The two largest Enterprise Resource Planning software manufacturers have delayed annual support maintenance contract escalations for several of their ERP software solutions. SAP has announced it will stagger is previously proposed software maintenance rate hikes over a longer period and in predictable turn, Oracle announced one week later it would do the same for some of its older legacy applications.

While the price delays don’t affect all users and do not reduce existing expense amounts, these efforts stand in stark contrast to the enterprise software makers historical attitudes of not budging when it comes to their annual maintenance revenue streams. For instance, is a recent January interview by Informationweek with Oracle President Charles Phillips, the confident President said the 22% annual software maintenance amount is never negotiable, adding “We are sticklers on that.”

However, in response to both the depressed economic climate and a similar move by rival SAP, Oracle is delaying fee increases for one year that would have started in 2010 on some of its legacy applications. The delay applies to customers transitioning from the premier support plan to the extended program. Oracle customers are transitioned to the extended support program once their version of software has been available for five years. The Oracle E-Business Suite Release 11i10, JD Edwards 8.11 and Siebel Systems CRM 7.8 are now eligible for a year of waived fee increases. PeopleSoft 8.9 is eligible for two years of waived increases. Following the delay period, maintenance rates will rise from 22% to 24.2% for some aging ERP applications.

According to Bill McDermott, SAP President of Global Field Operations, SAP is raising annual maintenance rates from 17% to 22% in order to match market (Oracle) rates. SAP’s phased approach begins in 2010 when it elevates to 18.9% and will continue annual increases until reaching 22% in 2015. In a somewhat transparent effort to associate value with the increased cost, SAP indicates it will achieve ‘key performance indicators’ before each successive rate hike kicks in. The key performance indicators have yet to be identified.

According to McDermott, Oracle would never offer a conditions-based maintenance increase, “They can’t do it because they have a different business model,” he said. “If you listen to Oracle CFO Safra Catz, you hear her say Oracle is doing so well because maintenance fees are liquid gold for them. It’s liquid gold until a customer says, ‘What can SAP do? Let’s give SAP a call to see if they can do better.’”

While the metrics are unclear, SAP customers are hopeful for some true relief. “I will give SAP a ton of credit, because they listened to the feedback of their customers,” Dow Corning CIO Abbe Mulders said. “Enterprise support has been a very controversial issue over the last year, but SAP didn’t have to put those metrics in place. No one else in the industry today has any kind of measures on maintenance dollars.”

According to Harry Debes, people are stupid, on-premise software is like cocaine and the software as a service industry will be dead in two years. Surprisingly, these remarks are not from a graffiti painted boxcar, a radio shock jock or even the newest talent-starved reality show but instead from an out of touch CEO of a major enterprise resource planning software company.

In an August 2008 interview by ZDNet Asia, the now famous CEO of enterprise resource planning software maker Lawson Software clearly demonstrates why the old guard guard of ERP software makers were blinded by the SaaS market disruption and why the stagnant ERP software market is overdue for a new breed of customer-focused business software providers.

Questions along with Debes comments include the following:

Q: All the other big players are going on-demand. Is cloud computing the next big thing?
A: This on-demand, SaaS phenomenon is something I’ve lived through three times in my career now. The first time, it was called ’service bureaus’. The second time, it was ‘application service providers’, and now it’s called ‘SaaS’. But it’s pretty much the same thing, and my prediction is that it’ll go the same way as the other two have gone – nowhere. SaaS is not God’s gift to the software industry or customer community. The hype is based on one company in the software industry having modest success. Salesforce.com just has average to below-average profitability. People will realize the hype about SaaS companies has been overblown within the next two years. An industry has to have more than just one poster child to overhaul the system. One day Salesforce.com will not deliver its growth projections, and its stock price will tumble in a big hurry. Then, the rest of the SaaS industry will collapse.

Q: Won’t people avoid the mistakes of prior SaaS incarnations?
A: People are stupid. History has shown it repeats itself, and people make the same mistakes.

Q: But what about your competitors offering SaaS models?
A: Larry Ellison (CEO of Oracle) has the same perspective as I do. He accidentally funded the CRM product and NetSuite. He didn’t really mean to. They’ve had small successes but, overall, they’ve been spectacularly unsuccessful. And SAP’s Business ByDesign is a disaster. SAP said it would have 10,000 customers [for SaaS Business ByDesign] within a couple of years. And yet they have less than 100 today, after all that hype and marketing. We use Salesforce.com, and I like it. But I would’ve bought the product even if it was not SaaS. The success of Salesforce.com, in my opinion, has to do with their product being good, not because it’s SaaS.

Q: Theoretically, the business case for SaaS seems fairly straightforward. A: Yes, but because all your costs are up front, and your revenue is over a five year period, the more you sell, the more you lose. You don’t break-even till the four-and-a-half year mark, but here’s a bigger problem–there’s no guarantee that that customer is still going to be yours in four years’ time. Getting signed up as a SaaS customer is fast, but getting out is just as fast. Whereas traditional software is like cocaine–you’re hooked. It’s too difficult and expensive to switch providers once you’ve invested in one. If it were easier to jump ship, a lot of people would’ve hit the eject button on SAP a long time ago.

Well there you have it. Traditional software is like cocaine —buy it and you’re hooked.

Normally we ignore the self righteousness ramblings of an executive no matter how clueless or comical. However, the Debes’ comments underscore exactly why a new breed of ERP software vendors has seemingly emerged from nowhere, gained global market share and may be poised to displace several of the largest business software manufacturers in the world; a feat that only a few years ago would not have been taken seriously. However, in these last few years while entrenched enterprise software publishers SAP, Oracle, Microsoft and Lawson have cast doubt, injected fud (fear, uncertainty and doubt) and chastised the software as a service (SaaS) movement with ridicule, CRM software Salesfoce.com has become the highest growth business application provider in the world, ERP software maker NetSuite has reached the public markets and yesterday’s start-up SaaS ERP companies such as Intacct and Aplicor have each acquired thousands of customers around the world – all while Lawson’s stock lost about half its value since its IPO and since the release of SaaS ERP solutions approximately seven years ago.

Beyond casting himself in the same role as a cocaine dealer, Debes’ remarks clearly show a material lack of customer understanding, a blinding self absorbed righteousness, an il-advised defensive posture and the effects of a bury your head in the sand approach to business survival. Lawson customers and shareholders take heed.