In the mid-2000s there was a beginning of public discussions and a surge in market awareness about support & maintenance (S&M) alternatives for users of enterprise applications. Companies in the market for enterprise software S&M services, like nearly every other market in the world, has responded to monopolistic-like pricing and profit margins by seeking choice. Enterprise software licensees now have a choice of annual support providers.
Just like many drivers choose to take their cars to a certified local mechanic, and not the authorized dealer for better value and more responsive service, maintenance, and repair, many software licensees are choosing the value and responsiveness of vendor-unaffiliated third-party support providers. These vendors’ value proposition is to replace annual support from, say, Oracle and SAP, with a support program that enables Oracle and SAP enterprise resource planning (ERP) licensees to save up to 50 percent on annual support fees and up to 90 percent on total support costs over a decade.
Third-party support clients can remain on their current software release without any required upgrades or migrations for at least 10 years, and thus save their money for major new software investments and innovation. For more information, see TEC’s related article series from early 2007.
Who Are the Third-party S&M Providers?
A crop of third-party S&M service providers emerged at that time (in the mid 2000s), but they have had differing successes and outcomes. TomorrowNow, an unsuccessful ploy by former SAP executives to lure Oracle’s ERP customers to switch over to SAP ERP once their third-party support plans expire, fizzled out in an infamous and tough court case verdict in late 2010, while netCustomer seems to be getting by with its focus on the Oracle PeopleSoft install base. So is Precision Solutions Group Inc. (PSGi), which recently expanded service offerings to all IBM System i-based business applications.
On the other hand, Rimini Street and Spinnaker Support have been doing quite well. For example, in mid July 2012, Rimini Street announced healthy Q2 2012 results that were the ninth consecutive quarter of record-breaking growth numbers. With the strongest second quarter sales performance in the company history, the results continue to demonstrate the market’s acceleration towards Rimini Street’s proven third-party support model. A few highlights from Rimini’s quarter are as follows:
Now with nearly 500 clients, including 58 of the Fortune 500 and 14 of the Global 100, Rimini Street continues to gain strong market traction around the globe and seems positioned for hefty growth in the second half of 2012.
For its part, Spinnaker Support, the leading global provider of third-party maintenance, co-sourcing, and consulting services to the Oracle JD Edwards as well as the acquisition of Versytec, a leading provider of JD Edwards third-party maintenance.
Spinnaker Support closed client transactions in its flagship JD Edwards as well as in the very recently introduced SAP product lines across the Americas, Europe, Middle-East, Africa (EMEA), and Asia-Pacific, and delivered more than a 55 percent increase on a year-over-year basis. Revenue from the first half of 2012 exceeded company projections and the second half is expected to yield similar results.
Are Big ERP Vendors Out of Touch?
These bullish providers’ claim is that ERP software licensees are frustrated with the lack of value they receive for their hefty annual support fees. Software vendors can make more than 90 percent profit margins on maintenance fees, yet their licensees are disappointed in the value they receive, and in many cases, they don’t see value in expensive incremental upgrades.
In addition, the software vendor support model is outdated and in many ways irrelevant for today’s enterprise software. For example, 65 percent of the support issues that Rimini Street receives are related to customized code. These are the issues ERP vendors don’t typically support in their standard support program. Conversely, Rimini Street fully supports customized code just like the standard “vanilla” code.
Now, in private and public conversations, big ERP vendors tend to be dismissive of the potential threat by third-party S&M providers. At most, they will admit to a nuisance factor, but their belief is that their customers’ need for innovation (i.e., cloud computing, mobility, analytics, in-memory databases, social networking, etc.) and vertical industry enhancements will keep most of them motivated to upgrade and remain on maintenance contracts.
Even though Oracle’s mutual lawsuit with Rimini Street indicates that the situation might have come too close for comfort for the ERP giants, there are still examples of vendors that attempt the proverbial stick instead of the carrot to push customers to upgrade. Namely, SAP is essentially soon to discontinue support for some older product releases (i.e., no regulatory updates, no new fixes, etc.), which means that a customer would be on their own and soon out of compliance, unless of course the company migrates to a release supported duly by SAP, or perhaps switches to another ERP provider or third-party service provider. Below is SAP’s official explanation about the company’s de-support of some products:
“You are probably referring to the change in maintenance phases for older releases — R/3 4.6c, R/3 4.7, ERP 2004 (ECC 5.0) — that is scheduled for March of 2013. SAP does not end maintenance, but customers on these older versions enter Customer Specific Maintenance. This is somewhat similar to what Oracle does, under the company’s Sustaining Support program. During customer-specific maintenance, the following restrictions in the scope of service apply:
- No delivery of legal changes
- No delivery of Support Packages
- No guarantee for technological updates, for example:
- No new kernel versions for the support of new database versions and operating system versions
- No new patches for non-ABAP components (for example, Java patches or front-end patches)
- In some cases no direct upgrade to a current release. In this case, the upgrade to a current release must be performed in several steps.
- No support of new interfaces
- Processing of problems is customer-specific. This means that for known problems, the solution of problems is still covered by the maintenance. However, the customer may have to pay for the expense of solving new problems not yet known to SAP. This applies to customer-specific enhancements in particular.
- The service level agreements (SLAs) for initial response times and corrective measures are no longer delivered.
- The remote support for the evaluation of the latest Enhancement Package is no longer provided.”
