot of re-work every time the business decided to switch. Sure there wouldn't be the huge licensing costs that Matt talks about in this article, but there would be wages for staff to maintain the system, documentation (which the business would have to do themselves, or hire someone to do) to ensure that the knowledge of how the system works doesn't walk out with their senior IT staff, costs for improving the system (again, internally, or with the assistance of a decidedly non-free consultant/programmer team).
On the whole, licenses for Enterprise software are usually dwarfed by the cost of maintaining the system, which balloon significantly when your system is a one-off rather than an off-the-shelf solution. This leads to the other side of the "Open Source would fix this" argument - That CSPs (or other enterprise customers) are "frustrated by vendor lock-in and high integration and maintenance costs" is a strawman argument. Most business customers are pretty neutral to these costs, because they recognize how critical these systems are.
As far as integration goes - this is the other myth of commercial software that Open Source advocates try to perpetuate: that it doesn't integrate with other systems well. Truth be told, pretty much all commercial enterprise software is designed to integrate with other software with a minimal amount of effort. You don't need the source code to accomplish this - only a conduit that uses a standard data stream (which is available in pretty much all Enterprise software).