SAP considers move to value-based pricing model

BOSTON — SAP drove the beginning of its annual Sapphire conference here today by running a video of the Formula One team it co-sponsors, a team that has been soundly trounced for the last five years in a row.

According to chief executive

Henning Kagermann, however, the enterprise applications company is in better shape, and he told 8,500 customers and partners he is optimistic about the future of the IT industry and the future of SAP.

The company here is talking about two things: Its march into Web services, and the honing of its channel strategy to sell more applications to the small and medium-sized business (SMB) market.

In a press conference following his speech, however, Kagermann commented on what an analyst called a potentially bigger strategy: the move to so-called value-based pricing.

Amy Konary, an IDC analyst, described one scenario where a software company such as SAP would charge a customer for the total number of employees it has, rather than the number of users of its software, based on the idea that the application brings value to the entire company.

Kagermann acknowledged customers are hesitant on the concept, which can have several flavours.

“Soon SAP will shift its price list to more end-to-end business scenarios,” he said. “Then we can start trying to attach prices which are value-orientated.”

SAP believes that the shift to a Web service environment will improve corporate bottom lines, justifying such a pricing change.

According Konary, it’s the first time the company has publicly discussed such a shift.

The challenge is in getting customers to agree with the value the vendor has established, Konary said in an interview. They may not see the link.

“They’ll need to work closely with their top customers to get mutually-agreed metrics,” she said.

In his opening address Kagermann made it clear that the company continues to focus on making Web services the heart of its strategy through what it calls its Enterprise Service Architecture (ESA).

SAP and other major IT vendors believe that Web services will let companies reorganize business processes to make corporations more flexible.

It has already promised that NetWeaver, its development and infrastructure platform, will next year shift into what it calls a business process platform.

At Sapphire it was announced that SAP’s All-in-One business suite, a tailored version of SAP’s full suite for industry verticals will next year become the company’s first application to adopt this platform.

“This is the perfect test that shows this (the platform) is helping our small and mid-size customers do their business better,” Kagerman said.

SAP also announced that 10 manufacturers — including Adobe, Cisco, Computer Associates, EMC and Symantec — have signed up to create solutions around ESA.

Joshua Greenbaum, a principal at Enterprise Applications Consulting of Berkley, Calif., noted in an interview that such endorsements help legitimize SAP’s vision.

SAP said it will also detail here a partnership with Hewlett-Packard and Intel for software that will power an appliance to radically increase the speed of processing queries in NetWeaver’s Business Intelligence analytics application.

With it HP will sell a multi-blade US$50,000 server  that will deliver “sub-second” query results for a 300 million -record data warehouse by spreading the work over several Intel 64-bit CPUs.

Finally, SAP announced PartnerEdge, a three-level partner program for VARs selling its Business One and All-in-One applications. The company wants to leverage the program not only to sell more of these applications to SMBs, but also to lure Oracle and Microsoft partners to sell them as well.

Resellers at each level (Associate, Silver and Gold) will qualify for increasing benefits such as better margins, product discounts and market development funds.

“Small and mid-size businesses prefer to buy through the indirect model,” Ira Simon, SAP’s world-wide vice-president of channel marketing, said in explaining why the company created the program.

“So the successfully cover the market we need a very compelling channel program that offers great opportunity to partners, great profitability and a big value proposition.”

A blended points system also helps smaller VARs who may not be able to sell big volumes, the company pointed out.

PartnerEdge is one tool SAP will use to recruit partners from Microsoft and Oracle, he added.

He contrasted PartnerEdge with Microsoft’s channel program, which he said is only based on revenue and volume. “Ours is more focused around quality, selection, solution development, customer satisfaction and other elements along that line. And if we’re able to maintain those things we’ll have partners that are more committed, better prepared and more profitable than Microsoft.”

Some elements of PartnerEdge, such as a portal for members, are available now, but the points system will likely begin early next year. While SAP is still the dominant player in the ERP market, followed by Oracle and Microsoft, the new program shows it will vigourously broaden its reseller base.

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Howard Solomon
Howard Solomon
Currently a freelance writer. Former editor of and Computing Canada. An IT journalist since 1997, Howard has written for several of ITWC's sister publications, including Before arriving at ITWC he served as a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times.

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