Enterprises have choices when it comes to software support and maintenance (S&M) providers. Several, less costly options exist for any company that is considering discontinuing S&M for an application. For more background on software maintenance and support, please see Will User Enterprises Ever Get onto an Easy (Support and Maintenance) Street?, Support and Maintenance: No Longer the Software Industry's "Best Kept Secret"?, What Is the Value Proposition of Support and Maintenance?, and What Are the Support and Maintenance Options?.
Tomorrow Can Wait, for Now
Enterprise software customers' awareness of alternative choices for ongoing S&M arrangements has, in particular, been the result of such providers as TomorrowNow. TomorrowNow is a wholly owned subsidiary of SAP. The company is based in Bryan, Texas (US), and became the third party support provider of S&M for the former PeopleSoft and JD Edwards products once these companies were acquired by Oracle.
Although TomorrowNow and SAP are currently involved in an alleged intellectual property misuse lawsuit with Oracle, we will not comment or speculate about these proceedings at this early stage. It is also difficult to say at this point whether the lawsuit will result in a major determent of customers opting for (defecting to) third party S&M providers.
Since its creation by former managers of PeopleSoft several years ago, TomorrowNow has, naturally, been largely focused on PeopleSoft products. In the last two years or so, the company has received considerable attention because of its offering of lower-cost support contracts to PeopleSoft customers. Specifically, the provider has been offering S&M at prices that are about half of what PeopleSoft would charge, and with the value proposition of a 24x7, 30-minute guaranteed response time (although the average response time has reportedly been less than 10 minutes).
Reportedly, nearly ninety Oracle JD Edwards enterprise resource planning (ERP) licensees worldwide have now switched maintenance contracts to TomorrowNow's third party service since it was first offered two years ago. TomorrowNow has grown surprisingly fast, now boasting nearly 250 customers, 10 offices around the world, and offering support in 9 languages across 35 countries. Also, beyond the once venerable JD Edwards World and JD Edwards OneWorld ERP systems, the company now covers Siebel and, most recently, the older Baan ERP system instances in Europe (the contemporary product is currently branded as Infor ERP LN).
TomorrowNow contends that the above existing customers will save enough money over several years to cover new software purchases when new software is truly needed. The provider owes this assertion to its halved S&M cost compared to Oracle's current pricing policy. As well, by the time these customers will need to purchase new software, SAP's and Oracle's next-generation, service-oriented products will be tangible offerings, as opposed to the vaporware these products are today.
The company also grants enhancements for all required regulatory compliance in the meantime, and also contends that these products now have even more functionality than these customers might need for a long time to come. If nothing else, that unneeded "shelfware" (software that is of little or no value to an enterprise while it languishes on the shelves) is more susceptible to application erosion for not being used than to becoming obsolete. TomorrowNow claims to have delivered more than 1,000 fixes and 500 tax updates around the world. Furthermore, the provider employs veteran software engineers with averages nearing a decade of experience on Siebel, JD Edwards, and PeopleSoft applications.
The major premise behind TomorrowNow's value proposition is that most user enterprises seeking non-cutting-edge solutions should stay on the sidelines until future software platforms are stable and proven. To that end, these user enterprises should avoid adopting unproven technology before broad market adoption. They should pay only for necessary support (and not unneeded product development) while concurrently (and deliberately, at their leisure) evaluating new market entrants that may provide better solutions over time. By avoiding the adoption of technology for technology's sake, such enterprises will maximize the return on current software investments until next-generation solutions are viable and present a strong business case for transition. For more information, see Enterprise Software Service and Maintenance Alternatives.
While the likes of TomorrowNow can boast install bases that barely make a dent in Oracle's install base, larger vendors are taking note of these new "nuisances," if not "shaking in their boots." Even SAP and Oracle are now offering programs that include discounted maintenance programs to each other's customers. Logically, however, they do not offer such programs to their own customers.
Today, owing to the acquisition of TomorrowNow early in 2005, the SAP offering includes maintenance and software support for PeopleSoft, Siebel, and JD Edwards solutions through the TomorrowNow division. The offering was initially directed at companies that are already joint SAP customers, but was recently extended to all customers of these three product lines (see Competition Heats Up in ERP Market: Oracle Merger, and SAP and Microsoft Reacts).
