I conducted a phone interview last week with Andrew Nelson, founder and CEO of TomorrowNow, a third-party maintenance support provider for Oracle's PeopleSoft, J.D. Edwards, and Siebel products. I've mentioned TomorrowNow in the past, but I was interested in how its business has been progressing in the year and a half since it was acquired by SAP.
TomorrowNow has not yet announced its third-quarter results, but Nelson indicated a major increase in new customers: over 200 today, with 60% running PeopleSoft, 30% on JDE, and 10% with Siebel (its newest support offering). The firm plans to offer support for Baan (now Infor's ERP LN) beginning in January 2007, and has already signed up some customers for this offering. Over the past year, TomorrowNow has built out its worldwide support organization to Europe, Asia, and Australasia, in addition to its base in the U.S.
Target Market
Although TomorrowNow markets its services for all users of PeopleSoft, JDE, and Siebel, in my view there are a few key segments where the firm's offerings are most attractive. Nelson confirmed that one sweet spot is companies that are running SAP globally but still have instances of PeopleSoft, JDE, or Siebel. These firms, which may be looking to standardize on SAP, have little reason to stay on Oracle support contracts, and they welcome a lower-cost option that is backed by a major player such as SAP.
Another sweet spot is companies that have many modifications and do not intend to upgrade Oracle's Fusion product. In Nelson's view, such customers are paying maintenance fees to Oracle (at 22% of their license cost) to "prefund Fusion," even though they have no intention to upgrade to Fusion. Why shouldn't they save 50% or more on maintenance fees by going with TomorrowNow?
Furthermore, TomorrowNow actually supports the customer's modifications to source code as part of the support contract. Oracle's support agreements, in contrast, only provide support for original source code.
A Threat to Oracle?
The short answer is no, and yes. On the one hand, even with TomorrowNow's apparently prosperous third quarter, the firm's scale is still small. Its 200 customers are a drop in the bucket in terms of Oracle's installed base. Its 200 or so employees are a small workforce compared to the thousands in Oracle's support organization. The bulk of Oracle's customers are fearful of cutting off maintenance support from Oracle. As discussed earlier, TomorrowNow's greatest appeal is to customers that are either planning to migrate away from Oracle's products or have so highly modified their systems that they have no plans to upgrade.
On the other hand, third-party support providers play an important role in tipping the balance of power a little bit back toward the customer. It's no secret that the major software vendors derive a healthy part--sometimes even the bulk--of their revenue from maintenance agreements. It's something of a captive relationship. Once a customer has implemented a major enterprise system, it's not an easy matter to change systems. If the software vendor is the only source of support, the vendor can almost name its price and the customer has little choice except to "go naked" (drop support).
But the existence of third-party support organizations such as TomorrowNow gives customers a much-needed choice, which pulls the balance of power back toward the customer, even if the customer does not choose to go with the third party.
As the enterprise software market continues consolidation, there are many good packages that are being lost in the portfolios of the remaining vendors. Infor's collection of 50-plus systems is an extreme example. Vendors enjoy a continual revenue stream of maintenance dollars from the installed base of each of these systems. But if they get greedy, it's likely that we'll see many more providers such as TomorrowNow stepping in to deliver more value at a lower price.
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