SAP Dust-Up May Have Little Impact on Fledgling Industry

By Staff Report

Jul. 26, 2007

Despite the recent news that software support specialist TomorrowNow improperly downloaded materials, some see a bright future for tapping a third party to support HR software and other applications.

Using an independent service provider to handle tasks such as fixing bugs typically cuts support costs by half, says Forrester Research analyst Paul Hamerman, which can mean saving hundreds of thousands of dollars annually. Hamerman adds that third-party software support will likely survive a legal spat between vendors Oracle and SAP, as well as SAP’s admission in early July that “some inappropriate downloads” of Oracle software fixes and support documents occurred at its TomorrowNow subsidiary.

“The legal case could have a dampening effect on the market, but only temporarily,” Hamerman says.

TomorrowNow offers support services to clients running various Oracle product lines, such as PeopleSoft software. In March, Oracle sued SAP, accusing it of stealing support materials. On July 3, SAP said TomorrowNow was authorized to download materials from Oracle’s Web site on behalf of TomorrowNow customers, but acknowledged the “inappropriate downloads.” SAP also said the U.S. Department of Justice has requested that SAP and TomorrowNow provide certain documents.

The Oracle-SAP dispute has thrown light on the relatively new arena of third-party software support. Traditionally, business software vendors have charged customers an annual support and maintenance fee as part of a software license sale. That support typically includes corrections to coding errors and updates for legislative changes. Support customers also generally get more substantial software upgrades for free—although installing those upgrades can be costly.

Support fees can start at less than 20 percent of the original license fee. But support fees usually rise each year and are considered lucrative for vendors. Third-party software support providers offer similar services—minus the upgrade option—for a lower price. Besides TomorrowNow, other third-party support providers include netCustomer and Rimini Street.

Of the thousands of business software customers worldwide, no more than 500 organizations have signed up for third-party software support arrangements, experts estimate. What’s more, the idea of a support contract is under pressure from the growing practice of renting applications over the Internet, where firms often pay a monthly fee that includes a support component.

Still, some analysts have been speaking highly of third-party support and maintenance options.

“These programs promise to significantly reduce annual support fees while eliminating forced upgrades, delivering services not available with standard vendor support and guaranteeing a much better service-level commitment,” research firm Technology Evaluation Centers said in an April report.

Some companies are heading to Rimini Street. In the second quarter of this year, sales bookings at the Las Vegas-based firm increased fourfold from the first quarter. Rimini Street was founded in 2005 by Seth Ravin, who co-founded TomorrowNow and sold his stake in that firm to SAP in early 2005.

Ravin says the SAP-Oracle legal dispute has been a blip rather than a big deal for his business.

“Most people are rightly seeing this as a procedural issue at TomorrowNow rather than an industry issue,” he says.

Ed Frauenheim

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