Enterprise System Spectator blog: ERP and enterprise system vendor evaluation, selection, and implementation.

The Enterprise System Spectator

Monday, May 11, 2009

Rimini Street, SAP, and the future of third-party maintenance

At last year's SAP SAPPHIRE conference, Rimini Street indicated its intention to expand into third-party maintenance for SAP customers. Now, right on schedule, at this year's SAPPHIRE event, Rimini Street is announcing the availability of its support services for SAP customers, building on its similar offerings for Oracle's J.D. Edwards, PeopleSoft, and Siebel customers. It's a good move for Rimini Street and hopefully provides further validation for the third-party maintenance model.

I spoke with Rimini Street's CEO, Seth Ravin this morning about the launch. Seth indicated that his firm already has several SAP customers on board, with strong interest from many others driven by SAP's increasing prices for its own maintenance program. SAP has since backtracked on its forced march to Enterprise Support, but its original stated intention to increase maintenance fees to 22% of original license cost appears to have been enough to start SAP customers looking for alternatives.

The mood is nowhere better evidenced than by the response of German SAP users. Until now, few competitors dared challenge SAP on its home turf. But that changed when 30 CIOs invited Rimini Street to present to them in Berlin, according to Ravin. Rimini Street already has several of them as early adopters of its SAP support services.

Spread Thin?
Seth assured me that his resources are adequate to support multiple ERP vendors. Each product is supported by a separate leader and dedicated resources. In the case of Rimini Street's SAP unit, the leader is Shawn du Plessis, a "16 year SAP veteran who has held leadership roles across more than 15 major SAP full life cycle implementations with global companies such as Nestle, Sebastian International and Siemens," according to Rimini Street's press release.

But the launch of its SAP offerings has forced Rimini Street to go global. It has put up a German version of its website, and it plans to hire local resources in Europe and the Far East, complementing its workforce that until now has been limited to North America. Contrary to the practice of SAP and Oracle, it does not believe in an offshore service delivery model.

Flexible Contract Options
Seth indicated that the phrase "flexible contract options" in his press release does not refer to tiered pricing options. Rather it indicates flexibility in the contracting period. Most customers sign up for a five year term, but others buy into ten or even 15 year periods. Others adopt shorter periods, for "gap coverage," while they migrate from one system to another. Flexibility refers to the ability to tailor the contract length to the actual need. I also note that Rimini Street provides support for customer modifications or extensions to the base system, something that goes beyond what SAP or Oracle offer to their own customers. Generally, modifying base code "voids the warranty" with SAP or Oracle, as so to speak.

Why Not More Third-Party Maintenance Providers?
Why haven't there been more players like Rimini Street rising up to meet the market demand for third-party maintenance? Seth believes there are significant barriers to entry. In the case of SAP or Oracle, a potential service provider has to be willing to take on two powerful multinational organizations. Existing business partners of SAP and Oracle, those that are best qualified to offer third-party maintenance, are reluctant to offer services that compete with the parties that they rely on for sales leads, training, product access, and general good will. Finally, it takes significant resources, including funding, to build a 24/7 support organization, much of which must be built before the first customer is brought on board.

My Take
I agree with Seth that the barriers to entry are significant, though not insurmountable. The Tier I enterprise software market is ripe for disruption by third-party maintenance providers. With SAP and Oracle realizing gross margins in the neighborhood of 90% on their maintenance business, the economics are simply too strong for third party maintenance providers not to rise up.

Rumor has it that there are smaller, niche players besides Rimini Street already offering third-party maintenance contracts "under the radar," on a case-by-case basis. But they are reluctant to publicize their offerings out of fear of incurring the wrath of their business partners. Oracle's lawsuit against SAP and its former TomorrowNow unit, which provided third-party maintenance for Oracle products, only heightened these fears.

As I've written before, it may take one or two antitrust lawsuits before larger service providers feel comfortable venturing into meeting this market need. Interestingly, today's Wall Street Journal notes that the U.S. Department of Justice plans to step up antitrust actions against illegal monopoly conduct. One can only hope that one of the first markets they explore is enterprise software maintenance and support.

Related posts
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

by Frank Scavo, 5/11/2009 09:02:00 AM | permalink | e-mail this!

 Reader Comments:

Why haven't there been more players like Rimini Street rising up to meet the market demand for third-party maintenance?
Who wants their livelihood to be a constant battle with a sure-to-be-hostile vendor?
I believe the greatest strength of the third party support model will be in its ability to support those organisations having diverse application landscapes from multiple software vendors, having come about through either acquisition or centralisation of business units or through SOA enabled blending of best-of-breed applications. By using this "single source" support model these organisations can simplify their communication pathways and contractual agreements with external support parties.

No more disputes between a database support provider and an application provider, or between one application provider and another (over the root cause of a problem). These conflicts are instead handled internally by the third party support provider.

