What’s Next For TomorrowNow?

It appears it’s now just a matter of time before TomorrowNow, the third-party software service and support firm at the center of so much controversy between software giants SAP and Oracle, is sold to another third-party support provider.

Last week, SAP announced that TomorrowNow CEO Andrew Nelson and a handful of senior executives at the firm had resigned and that the company was considering a number of strategic options, including the possible sale of the subsidiary it acquired in 2005.

Originally intended to undercut Oracle’s stranglehold on lucrative service and maintenance contracts following its hostile takeover of PeopleSoft in 2005, the TomorrowNow acquisition has turned into something of an embarrassment for SAP.

In March, Oracle filed a lawsuit accusing its archrival of what amounts to industrial espionage. SAP CEO Henning Kagermann acknowledged that someone working for TomorrowNow engaged in “inappropriate” downloads of Oracle support materials but contends SAP did not access any of Oracle’s intellectual property.

In September, a U.S. District judge set a trial date of Feb. 9, 2009 for the two sides to resolve the matter in court, unless some type of settlement is reached in the interim.

After showing most of TomorrowNow’s management team the door, SAP is more than ready to move on. At the time of its acquisition, TomorrowNow was a relatively obscure 30-employee outfit with perhaps 100 clients.

Now that its client base has grown to more than 300 companies, and because SAP would seem to be dealing from a position of weakness, there’s at least one third-party service and support provider that looks like an ideal suitor for the SAP castoff.

Rimini Street, a Las Vegas-based company that provides software support and services for PeopleSoft, Siebel and a handful of J.D. Edwards clients, is mulling the pros and cons of taking TomorrowNow off SAP’s hands.

Not coincidentally, Rimini Street, which has about 50 clients, was founded by former TomorrowNow co-founder Seth Ravin.

“Sure, there’s a level of interest,” Dave Rowe, Rimini Street’s vice president of marketing and alliances, said in an interview with InternetNews.com. “If the opportunity to acquire TomorrowNow presents itself, we’d have to look at it very carefully. There are lot of things to consider to determine whether it’s worth it or not.”

Rowe said his company has fielded “dozens” on inquiries in the past few months from TomorrowNow clients at least exploring the possibility of switching to Rimini Street for support of their business-critical PeopleSoft and Siebel business applications. He added that Rimini Street’s total clientele has “quadrupled” since Oracle filed suit against SAP and TomorrowNow in March.

“In terms of a transition, we would be the quickest, the most straightforward and best option,” he said. “I have no comment on who else might be interested in acquiring TomorrowNow. I will say that our win rate against TomorrowNow is about 80 percent right now. We got a little juice from the lawsuit. But it’s unclear what’s really driving the increased activity we’ve seen lately.”

It’s not too hard to understand why SAP might be eager to let TomorrowNow go at a discount. SAP never confirmed the exact price it paid for TomorrowNow, but industry watchers familiar with the deal characterized the purchase price as “not much,” and say it’s entirely possibly the attorney fees and any potential settlement it may eventually pay Oracle will likely dwarf the acquisition price.

Sun setting on TomorrowNow?

In an e-mail to InternetNews.com, SAP spokeswoman Lindsey Held wrote the company had no response to the Rimini Street rumor but reiterated the company is “currently evaluating several strategic options for TomorrowNow’s future and sales is one possibility.”

Until a sale or other strategic decisions are made, Mark White, who was appointed as TomorrowNow’s executive chairman in July, will assume the role and responsibilities that Nelson left behind.

For now, it’s unclear how the TomorrowNow shakeup or a future sale might impact the pending litigation between Oracle and SAP.

“Rimini would be a candidate and so would some offshore firms,” Vinnie Mirchandani, a former Gartner analyst and founder of the Tampa, Fla.-based IT consulting firm Deal Architect, wrote in an e-mail to InternetNews.com. “If the lawsuit liability can be resolved…”

SAP claims the “majority” of the 150-plus complaints listed in Oracle’s lawsuit are unfounded. Kagermann has also publicly stated that he was “surprised and disappointed” that Oracle did not personally contact him when it first discovered the rogue downloads.

“I think the SAP team takes a lot of pride in their operation and they were embarrassed by this,” Rowe said. “They think they operate at another level than Oracle. Larry [Ellison’s] is more of a street fighter. They don’t want to engage at that level.”

What both SAP and Oracle want to do, however, is continue raking in huge profits from service and maintenance contracts with their enterprise clients.

Last year, SAP reported total sales of slightly more than 9.4 billion euros. But software licenses only accounted for 3 billion euros, or 33 percent, of its total revenue stream. Maintenance checked in at 3.53 billion euros, or 38 percent, and service revenue accounted for 2.72 billion euros, or 29 percent, of its total haul in fiscal 2006.

Oracle’s mix was similar. New license sales represented $2.48 billion, or 43 percent, of its revenue mix in its latest fiscal year while updates and support brought in $2.27 billion, 39 percent, and services tallied $1.08 billion, or 19 percent, of its total sales.

Rimini Street and TomorrowNow compete with the likes of netCustomer in San Jose, Calif., Conexus Partners in Denver, Versytec of Nashua, N.H. and CIBER, based in Greenwood Village, Colo., in the competitive third-party service provider market.

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