Despite SAP AG's announcement toward the end of last year that it would seek strategic options for its TomorrowNow business — including a possible sale of the unit — the market for third-party maintenance service is alive, well, and growing, according to analysts and vendors in the space.
"There's still a lot of interest in third-party-provided maintenance, particularly among companies that are looking to consolidate multiple applications and need a lower-cost maintenance option to tide them over for the next two to five years," says Ray Wang, an analyst at Forrester Research. "Also, as we head into what looks like a recessionary cycle, it makes sense for companies to save money wherever they can, including enterprise software maintenance."
Wang estimates that seeking lower-cost maintenance from third-party providers is a preferred interim strategy for 10% to 15% of enterprise software users. The percentage is growing for several reasons, he says. Many enterprise systems deployed in the run-up to Y2K are now reaching end-of-life status, and their users are implementing interim strategies while deciding when and how to replace those systems. The appearance of a new generation of SOA-enabled enterprise applications also is encouraging transitions to new enterprise systems, as is the ongoing consolidation among enterprise software vendors.
At the same time, Wang says, managers see the use of third-party maintenance as a way to reduce overall IT costs. Third-party maintenance providers generally charge half of what software vendors charge for maintenance, which typically covers patches and some upgrades and training.
SAP's decision to consider a sale of TomorrowNow, Wang says, owes more to legal and management problems than to market problems. SAP bought TomorrowNow, the third-party maintenance market-share leader with an estimated 250 to 300 customers, in early 2005. SAP positioned TomorrowNow as part of a program, called Safe Passage, that was designed to attract users of Oracle and other applications to its platform.
Last year, however, Oracle slapped SAP with a lawsuit claiming that SAP used the unit to illegally download proprietary information from Oracle's support Web site. SAP officials have admitted limited culpability in the case. In November 2007, the company announced a major management shuffle at TomorrowNow, with CEO Andrew Nelson being replaced by Mark White. At that time, SAP also said it was considering a sale of TomorrowNow. A trial on Oracle's charges has been set for early next year. (SAP declined to discuss its plans for TomorrowNow.)
SAP's statement that it may sell has undermined TomorrowNow's position in the market, says Seth Ravin, CEO of Rimini Street Inc., which sells third-party maintenance services to users of Oracle applications Siebel, PeopleSoft, and JD Edwards.
"If you put yourself in play, it's hard to do well in the marketplace," Ravin says. "These are long-term deals. Nobody makes a move [to third-party maintenance] for 12 months. Customers want to know you are going to be around."
Ravin says Rimini Street has won several deals over TomorrowNow since SAP's announcement. Overall, he says, Rimini Street's 2007 fourth quarter was the company's biggest to date.
"The state of the market is healthy, alive, and growing," insists Ravin, who is expected to announce early in 2008 Rimini Street's expansion into additional product lines.
Despite signs that the third-party maintenance market retains momentum, no major vendors have entered the space since SAP's purchase of TomorrowNow. Analysts attribute that, in part, to reluctance on the part of many established IT services partners to ruffle the feathers of big ISVs such as SAP and Oracle.
"The big system integrators and consultants have much more to gain by being aligned with the ISVs than competing with them on maintenance," says Dana Stiffler, an analyst at AMR Research.
This article originally appeared in the February 2008 issue of Managing Automation.