Monday, May 05, 2008

Rimini Street to provide third-party support for SAP

As if it didn't have enough on its plate providing third-party support contracts for Oracle customers, Rimini Street is getting ready to do the same thing for the SAP installed base.

So says a press release from Rimini Street this morning from SAP's Sapphire conference in Orlando. (The release is not yet posted on the firm's website.) Rimini Street claims much interest from SAP's installed base in having an alternative to SAP's support contracts.

Vendors' money grab
One major driver in the interest from SAP clients is SAP's increase in maintenance fees. Formerly an annual charge of 17% of the client's software license cost, software maintenance pricing now risen to 22%, which just happens to match Oracle's pricing.

From SAP's perspective, I suppose it felt it was leaving money on the table. From the client's perspective, however, it's hard to understand why it is necessary, in essence, to completely repay for their system every four years.

The ability of Oracle and SAP to get away with charging 22% for software maintenance shows how much pricing power is in the hands of the major vendors. They may do whatever it takes in terms of initial license fees to win the deal, knowing that once they are the incumbent, the 22% is a recurring revenue stream. More and more, for these two players, ERP is all about maintenance revenues. I don't know of any customers that feel this level of pricing is justified.

The business case for third-party support
Rimini Street, which claims its revenue quadrupled in 2007, is taking advantage of this gap between the vendors' price and value delivered. Ironically, SAP itself tried to exploit the same situation by buying TomorrowNow, which offers third-party support for Oracle products. (In another twist, TomorrowNow was co-founded by Seth Ravin, the founder of Rimini Street). But Oracle was able to, essentially, shut down TomorrowNow's business by suing SAP and TomorrowNow last year for "massive theft" of Oracle's intellectual property. That case is still in the discovery phase.

How long can Rimini Street avoid being in the cross-hairs of Oracle (and now SAP)? I have no doubt that the firm has plenty of legal advice and all the necessary policies, procedures, and practices in place to defend itself in the event of a lawsuit similar to that brought by Oracle against TomorrowNow. At the same time, you can't stop someone from suing you.

I regret that Oracle's legal action against TomorrowNow is probably scaring away other potential new entrants into the third-party maintenance business for SAP and Oracle. That's too bad. A thriving third-party support industry would go a long way toward keeping the vendor's money grab in check.

Related posts
Rimini Street says no thanks to SAP and TomorrowNow
Court orders mediation in Oracle vs. SAP/TomorrowNow case
Oracle wants to broaden lawsuit against SAP and TomorrowNow
SAP lists TomorrowNow as a discontinued operation
TomorrowNow and the future of third-party support providers

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