Demystifying Giant Vendors' Ploys
It is certainly not too unexpected that, as a wholly owned subsidiary of SAP, TomorrowNow has been focusing on poaching Oracle-owned application users (with the exception of Baan, now under Infor) under the guise of SAP's Safe Passage program. Not to be outdone by the archrival, and, according to Oracle Announces Premier Support Capabilities For SAP R/3; Takes One-Stop Support to the Next Level, responding to customer demand for Oracle to take on more support responsibilities for the broader ecosystem of Oracle-based information technology (IT) systems, and leveraging its Oracle Support organization, the vendor announced mid-2006 that in coordination with its partner, SYSTIME, it will provide S&M for SAP R/3 applications by extending its "One Stop Support for ISVs" program to include partners that provide R/3 support services.
The rationale thereof is that many SAP R/3 customers, faced with looming de-support deadlines as early as December 2007 and significant license charges for upgrades, are looking for new alternatives to support their current R/3 implementations, or alternative application platforms altogether. A majority of these customers are Oracle customers, including many [that are] already leveraging Oracle Fusion Middleware, which could enable organizations to easily move to Oracle Fusion Applications down the track.
Reportedly, 94 percent of R/3 customers have not upgraded to new SAP versions, and the vast majority of those companies run Oracle as well. There are also many customers who have purchased mySAP licenses, but have not yet installed them, and Oracle offers up to a 100 percent license credit for SAP R/3 customers that switch from SAP to Oracle. Following on the announcements of the Oracle Lifetime Support Policy and Applications Unlimited, which provide for continued service and development support for existing Oracle Applications product families, Oracle is hereby providing tools for its partner ecosystem to offer the joint customers support for their SAP applications, since many times they [coexist] with Oracle Applications.
The One Stop Support program is designed to provide qualified independent software vendor (ISV) partners with a focused support infrastructure and better access to Oracle engineering resources. Now, in addition to the ability to provide seamless support of their own ISV application and the Oracle technology infrastructure it runs on, the idea for Oracle partners is to be able to provide customers with service for SAP R/3 applications that may [coexist] with their other Oracle-based applications.
As part of this effort, Oracle will establish a dedicated Solution Support Center for SAP R/3 support providers to assist them in supporting SAP R/3 applications running on Oracle databases. SYSTIME, a Certified Advantage Partner in the Oracle PartnerNetwork (OPN), and a global business solutions provider delivering high-quality, reliable software services for the past [thirty] years, has been selected to provide SAP R/3 support for customers running on Oracle Databases. These support services and solutions range from basic help desk to comprehensive support, including running full enterprise R/3 system activities, for up to 55 percent less than the same support services from SAP.
Additionally, Oracle's recent announcement that it will seriously undercut Red Hat's maintenance and support prices for Linux shows how tempting a competitive weapon such as a discounted S&M program can be. Nonetheless, it is a sword that cuts both ways, and by preying on competitors' install bases, vendors hereby stand convicted of a sort of double standard: while these vendors would not want to fall victim to such a ploy, they have no problem using this tactic against the competition. Given the expression "what is good for the goose is good for the gander," it is these large software vendors' own "money grabs" that have opened the door for third party support organizations. If not wide open floodgates, then there will at least be some leaky valves and trickling S&M revenue streams.
Sure, no one here is deluded to think of RiminiStreet, TomorrowNow, netCustomer, Versytec, or Conexus Partners as the next market "shakers" given that their estimated market opportunity is but a small percentage of the larger vendors' install bases. Still, there should be plenty of "fish" left to "catch" for these third party service providers, while the vendors will soon take note and make even more appropriate counteroffers for wary customers. Unfortunately, this emerging S&M option is typically only available to companies that use products for the upper end of the market, whereby these same user companies are more likely to have sizeable IT staffs, providing yet another option for maintenance.
The real concern remains for the small to medium enterprises (SMEs) that have purchased packages from second tier software vendors (that is, Infor, Lawson, CDC Software, IFS, Epicor, QAD, etc.). No third party options are yet available because the marketplace is not big enough to make such options economically viable. Still, no major vendor will be able to afford complacency for long, and difficult, probing questions about existing S&M arrangements will inevitably come its way. This is especially true in light of the emerging boutique of S&M solution providers for multiple enterprise products, led by the likes of Precision Solutions Group Inc (PSGi).
