The article below is based on a recent post from Mark Smith, CEO of Support Revolution, who spoke to ITProPortal about how vendors are waging a war against third-party support.
Oracle and SAP have been two formidable forces in the ERP market for a long time now. But things are changing fast. Competitors are rising to meet them (and arguably overtake them). It’s common to open your newsfeed now to see multiple articles on Oracle/SAP vs Amazon or Google. You even see wars with their own shareholders in their bids to become the largest Cloud/ERP/software provider.
However, while Oracle and SAP continue to build and develop their Cloud infrastructures (their rising stars), it’s easy to forget their legacy/on-premise customers. These customers’ sizeable contracts and support fees are funding the research and innovation that put Oracle and SAP where they are now.
SHOCKING FACT: The average Oracle/SAP customer pays around 22% of their initial licensing price in maintenance fees annually. 90% of this fee is pure profit for Oracle/SAP.
It’s these 90% profit margins that are fuelling Oracle and SAP’s product development, sales, and marketing of your next upgrade. On top of this, you have to upgrade or they cut off the support you need to maintain your systems!
That is why both Oracle and SAP are nervous about something called third-party support. It’s a business model that replaces their support for only half the price. It effectively cuts away the most profitable and stable revenue generator for both Oracle and SAP.
What is third-party support?
Third-party support is simply a different support team for your Oracle and SAP products. Rather than contacting the vendor directly, you would instead contact them to fix issues.
The main draw of a third-party provider isn’t just getting better support. It offers two critical things for organisations:
- At least 50% off your current annual Oracle/SAP support bill
- No more upgrade deadlines – we support all versions of products indefinitely
This means Oracle and SAP’s biggest competitors aren’t just the likes of Amazon or Google; third-party support providers – like Support Revolution – constitute a huge risk to their income.
The more customers who move away from vendor support models towards cheaper more sustainable third-party providers, the more Oracle and SAP’s safe cash-cow revenue diminishes. Also, the more at risk they are, with lower cash flow and less money to invest in their new business models and technologies.
So, with that in mind, are Oracle and SAP afraid of third-party support providers?
Gartner: The risk to Oracle and SAP is real
Despite the claims of Oracle and SAP, third-party support as an alternative option is growing in popularity. Many major brands and government bodies across the world are joining the support revolution.
In October 2019, research and insights advisory firm Gartner published a market guide on the subject of third-party support. It features five major use-cases organisations have, and the growing demand for these services.
“Third-party support is expected to grow from $351 million in 2019 to $1.05 billion by 2023. This is a 200% increase.”Gartner: Third-party support market guide
Where has this demand come from?
While 50% off one of an organisation’s largest IT bills might sound tempting, it is actually Oracle and SAP that seem to be pushing the latest spike in demand for third-party support.
Oracle and SAP’s support and maintenance costs continue to rise, and their main concern is moving customers onto their SaaS Cloud products. This gives Oracle/SAP full control of pricing, patches, and upgrades. They’ll push for this regardless of whether a Cloud migration is right or even necessary.
Result? The rise in demand for third-party support. Customers want alternative options. They want to take into consideration their own priorities, and not those of Oracle and SAP. They want more value for money on their current systems, cheaper support options, and the choice to avoid end-of-support deadlines and upgrade when THEY choose.
The Oracle and SAP manual for war
So what are Oracle and SAP doing to dissuade their customers from moving to a third-party support provider?
Are they cutting their support costs? No! They can’t afford to. Cutting their costs for support would be admitting they have been overcharging you for many years. However, it would also cut the heart out of their main profit driving business area. This is something they need if they are going to fight their other war for the Cloud.
So what are Oracle and SAP doing? They don’t want to bring attention to third-party support with a big counter marketing campaign, so instead they are using other tactics.
Tactic 1: Discredit them
There are plenty of (incorrect) rumours around third-party support:
- Switching to third-party support will trigger a vendor audit: Wrong! When it comes to an Oracle/SAP audit, it’s not a matter of if, but when. Switching to third-party support does nothing to increase or decrease your chances of getting audited.
- Third-party support cannot offer security patching: Wrong! All third-party support providers have security processes in place. Often, these provide tailored patches in hours (with no system downtime), while it takes months through the vendor patching model.
- Third-party support cannot provide the necessary legislative patches: Wrong! Third-party providers follow exactly the same process as the big vendors do. They receive updates from legislative bodies and then turn these into patches for their customers.
We cannot say for certain that Oracle and SAP are to blame for these rumours, but they have no problem with encouraging them. Oracle has even created a public webpage. This is specifically designed to demean one third-party support provider: Rimini Street. The page shamelessly undermines Rimini’s practices. More accurately, it persuades Oracle’s customers not to move away from the Oracle support model.
So, what has Oracle got against Rimini Street?
