Third-party enterprise application support vendor Rimini Street — best known for delivering lower-cost support and maintenance for Oracle apps — has said it plans to add support for the SAP R/3 enterprise resource planning (ERP) suite in January.
But while Rimini Street is aiming to broaden its business, it won’t be doing so using the resources of troubled SAP subsidiary TomorrowNow, with executives confirming that it has dropped its plans to purchase the company.
The announcements, made during SAP’s Sapphire 2008 user conference in Orlando this week, likely come as welcome news for SAP R/3 users.
Many had been left wondering what to do once SAP, which is pushing the software’s newest edition, SAP ERP, pulls support for its older offerings in coming years. In response, Rimini Street execs pledged to support R/3 until 2020, with no required upgrades.
Even in the short run, customers may be able to save money on support, said Seth Ravin, Rimini Street’s founder and CEO.
“People were paying SAP a hefty premium on top of their expensive price,” Ravin said.
In fact, SAP, which used to charge customers 17 percent of the purchase price of software for annual maintenance, raised that to 22 percent. That move followed the lead of Oracle, whose standard rate “has been 22 percent for a long time,” Ravin said, which he added meant SAP’s executives “were feeling the pressure of Oracle’s margins.”
“This business is run very much like HP’s, where they give you the printer and charge you for consumables,” Ravin said. “Here, they give away the license, and annual maintenance and upgrades are the two profit areas.”
“Most of our customers are saving on average 70 percent against overall maintenance costs and at least 50 percent on their annual maintenance bills,” he said. “We cut customers’ costs in half and still make a very hefty profit.”
Who needs TomorrowNow?
While Rimini Street is gearing up to add new support offerings to the mix, one way it’s not planning to expand its business is through acquiring TomorrowNow.
Rimini Street had at one time been widely viewed as a likely purchaser of the firm, a provider of third-party support for Oracle applications that had been co-founded by Ravin. He ultimately sold the firm to SAP in 2005.
Last year, the SAP division came under fire from Oracle, which filed a lawsuit accusing its owner of using TomorrowNow to illegally acquire Oracle software and support materials.
Rimini Street executives shrugged off their decision.
“We don’t have to buy TomorrowNow because we’re getting all their customers already and there’s no sense in paying for it,” Ravin said.
Indeed, business thus far appears to be highly rewarding for Rimini Street, which also supports Siebel, PeopleSoft and JD Edwards software products from Oracle. The company said it more than doubled revenue, bookings and invoicing in the first quarter of 2008 compared to the same period in 2007. The three categories also jumped 37 percent over their fourth-quarter 2007 levels.
Those numbers follow a general consensus among industry watchers that the market for services from third-party support companies will continue to grow, owing to the complexity of enterprise software and the high prices charged by consultants and vendors.
“Oracle and SAP are … very complex and very ripe for services to help organizations get set up, convert over from legacy systems, install new functions and so on,” said Jonathan Eunice, principal IT analyst at Illuminata.
So, vendors and large system integrators like BearingPoint, Capgemini, EDS and CSC “expect a pretty substantial payday for helping out on a large scale,” Eunice said.
That opens the door for companies like Rimini Street, which are “hungrier and attack with lower pricing and more speed and flexibility,” he added.
The market will continue to see rapid growth “because it’s a hyper-complex world out there, and all the trends — SOA, the Web and Web services, compliance requirements, the need for real-time decision-making across global applications and data sources and so on — all push systems together at higher and higher levels of integration,” Eunice said.
In particular, Ravin said he expects more business from disgruntled SAP customers.
“SAP has been on a major push to move customers onto its new platform and it’s been a tough battle because customers are in more of a ‘bolt down the budget and remove the unnecessary components and get back to basics with a view to recessionary modeling'” mindset, he said.
“Also, the software’s working fine, they spent years and a ton of money to get it working right and, when they look at the new software, it’s like a new car model — there are a few things you’d like to have but there’s nothing that justifies the cost of upgrade, disruption and opportunity cost because [they] can use that money to go build other things that are needed,” Ravin added.
He also said he sees similar scenarios playing out with other vendors.
“IBM [and] Oracle are pushing for a next-generation standard and you come back to Betamax versus VHS — it can be very costly for a CIO who bets on the wrong one,” Ravin said.