Thus, after perusing this somewhat strong statement by SAP, the following question crossed my mind by default: how does SAP convince these enterprises that they should upgrade to ECC 6.0, ECC 7.0 (or whatever is the latest release) rather than take the sweetened S&M deal by Rimini Street, Spinnaker, etc.? For many technologically conservative customers the value of spending potentially millions of dollars to move to ECC 6.0/ECC 7.0 might not be worth the cost/risk.
What Are Other S&M Options (and Approaches)?
Here’s a quote from Ton Dobbe, VP Product, UNIT4 on the S&M topic:
“UNIT4’s ‘Route 66’ user independence strategy of releasing new “Milestones” for its Agresso Business World (ABW) ERP solution follows the following maintenance schedule:
- Every milestone is supported for three years
- Experience packs are relying on a particular milestone – and therefore also typically have a three year life-span
Fact is that it doesn’t require a big budget to go from one Agresso release to the next, and competitively, UNIT4 upgrades are a fraction of the cost of a similar actions with competitors, which we frequently told prospects are priced at $100,000 – $1 million or more. UNIT4 release upgrades, due to the underlying strength/capabilities of the VITA architecture are often done internally by our customers’ IT departments, and when contracted externally, typically run $10,000 – $50,000; a fraction of typical SAP, Microsoft Dynamics, Oracle, or similar upgrades. For both UNIT4 Agresso and CODA financials, there is never a requirement to completely re-implement, as we have been told by various analysts and prospects that is the norm for our competitors.”
What if SAP or Oracle customers opt for a vendor with an S&M approach similar to UNIT4 instead of staying with their current vendor or moving to a third-party S&M provider? In addition, what about cloud ERP options, such as NetSuite, Plex Online, Workday, Accumatica, etc., where support, maintenance, and upgrades are non-issues whatsoever?
To be fair, in many non-service and non-public sector sectors, UNIT4 does not provide as complex and robust a full ERP offering as do Oracle and SAP, and one could see how the complexity of a UNIT4 upgrade or application of a service pack could be much simpler. One should note that while Rimini Street supports companies of all sizes, most of its clients are large, complex businesses that need the depth of Oracle and SAP ERP.
Rimini estimates that it has approximately 50,000 prospects in its target addressable market for the products they support today, representing about $12 billion in support fees. I think the company will be OK if a few customers move to other systems (and it could support them during the transition anyway!). On the other hand, if an enterprise opts to switch their human resource (HR) or financial management system to a software as a service (SaaS) option like, say, Ultimate Software, Workday, or FinancialForce.com, then, at least for now, third-party S&M providers would not pursue any sort of support plan relative to these cloud solutions. Support is essentially bundled into the subscription fees for SaaS vendors.
However, there is no SaaS solution yet that covers the scope of SAP ERP or of Oracle E-Business Suite (EBS), and will take many years to evolve (if at all). Moving to the cloud is a reimplementation and a huge risk anyway. Feature gaps are likely and you just cannot justifiably fill a gap with a host of customizations. Indeed, what most customers are doing is using Rimini Street to provide support for the full ERP suite, and then using some of their savings from third-party S&M (over years) to fund innovative SaaS, mobility, or “big data” projects around the edges of their ERP system.
To Upgrade or Not, That’s the Question
Generally speaking, there is hardly any valid reason why all prospective and existing users should not challenge their business software vendors to better address some of their legitimate requirements for more certainty and tailored attention as an integral part of the administration and deployment of their applications. Dominance leads to complacency and arrogance for software vendors as well as politicians, and a strong opposition should remedy the situation towards a mutually acceptable compromise.
Smart companies are investigating all of their software S&M options. Third-party S&M is not for everyone, but it should be a logical choice for technologically conservative (albeit savvy on the current technology trends and proven solutions), companies that do not need all of the upgrades. It is important for users to have all the facts in order to make the right decision for the organization.
A general rule on third-party S&M vs. upgrade is that if there is enough value, then you should upgrade for sure. If there is no sound business case for an upgrade and S&M contracts are costly, third-party S&M is always an option. In addition, if you have many seasoned and skilled programmers in your IT department, you might also consider employing in-house support.
Companies should take stock of their existing IT assets and analyze them to discern whether all of those acquired modules are truly used or some of them are mere “shelfware.” For the unused parts of a package’s functionality, the options are to phase out support or seek an inexpensive low-touch cloud or open-source alternative.
Dear readers, what is your stance towards upgrades and S&M, and do you consider them in your current software evaluations and vendor (re) negotiations? We would love to hear about your good/bad experiences with ERP vendors’ support services as well as with some third-party S&M service providers.
While it isn’t here yet, I think that something the ERP industry will need to look out for in the near future is open source software. That could potentially change a huge amount, especially for smaller third party companies.
Very interesting topic, please keep me posted
I agree that the support is crucial to system success. Good coverage of topic. just read white paper on ERP’s that your readers might find useful. http://bit.ly/MpQdeq
Excellent article. We got our CSP reduced by half just by asking!
“Software vendors can make more than 90 percent profit margins on maintenance fees, yet their licensees are disappointed in the value they receive, and in many cases, they don’t see value in expensive incremental upgrades.”
Clearly there is a disconnect and 3rd party vendors are taking advantage of that fact. Having the best software is great, but if you don’t know how to properly leverage it and can’t get the support you need than it isn’t really doing all that much for your business.
[…] So sieht es auch Predrag Jakovljevic, Technologieanalyst beim Technology Evaluation Center (TEC): “Softwareanbieter machen allein mit Serviceverträgen bis zu 90 Prozent Profit. Viele […]