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, as competitors rise to meet (and arguably overtake) them. It’s common to open your newsfeed now to see multiple articles on Oracle/SAP vs Amazon, or Google, or even their own shareholders in their bid 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 that their legacy/on-premise customers – and those customers’ sizable 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 per cent of their initial licensing price in maintenance fees annually, and 90 per cent of this fee is profit for Oracle/SAP.
It’s these 90 per cent profit margins that are fuelling Oracle and SAP’s product development, sales, and marketing of your next upgrade – that you have to move to, 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, a business model that replaces their official vendor support for only half the price – effectively cutting 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 though isn’t just getting better support, they all offer two critical things for organisations:
- At least 50 per cent off your current annual Oracle/SAP support bill
- No more upgrade deadlines – they support all versions of products indefinitely
This means Oracle and SAP’s biggest competition 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, and the more at risk they are – lower cash flows 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 – with many major brands and government bodies globally joining the support revolution.
In October 2019, research & insights advisors Gartner published a market guide on the subject of third-party support, the five major use-cases organisations have, and the growing demand for these services:
Third-party support is expected to “grow from US$351 million in 2019 to US$1.05 billion by 2023 – a 200 per cent increase.Gartner: https://gtnr.it/3dqLVXu
Where has this demand come from?
While 50 per cent off one of an organisation’s largest IT bills might sound tempting, it is actually Oracle and SAP themselves who 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 (giving Oracle/SAP full control of pricing, patches and upgrades) regardless of whether a Cloud migration is right, or even necessary, for their customers.
Result? The rise in demand for third-party support. Customers want alternative options; taking 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 but would also cut the heart out of their main profit driving business area – 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), compared to the months it can take 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 have even created a public webpage, specifically designed to demean one third-party support provider: Rimini Street. The page shamelessly undermines Rimini’s practices; or more accurately, persuades Oracle’s customers not to move away from their support model.
So, what have 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 their software, and using it to help Rimini’s own customers. Their dispute went to court on the grounds of copyright infringement.
The trial ended in September 2015. Rimini were charged a total $124million in damages and served a permanent injunction against them. Then, in appeals court and additional legal battles across 2016, 2018 and 2019, Oracle and Rimini tried to claw back as much money that they’d lost, as they possibly could.
And while both Oracle and Rimini made appeals on the decisions, it was Oracle that made that move first. Almost as though they didn’t want to just beat Rimini, but end them.
Did it work? It did not. In August 2019, Rimini Street reported that Oracle had lost 23 of the 24 claims they had originally raised; and the twenty-fourth claim was deemed ‘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 they, 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 – high fees for extended usage, and customers are required to stay with them however long they need access.
It does also come with an added bonus, which they’re undoubtedly pleased with.
Customers on SaaS Cloud products cannot switch to third-party support. They don’t own their software licences, the vendors do, which means they’re the ones in control. Matters such as price rises, updates, security and 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 ERP Cloud, and SAP’s 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.
Locked in, and with limited availability to move to a cheaper alternative; making 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, as demonstrated by the Gartner reports – a projected growth from $351million, to $1.05billion. And it’s not difficult to see why, considering current market pressures:
Organisations need more money
Not only are global organisations under immense pressure currently to save money and maintain their operations, 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 U.S. dollars worldwide, a record high.https://www.statista.com/statistics/203291/global-it-services-spending-forecast
…even if the budget for IT hasn’t increased. Companies are more often faced with difficult decisions around restructures, or even redundancies, in a bid to redistribute vital funding.
But in the middle of all this, do not expect Oracle/SAP prices to lower, 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 they were extending their 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. Vendors’ 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, and Oracle and SAP aren’t changing their tactics. And this is why ultimately, understandably, 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 more than ten years now.
And during those ten years, respected, influential organisations have seen the benefit of third-party support. Support Revolution have welcomed customers such as the Ministry of Justice, the National Audit Office, the Bank of China and British Telecommunications (BT), to name only a few.
With third-party support, organisations can avoid price increases, upgrade cycles and Cloud lock-in, and simply maintain their systems as they are now. It’s a guaranteed method of cutting costs, without cutting functionality or service quality.
A rare instance of getting something better, for less.
So to return to our main question: taking into all the above into consideration, are Oracle and SAP afraid of third-party support providers?
It is difficult to tell without asking them directly, although their efforts and methods so far certainly suggest that they are afraid of third-party support.
But whether they are or not; our rate of growth demonstrates that they probably should be.
See how much you could save today with our savings calculator.
Original article published by ITProPortal on 10 July 2020.