Conclusion and Recommendations
The idea here is not to point fingers or to name anyone a good or a bad guy. Rather, the aim is to make existing and prospective enterprise applications users aware of their increasing choices and prerogatives—and having more choice or personalized attention can only be a good thing. How long, how much, and for what should user enterprises pay for maintenance and support? No single answer is universally right for all situations. Each user enterprise has to consider the value it receives from the various components of the maintenance agreement, the cost of the agreement, and what alternatives are available to it.
When considering its S&M options, an enterprise should always start by calling in its current vendor to discuss the enterprise's concerns and considerations, thus giving the vendor the chance to explain its side of the story or to improve the value proposition. After all, users should want their vendors to thrive and to be able to keep their products up-to-date in terms of the latest developments. But users should be able to better (re)assess their ongoing relationships with their vendors.
The devil is, as usual, in the details, and every user company should conduct a thorough study to determine whether ensuring its peace of mind is worth the user opting for the entire package, given that some of the above elements of S&M programs may be available in a piecemeal fashion elsewhere (see Analysis: Enterprise Applications Giant Introduces a Mid-tier Support Choice).
Generally speaking, there is hardly a valid reason why prospective and existing users should not challenge their software vendors to better address some of their legitimate requirements (that is, for more certainty and for tailored attention as integral parts of the administration and deployment of their applications [see Analysis: Enterprise Applications Giant Introduces a Mid-tier Support Choice]).
Like with politicians, dominance leads to complacence and arrogance, and a strong opposition should remedy the situation toward a mutually acceptable compromise. Smart companies are investigating all of their software S&M options. Alternative software S&M is not for everyone, but it seems to be a logical option for technologically conservative (albeit savvy with the current technology stack) companies that do not need all the upgrades. Such enterprises are likely to achieve longer product release life spans, and thus will be able to drive a higher return on investment (ROI) out of existing enterprise software investments. By doing so, these companies are creating opportunities to reallocate annual software maintenance savings to other organizational needs. We believe it is important for users to have all the facts in order to make the right decisions for their organizations.
Lately, a few fractures have appeared in the business models of many vendors, whereby these vendors have been locking customers into long-term maintenance contracts, and users should leverage these fractures. A brand new prospective user looking to purchase a system should know that its negotiating power is at its greatest before the contract is signed.
Maintenance fees as a percent of the license cost should also be made negotiable rather than be taken for granted by vendors. Vendors' margins of 90 percent or so are ripe for bargaining by savvy and aggressive buyers. Bargaining should include asking for a lower percentage figure, for a piecemeal approach, or for maintenance fees to be based on the software license's discounted price, not its list price. Prospective users should make sure that maintenance fees are then locked in and that the vendor is not allowed to arbitrarily increase fees each year (except for justifiable, inflation-based increases).
Furthermore, the time has come for users to ensure that they are not buying functionality they do not really need, even if offered a significant discount on additional modules by the vendor. There is no such a thing as a "free lunch," and if something looks too good to be true, it usually is. In other words, if the vendor is charging maintenance fees based on the list price of those modules' licensee fees, the user company will then likely be paying for software that it might not even implement. After all, if some functionality is likely to be needed at a later stage, it should be bought later, in smaller increments. That will encourage the vendor to ensure the user is successful with the modules that it does buy. Plus, every purchase is an opportunity to renegotiate terms and structure, since it is much easier to get the vendor's attention when someone is likely to spend money.
As for existing customers, while their negotiating power may appear to be weakened, they still have some viable options. First, companies should take stock of their existing IT assets and analyze them to discern whether these modules are truly used or if they are mere shelfware. For the unused parts of a package's functionality, the options are to phase out support, or to seek a software as a service (SaaS) or open-source alternative. Second, all contracts and support life cycles should be closely reviewed and their values ascertained, including whether the enterprise is using all of the user seats that it originally purchased. While vendors will shout "blue murder" at an enterprise that has exceeded its user count, these same vendors will probably not be that vocal if they are left with some excess seats.
Customers that plan to stay on vendor support programs should look to align and consolidate multiple agreements on a common renewal date, and drop support on unused products. Menu-based, "pick and choose" S&M contracts will appeal to those customers that have limited needs for certain standard services. Another option is to separate upgrades from other S&M items, and charge for these items separately as needed, which is a widespread practice for many personal computer (PC) software packages. Flexible and congenial vendors should be given preference, since any user enterprise will be hard-pressed to forecast its license and functional requirements accurately.
This concludes the series Will User Enterprises Ever Get onto an Easy (Support and Maintenance) Street?