Any idea how much of Oracle and SAP’s revenues come from maintenance and support on their products? 50%! Yes, that’s right, about half. Oracle reports 90% profit margins on their maintenance and support services, only a fraction of which actually gets ploughed back into product development.
It is no wonder that customers of Oracle and SAP are turning to alternatives.
Third Party Support Providers
One of the alternatives gathering pace in recent years has been the emergence of third party support providers. Leading the pack is Rimini Street who can support SAP’s Business Suite and BusinessObjects software and Oracle’s Siebel, PeopleSoft, JD Edwards, E-Business Suite, Oracle Database, and Hyperion software. Rimini Street is followed by Spinnaker Support and some smaller niche players like Alui, Support Revolution and CedarCrestone.
Savings from moving from a proprietary software vendor to a third party alternative are substantial. Most third parties claim to be able to cut maintenance and support costs in half. However, any decision to move away from Oracle or SAP needs to be considered in the context of a long-term strategy for the software concerned, and the savings need to be balanced against the risks. The following points should be taken into consideration:
You cannot simply pick and choose which products you take out of support with the software vendor. Both Oracle and SAP will attempt to increase the price of maintenance and support on the existing products to compensate for the products you are taking out. You may end up paying the same for a much smaller product stack.
If you need to regularly upgrade to the latest versions of the software, then a third party support provider is probably not for you. You may have business reasons that drive you to upgrade regularly, or you may have a rapidly changing IT environment which requires upgrades to the SAP and Oracle software to remain compatible.
Moving to third party support for a short period does not make much sense. SAP and Oracle will charge back maintenance and reinstatement fees which are often more prohibitive than purchasing entirely new licences.
Regularly updating versions is becoming less important given the stability and broad functionality of SAP and Oracle software. Many organisations are opting for a long-term strategy along the following lines:
keep the environment relatively stable with no major upgrades to the operating system or the software stack;
use a third party support provider for a 5 – 10 year period benefiting from improved support and service levels at half the previous cost;
use part those savings to carry out a replacement of the software at the end of that period selected by a competitive sourcing process to obtain the best price/value solution to support the business.
A strategy based on the above is especially suited where the software is being phased out – perhaps due to a merger or acquisition.
Rimini Street offers superior services levels to those of SAP and Oracle and the service is much more personal. Customers also benefit from stable and predictable costs. Third party support providers will support existing versions of Oracle and SAP software for long periods, therefore customers avoid forced upgrades or expensive extended support contracts.
In addition, third party support providers are much more willing to support customisations of the SAP and Oracle software. The software vendors, in their obsession with driving out costs, often only support the standard products.
IP Issues and Litigation
In 2010, Oracle filed a lawsuit against Rimini Street claiming that by accessing Oracle’s systems to download maintenance updates, Rimini Street infringes on Oracle’s intellectual property. Whilst these legal proceeding drag on, most commentators agree that third party support is here to stay and that there is little Oracle and others will achieve by attempting to delay this through litigation.
In fact, in November 2013, Rimini Street announced that it was moving forward with an initial public offering of shares – a sure sign of the company’s confidence in the face of legal threats the Redwood software giant.
Is it for you?
Maybe not, but you should certainly do the analysis. As in all supplier relationships, improving your BATNA (best alternative to a negotiated agreement) can bring much needed leverage to your negotiations with the software vendor. The market for third party support is certainly one to watch.
Image credit: “step 5” by Robert Couse-Baker, creative commons, Flickr.com