SAP customers at upgrade crossroads

In the world of SAP, 2003 will be remembered as the year of the upgrade.

SAP has issued a support deadline for customers who have yet to upgrade SAP's core ERP product, R/3, to the newest version, 4.6C.

In December, support agreements for versions earlier than 4.6C will no longer be valid. Customers can, however, negotiate extended agreements, albeit at a higher cost.

As a result, many customers may reach 4.6C and stay put for now. Others may choose to leave earlier R/3 versions in place, and then negotiate new support agreements with SAP.

"We will probably use the 'joker' option for next year," said Daniel Beaudoin, an IT professional in the audit and risk management group at Syracuse, N.Y.-based Carrier Corp. He was referring to SAP's offer to support versions below 4.6C at a higher cost than prior support agreements.

Once SAP customers have reached 4.6C, there are three deployment choices. One is to proceed to R/3 7.0, also called Enterprise.

Another is to implement mySAP ERP, a new package introduced by SAP in recent months. This option combines Enterprise with SAP's new strategic platform, NetWeaver, and includes slices of the company's elaborate mySAP Business Suite.

The work involved in a mySAP ERP upgrade, when compared with the Enterprise upgrade, is about the same, analysts say. It's the cost that's different; the mySAP ERP option represents new licensing fees, whereas Enterprise is considered a straightforward upgrade and comes at no extra charge to customers.

The mySAP Business Suite is the third and most expensive route.

There is no upgrade option that lets a customer bypass version R/3 4.6C. The core product -- whether it's called R/3 or Enterprise -- is a component in each of the upgrade options.

Companies already running 4.6C are left to consider whether they should eventually head for Enterprise, or mySAP ERP. Many analysts said mySAP ERP is worth serious consideration.

Before now, "the R/3 customers had a horrible decision to make," said Jim Shepherd, a senior vice president at Boston-based AMR Research Inc.

"They could continue down the R/3 path with R/3 Enterprise," Shepherd said. "But lots of companies were concerned," he said, that the Enterprise route would take them away from the mySAP Business Suite, where SAP has invested so much energy.

The mySAP Business Suite alternative, though, meant that companies had to "commit to Customer Relationship Management (CRM), Partner Lifecycle Management (PLM), Supply Chain Management (SCM)," Shepherd said.

In a research note released on the topic, Shepherd wrote that the new mySAP ERP package was comprehensive enough to replace most legacy systems and that it provides a "great foundation" for future extensions, without forcing customers to buy into the massive mySAP Business Suite.

Still, Derek Prior, a Gartner Inc. analyst whose research focuses on SAP, said customers must consider that the mySAP ERP option, comes at a price, while R/3 customers who upgrade to Enterprise do not pay additional license fees.

Customers have to determine, Prior said, whether they need the mySAP ERP feature, and whether they want to spend money now or later. If customers think they will eventually move to the full mySAP Business Suite, they have to decide whether to buy the full suite now, or save money now by purchasing mySAP ERP -- and saving for the day when they can afford the full suite.

The good news is that Shepherd and Prior have both heard positive feedback from the few existing Enterprise customers.

Once clients reach Enterprise, Prior said, they should be glad to learn that the Enterprise architecture is such that future upgrades will impact Enterprise extensions, rather than the core product.

"To be fair," Prior said, "SAP really listened to customers, and what they wanted, when they planned for Enterprise."