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What’s Next for Third-Party Support?
Oracle lawsuits against SAP and Rimini Street signal a fork down the road
For the rest of the February 2011 issue of CRM magazine please click here
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If you ask Ray Wang, principal analyst and chief executive officer of Constellation Research, the basic principles of third-party maintenance apply just as they would if you took your Ford to someone other than the dealer for service. It seems fitting then that one juror in the recent Oracle/SAP third-party maintenance lawsuit was an auto mechanic.

The grievance, which Oracle filed in 2007 claiming a now-defunct SAP subsidiary called TomorrowNow had stolen software and copyrighted material from an Oracle Web site, could ultimately become a watershed moment in how the industry views third-party support and what the rules of engagement will be for companies that choose to offer this service. Just ask SAP—the German software company was ordered to pay Oracle $1.3 billion in damages.

“At the most basic level, [third-party support] is about a customer’s right to go to anyone for support and maintenance,” Wang says. Organizations such as TomorrowNow and Rimini Street (against whom Oracle has filed a similar suit) claim to provide better and cheaper software maintenance alternatives than the companies from whom the software was originally purchased.

In a blog post after the Oracle/SAP verdict, Denis Pombriant, founder of Beagle Research, explains the value of third-party services: “Support fees are often calculated as a percentage of the license fee, and both are rather steep with enterprise software, in part because of vendor lock-in. So there’s a built-in incentive for customers to seek out any way they can find to lower their costs.”

Without companies that offer third-party support, Wang claims, the industry will suffer from “significant vendor dominance,” as customers will be “held in a stranglehold” in what they are forced to pay and what types of services they are provided.
In a statement following the announcement of Oracle’s suit against his company, Rimini Street CEO Seth Ravin argued that Oracle was trying to “forestall competition and limit market choices for its software licensees.”

Paul Hamerman, vice president of enterprise applications at Forrester Research, echoes Ravin’s statement. He says Oracle’s grievance against SAP was meant to “send a message that third-party support is not an option. Oracle would like to create fear on the part of other potential entrants into the business.” 

These claims might not be unfounded given how important maintenance fees are to Oracle—last quarter Oracle made $3 billion on them but lost $800 million across all other aspects of the enterprise. Given those figures, it is in Oracle’s interests to limit the number of third-party options available to its customers.

Oracle does acknowledge the legality of third-party support, but the two grievances the company has filed illustrate the service’s complexity and potential for misuse. Wang says he thinks a  slew of future third-party suits will come. Asked how many of these lawsuits will be legitimate, he says, “We don’t even know what legitimate means [in terms of third-party support]. We have yet to figure out and establish ground rules. Vendors have traditionally taken a stance saying you’re not allowed to do it, but that’s not true.”

Wang expects cloud computing to “further muddy the waters” of third-party support in the next five to 10 years because the software-as-a-service (SaaS) being offered to customers will no longer be their own, and how the software gets serviced will not be up to their discretion.

However muddy it makes things, the move to the SaaS platform, might be inevitable, according to Pombriant.

“If you compare the high costs of enterprise software with what’s on offer with cloud computing, you see some big differences,” he writes. “For years SaaS vendors have touted the advantages of a single monthly fee that includes not only hardware and software but also all of the labor associated with service, maintenance, and ongoing development. It’s this model that is catching on in emerging markets, in part because those markets simply cannot afford to support the old model.”

If the predictions offered by Pombriant and Wang prove to be correct, then it is in the industry’s best interest to develop rules of engagement for how companies support each other’s customers. A set of laws and principles could provide some basis for determining which lawsuits are legitimate and which are not, rather than leaving those decisions in the hands of auto mechanics and other technology neophytes.

Oracle declined to comment for this article.


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