Editorial from the April 2008 issue of Managing Automation

Third-Party Influence

by Joshua Greenbaum, Contributing Editor

Is there still a market for third-party maintenance? By the time you read this, there may have been a resolution to the court case between Oracle and SAP regarding SAP's TomorrowNow subsidiary, but I doubt it. And even if the court case is settled and TomorrowNow is sold off, the larger question of whether using third-party maintenance providers is a good idea will still be unresolved.

So let me try to resolve it here and now: If you're a shareholder in a large enterprise software vendor, third-party maintenance is a very bad idea. But if you're a customer, third-party maintenance is an excellent idea, and a service that you should have the right to use — legally and morally ‐ even if you don't think you'd ever want to do it.

Though the lawsuit — which alleges that TomorrowNow employees stole Oracle's proprietary support materials — has largely obtained its twin goals of humiliating SAP and shutting down TomorrowNow, it has failed to kill off the third-party maintenance market. Indeed, if anything, the court case has the potential of making third-party maintenance a major new force in the market, to the detriment of Oracle's finances and, ironically, SAP's as well.

The evidence that customers still want to pay less than the 22% they fork over to their vendors is hiding in plain sight all over the market. The most direct evidence is the continued success of Rimini Street, which was founded by Seth Ravin, the founder of TomorrowNow, and has largely copied its business model — minus the direct attacks on Oracle. Even with the lawsuit and the pall of uncertainty that Oracle would like to cast over the whole concept of third-party maintenance, Rimini has been growing rapidly, in part, according to CEO Ravin, by taking over TomorrowNow's customer base.

Rimini's growth speaks volumes about customer demand for this option. While I would say that most customers should stay on vendor maintenance in order to meet their long-term strategic goals for technology innovation, the cost for many is onerous. The facts that vendor margins for maintenance approach 90% and Oracle's applications maintenance revenue outstrips license revenue almost two to one (SAP's maintenance revenue is roughly 10% more than its license revenue) say a lot about how much customers are paying to pad vendors' profitability every quarter.

What's needed is a compromise, but any possible resolution of the Oracle vs. SAP lawsuit won't be the way to reach one. Customers that need maintenance shouldn't be asked to prop up their vendors' profitability to such an extreme, and those that don't want maintenance should be free — as in "it's a free market" — to pick an alternative provider without worrying about a visit from a process server. It's that simple.

SAP started the ball rolling with TomorrowNow, and unfortunately it seems hoist with its own petard on this one. But third-party maintenance is a modern Pandora's box: Once open, it really can never be shut again. It's time the industry addressed this problem head-on by looking at ways that the maintenance burden can be reduced. Hiding behind a lawsuit or a divestiture will only stave off the inevitable customer revolt — until it's too late to do more than capitulate to the inevitable. There has to be a better way.