SAP Upgrades Proceeding but Maintenance End a Factor

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A new vendor-sponsored survey finds that some European and North American SAP customers are largely continuing with ERP (enterprise resource planning) system upgrades amid the global economic downturn. But the main reason cited was the end of vendor maintenance for their product versions.

Three out of four respondents said their upgrade projects will continue on schedule during 2009, but 28 percent of those hope to cut the project's costs, according to the study released by Panaya, a maker of software for easing the SAP upgrade process. Eleven percent said they would delay upgrades until after this year.

Nearly two-thirds of respondents (58 percent) cited "end of maintenance" as a reason for the upgrade. Thirty-seven percent named "functional requirements" and 28 percent cited "improving usability." Nineteen percent said they wanted to "leverage [the] latest technology."

Most companies -- 67 percent combined -- are currently on SAP R/3 version 4.6 or 4.7. The remainder are on ERP 2004 and other versions.

SAP is trying to get more customers on older systems to upgrade to the current SAP ERP release, although the company did announce last July that the extended maintenance period for versions 4.6c and 4.7 would be prolonged by one year.

Extended maintenance for 4.6c and 4.7 is set to begin expiring at the end of this year and Mar. 31, 2012, respectively, for customers not yet on SAP's Enterprise Support service, according to an SAP spokesman. Enterprise Support customers get an additional year.

The Panaya survey results should be viewed in the proper context, one observer said Tuesday.

"This is equivalent to a 'forced march' due to support polices common among ERP vendors," said Forrester Research analyst Ray Wang via e-mail. "If the survey data came back as functional requirements and usability as the key reason, it'd be a validation of the demand for an upgrade."

"That being said, it is tough to stop an upgrade project mid-flight, especially if you know you are coming up to a maintenance deadline," Wang said.

"This is why it's important for third-party maintenance options to exist, so that there is fair competition in the market," he added. SAP does offer "customer-specific maintenance" options after formal maintenance periods end, but the features are limited.

Maintenance revenue, with its high profit margins, is becoming an increasingly strategic part of vendors' finances. SAP rankled some user groups last year when it announced that customers would be moved onto the richer-featured but more expensive Enterprise Support offering. The company has since announced plans to work with user groups on a set of KPIs (key performance indicators) for validating the benefits of the service.

Panaya received 152 responses in December from SAP customers and system integrators in North America and Europe. Two-thirds of responding companies were in Europe. Forty-two percent of the companies had less than US$1 billion in revenue during 2007, while 25 percent had between $1 billion and $5 billion and 33 percent reported having more than $5 billion.

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