Tactic 2: Take them to court
In 2010, Oracle accused Rimini Street of logging onto customer’s support accounts, downloading software, and using it to help Rimini’s customers. The dispute went to court on the grounds of copyright infringement.
The trial ended in September 2015. Rimini was charged a total $124 million in damages and now has a permanent injunction against the company. Then, in appeals court and additional legal battles across 2016, 2018, and 2019, Oracle and Rimini tried to claw back as much money as they possibly could.
And while both Oracle and Rimini made appeals on the decisions, it was Oracle that made that move first. It was almost as though the vendor didn’t want to just beat Rimini, but end it.
Did it work? It did not. In August 2019, Rimini Street reported that Oracle had lost 23 of the 24 claims it had originally raised. The 24th claim was deemed as “innocent infringement.” And, to Oracle’s further dismay, third-party support was confirmed as legal practice (though some of Rimini’s previous business practices were not).
Tactic 3: Lock them out
The Oracle vs Rimini lawsuit is a clear demonstration of Oracle’s more aggressive campaigns against third-party support. But both Oracle and SAP have other methods to cut out the competition, of a slightly more passive-aggressive nature.
Consider Oracle and SAP’s obsessive dedication to developing their Software as a Service (SaaS) platforms. Alone, these subscription-based services look to deal Oracle and SAP a decent income. They come with high fees for extended usage, and customers are required to stay with them for as long as they need access.
It does also come with an added bonus, which the vendors are undoubtedly pleased with.
Customers on SaaS Cloud products cannot switch to third-party support. The vendors own the software licences which means they’re the ones in control. Matters such as price rises, updates, and security & legislative patching are done to the vendor’s timetable, greatly limiting customers’ freedom and control. And that lack of control also means customers can’t choose to switch to third-party support.
On the surface, development of services like Oracle Cloud and SAP S/4HANA could be little more than professional competition in a growing Cloud market. But beneath that, Oracle and SAP know that the more customers they can lock into SaaS contracts, the fewer customers they risk losing to third-party support.
You’re locked in and with limited availability to move to a cheaper alternative. This makes Cloud a significant double win for Oracle and SAP.
It’s getting harder to see it as just a coincidence…
Is a support revolution brewing?
Oracle and SAP wouldn’t have done what they’ve done, if they didn’t consider third-party support to be worth the effort. Their behaviours suggest that they’ve certainly recognised third-party support as a threat to their business model.
Despite their efforts, however, the third-party support market continues to grow. This is further demonstrated by Gartner reporting a projected growth of over $699 million. And it’s not difficult to see why, considering current market pressures.
Organisations need more money
Global organisations under immense pressure currently to save money and maintain their operations. Not only this, but they are also being commanded to continually grow and innovate by their leadership. In a digitally evolving world, IT spending can only ever increase.
“In 2020, spending on IT services is expected to reach around $1.1 trillion worldwide; this is a record high.”Statista: Global IT services spending forecast
The problem is organisations’ budgets for IT hasn’t increased. Companies are more often faced with difficult decisions around restructures. Even redundancies have to be made to redistribute vital funding.
Despite this, do not expect Oracle/SAP prices to lower. In fact, you should expect them to rise. This is why so many are looking for alternatives.
Organisations need more time
Organisations don’t have the time or resources available (or even the need in many cases) to regularly upgrade their ERP systems. Their priority is, naturally, their day-to-day business.
There has been a shift in the market. Organisations are starting to push back on Oracle and SAP’s practices. SAP recently announced it was extending its support deadline from 2025 to 2027, to allow organisations more time to make the migration as many were refusing to do so.
But even that still isn’t enough. Vendor support models, as they are now, just aren’t sustainable. Organisations are set to either keep unsupported products for high fees, or regularly upgrade to newer products (for equally higher fees).
So, the support war continues. Oracle and SAP aren’t changing their tactics. And this is why organisations are changing sides and moving to third-party support.
Whose side are you on?
Third-party support is not a new concept. The business model has been in place for over ten years now.
During those ten years, respected, influential organisations have seen the benefit of third-party support. Support Revolution has welcomed customers such as the Ministry of Justice, the National Audit Office, the Bank of China, and British Telecommunications (BT), to name just a few (click here to see more customers).
With third-party support, organisations can avoid price increases, upgrade cycles, and Cloud lock-in. They can simply maintain their systems as they are now. It’s a guaranteed method of cutting costs, without cutting functionality or service quality.
It’s also a rare instance of getting something better for less.
So to return to our main question: are Oracle and SAP afraid of third-party support providers?
It is difficult to tell without asking them directly. However their efforts so far suggest that they are afraid of third-party support.
Whether they are or not – our rate of growth demonstrates that they probably should be.
Original article published by ITProPortal on 10 July 2020.