Thursday, September 28, 2006

Rimini Street expands 3rd party maintenance for Oracle products

I interviewed Seth Ravin, founder of Rimini Street, today about his firm's efforts to expand their support offerings for Oracle's Siebel, PeopleSoft, and J.D. Edwards product lines.

I covered Rimini Street exactly one year ago, when the company was first founded to provide an alternative to Siebel's support organization. At the time, I predicted: "Oracle will downplay the existence of Rimini Street for now. But if Ravin's new firm starts to get traction, it wouldn't surprise me if Oracle threatens legal action."

So far, Oracle has indeed been acting as though it is unconcerned about Rimini Street. Ravin today said that Oracle has taken the high road--Oracle's co-CEO Charles Phillips says that it's good for Oracle customers to have choices. However, as Ravin points out, it would be awkward for Oracle to attack Rimini Street for providing third-party support for Oracle customers while Oracle itself is, at the same time, promoting its partnership with SYSTIME to provide third-party support for SAP.

Rimini Street Customer Base
Of course, in terms of size, Rimini Street is not yet a major threat to Oracle's maintenance revenues. The firm only employs about 30 people today, according to Ravin. He also indicated the number of clients, which he asked me to not disclose until his firm announces it at Oracle's Open World conference next month. Without giving the exact figure, let me say that it's not a big number. It comprises 60-70% Siebel customers and 30% PeopleSoft customers, with offerings for JDE customers just begun.

Although the number today is not large, it does include some very large companies--Fortune 500 firms. The conventional wisdom has been that third-party support appeals mainly to small companies looking to save a buck. But, as it turns out, large companies also want to save money--especially large companies that have heavily modified the vendor's software and have no plans to upgrade. Some of these companies are not willing to continue paying 22% of the sales price to Oracle for product upgrades that they are not likely to ever install. Also, having mature systems, they don't need Oracle's help desk support.

Retail, healthcare, and governmental organizations also seem to be receptive to Rimini Street's offerings--the last especially in cases where there are significant budgetary constraints.

Beyond the Traditional Support Contract
One interesting point: Rimini Street has been expanding its support offerings to go beyond what is typically offered in software maintenance contracts. The company is now offering support, not just for vanilla code, but for the client's own customizations. There are certain restrictions (e.g. the code has to be working in the client's production environment), but once the customizations are put under maintenance, Rimini Street guarantees that they will continue to work with whatever changes Rimini Street introduces to the code. The firm also provides certain support to ensure interoperability, data quality, and system performance--the kind of real-world problems that traditional vendor support contracts do not cover.

Actually, what Rimini Street is doing is really not so radical. It is really just a system implementation consulting firm, or a system integrator, that happens to sell its services under a service contract instead of a break-fix arrangement. It is not a software company. Ravin points out that in a perfect world, Rimini Street ought to be an Oracle partner. Just because they compete with Oracle for maintenance contract dollars shouldn't make a difference--Oracle competes with its partners all the time. Just ask any of Oracle's implementation partners how often Oracle Consulting competes with them for services deals.

As I've indicated in the past, it is the software vendors' own money grab that has opened the door for third-party support organizations, such as Rimini Street. Vendors have been treating their installed client base as a captive audience, jacking up support prices to provide revenue to fund the rest of their operations. This creates a value-gap that third-parties can fill by offering tailor-made services that meet the needs of the customer for significantly less money.

In the case of Rimini Street, contract prices start at about 50% of what Oracle charges. Then, if the customer is paying maintenance for products he has not implemented, or user seats that he is not using, the price drops even further.

It's hard to see what's wrong with this picture.

Related posts
Oracle faces threat to Siebel maintenance fees
SAP to provide maintenance for PeopleSoft products
Ellison threatens SAP regarding PeopleSoft support
High software maintenance fees and what to do about them

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