Furthermore, in the case of Remini Street, having support professionals in the same time zone (as the customer) and in the same building (as the other third party support teams) improves communication and knowledge crossover between the areas of expertise, together driving better root cause identification and resolution, and an overall reduction incident reduction.

Some large software vendors want to cover all the bases themselves, but a horizontally integrated and service oriented way of doing business allows for more flexible resourcing and a wide customer base.

If the third party model gains significant ground the large software vendors might focus more on software infrastructure and development technologies, handing functional consulting, support and application development over to an "ecosystem" of professional services and innovative service oriented application development vendors.
Matthew, great observation. We forget sometimes how complex the application portfolios of many companies are. For organizations on older, highly modified, or heterogeneous applications, the value of third-party support is more than just "cheaper than Oracle." It is the willingness of the provider to support such a complex environment.
Maybe Rimini Street will acquire one or more open source enterprise vendors. They could then offer more that just a "safe haven" type of service, giving disenchanted customers a strategic way forward, and a growth market for Rimini Street. Rimini street could gradually replace the proprietory legacy products with their own open source products, reducing risk and smoothing cash flow for all involved.

This is similar in some ways to what SAP tried to do with TomorrowNow by offering the "safe passage" strategy. But the difference is that Rimini Street has the benefit of hindsight, so they can avoid falling into the same trap as TomorrowNow, and open source based products would provide a point of difference and an attractive proposition to customers who don't like the closed nature and lock-in effect of the big proprietory vendors.

Post a Comment

Powered by Blogger

(c) 2002-2018, Frank Scavo.

Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

About the Enterprise System Spectator.

Frank Scavo Send tips, rumors, gossip, and feedback to Frank Scavo, at .

I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.

Selecting a new enterprise system can be a difficult decision. My consulting firm, Strativa, offers assistance that is independent and unbiased. For information on how we can help your organization make and carry out these decisions, write to me.

My IT research firm, Computer Economics provides metrics for IT management, such as IT spending and staffing benchmarks, technology adoption and investment trends, IT management best practices, IT salaries, outsourcing statistics, and more.

Go to latest postings

Search the Spectator!
Join over 1,700 subscribers on the Spectator email list!
Max. 1-2 times/month.
Easy one-click to unsubscribe anytime.

Follow me on Twitter
My RSS feed RSS News Feed

Computer Economics
IT Spending Ratios by Industry and Company Size
IT Spending as a Percentage of Revenue by Industry, Company Size, and Region
Outsourcing Statistics
IT Spending and Staffing Benchmarks
IT Staffing Ratios
IT Management Best Practices
Worldwide Technology Trends
IT Salary Report


2014 Best Independent ERP Blog - Winner 2013 Best ERP Writer - Winner Constant Contact 2010 All Star Technobabble Top 100 Analyst Blogs

Key References
Strativa: Business strategy consulting, strategic planning
Strativa: IT strategy consulting
Strativa: Business process improvement, process mapping, consultants
Strativa: IT due diligence
Strativa: ERP software selection consulting and vendor evaluation
Strativa: CRM software selection consulting and vendor evaluation
Strativa: Project management consulting, change management
StreetWolf: Digital creative studio specializing in web, mobile and social applications
Enterprise IT News: diginomica

Spectator Archives
May 2002
June 2002
July 2002
August 2002
September 2002
October 2002
November 2002
December 2002
January 2003
February 2003
March 2003
April 2003
May 2003
June 2003
July 2003
August 2003
September 2003
October 2003
November 2003
December 2003
January 2004
February 2004
March 2004
April 2004
May 2004
June 2004
July 2004
August 2004
September 2004
October 2004
November 2004
December 2004
January 2005
February 2005
March 2005
April 2005
May 2005
June 2005
July 2005
August 2005
September 2005
October 2005
November 2005
December 2005
January 2006
February 2006
March 2006
April 2006
May 2006
June 2006
July 2006
August 2006
September 2006
October 2006
November 2006
December 2006
January 2007
February 2007
March 2007
April 2007
May 2007
June 2007
July 2007
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
March 2008
April 2008
May 2008
June 2008
July 2008
August 2008
September 2008
October 2008
November 2008
December 2008
January 2009
February 2009
March 2009
April 2009
May 2009
June 2009
July 2009
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010
February 2010
March 2010
April 2010
June 2010
July 2010
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
September 2012
October 2012
December 2012
January 2013
February 2013
March 2013
May 2013
June 2013
July 2013
September 2013
October 2013
December 2013
January 2014
February 2014
March 2014
April 2014
May 2014
June 2014
July 2014
August 2014
September 2014
October 2014
November 2014
December 2014
February 2015
March 2015
April 2015
May 2015
June 2015
July 2015
September 2015
October 2015
November 2015
February 2016
May 2016
June 2016
July 2016
August 2016
September 2016
October 2016
January 2017
February 2017
May 2017
June 2017
October 2017
January 2018
April 2018
May 2018
January 2019
February 2019
Latest postings