Negotiating with SAP: Would you like a License to Thrill?

1. Negotiating with SAP: Would you like a License to Thrill? Derek Prior, PhD Gartner Research

2. Key Issues • What are the SAP licensing models and maintenance options? • How can enterprises negotiate best-in-class deals with SAP and protect their investments over time?

3. Named User fees (4 categories) Developer ? Up to E5700 Functionality / Price Professional E 3800 Limited Prof. E1600 (mobile E800) Employee E400 Software Engine fees: (e.g Purchase Order/ Sales Order Industry Solutions based on industry metrics) • mySAP ERP • mySAP HR • mySAP FIN • mySAP CRM • mySAP SCM • mySAP SRM • mySAP PLM mySAP Business Suite Pricing Model:

4. SAP R/3 Enterprise or other single solution mySAP ERP mySAP Business Suite mySAP Pricing Models:The introduction of mySAP ERP List Price for Professional User: E2550 for R3 enterprise to E5000 for CRM List Price for Professional User:Approx E3000-E3500 List Price for Professional User: E3800 CRM, SRM PLM SCM HCM, Financials NetWeaver : Web Application Server (Web AS) Full NetWeaver : EP, XI, BW, KM, etc Just R/3 Enterprise or CRM etc

5. SAP Maintenance • Standard offering(17%) • Technical Support and Rights to New Versions • 2 Early Watch checks and either SAP GoingLive Check, SAP GoingLive Functional Upgrade Check, or SAP OS/DB Migration Check. • 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 • Max-Attention OnSite offering (23%) • Above plus two full-time on-site consultants

6. $$ Software Maintenance Trends User Vendor Maintenance • Increased maintenance fees • Maintenance starts day the license is signed • Separation of technical support from rights to new versions • Removal of technical support during warranty period • Decreasing level of service in standard offerings • Ramped or steppedmaintenance disappearing • Selected versions not included in maintenance • Maintenance policy changing at vendor will • Vendor cancellationfor convenience • Shortened support periodsfor prior version

7. SAP Maintenance Cost: Five Years • Assume 50% Discount on the $4,000,000 Software: $2,000,000 Initial License Cost. 8% Cap Negotiated for Five Years • Maintenance Maintenance Maintenance • and Support and Support and Support at 17% at 20% at 23% • First Year: 2001 $ 340,000 $ 400,000 $ 460,000 • Second Year: 8% cap $ 367,200 $ 432,000 $ 496,800 • Third Year: 8% cap $ 396,576 $ 466,560 $ 536,544 • Fourth Year: 8% cap $ 428,302 $ 503,885 $ 579,468 • Fifth Year: 8% cap $ 462,566 $ 544,196 $ 625,825 • Total Maintenance: $1,994,644 $2,346,641 $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

8. 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 B2B transactions charged via software engines based on sales and purchase orders. Maintenance: 17 - 23 percent SAP License Terms to Negotiate: ‘For Your Eyes Only…’ Top Five Terms to Negotiate: • Full 100 percent credit for R3 investment, and for future conversion from mySAP ERP to mySAP Business Suite if required. • On larger deals, minimize uplifts outsideEuro-zone countries • Understand ‘indirect access’: Specify exactly when licenses for external systems accessing SAP software are required, be particularly careful with BW (OpenHub) • Right to outsource • Rights to custom-developed code

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

10. Charges for Changes in Technology Example of onerous term and condition:“If the licensee decided to change from one supported 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.”

11. 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.” Maintenance Reinstatement Fees: ‘Maintenance Is Forever?’ 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.”

12. Software Compliance: ‘The Auditor that Loved Me…’ Onerous term and condition:“We are going to send you software that you are not licensed to use. If you use this software in error, you will be 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.”

13. SAP Negotiating Levers: ‘Never Say Never, Again…’ • Increased discounting, but new customers treated better than installed base • Only 25% of installed base has converted to mySAP licenses. These were larger customers with strongest rationale to upgrade. Believe the next 25% will take more convincing • Time of year (Year end December) • 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)

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

15. mySAP Business Suite??? What’s in a Suite...? Industry Solutions Master Data management xApps XI for non-SAP apps

16. Six Steps of Preparation for Licensing with 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.