At a conference in 2006, I presented a Top 10 list of technology expenses which to me represented “empty calories”. Top of that list was Software Maintenance with the likes of Oracle, IBM and SAP
Unbelievably, in the dozen years since, a vast majority of on-prem customers have not moved to the cloud and the value from on-prem maintenance delivered by the publisher has gotten even worse. Over the last few weeks, I have talked to executives at third party maintenance (3PM) vendors like Rimini and Spinnaker Support. Between them they are now supporting close to 2,500 customers worldwide. I will share more of those conversations in the next few weeks, but here are some macro trends:
a) 3PM often results in 70 to 90% savings. Beyond the half-off vendor maintenance cost, 3PM vendors allow customers to reduce their Level 2 and 3 outsourcing support or to redeploy those resources to new developments. The image vendors like to paint of the CIO who goes with 3PM is that of a procurement cheapskate who is trying to save a few bucks. Even 50% savings is not just a “few bucks”
Tom Grooms, CIO of CF Industries is far from a “cheap procurement” guy. He is a savvy change agent. He migrating from SAP ECC to S/4HANA in the cloud, one of the earliest customers to do so (many others are moving to S/4 on-prem). At the same time, as they migrate, he has moved his highly customized ECC environment to Rimini Street. As he told me “My decision (to go with 3PM) was shocking to SAP but my feedback to them was, ‘You know, don’t try to get me to pay back support. You should treat us like a new customer and pitch me on what is new.”
This is not Grooms’s first 3PM rodeo. At, his previous job as CIO of Valspar, he had moved to 3PM around Oracle applications. Prior to that, he had done that with PeopleSoft support at Medtronic. Grooms knows value from technology spend.
To SAP’s credit, I have seen it be mature and even match in many, but not all, cases when customers do decide to go with 3PM. Those customers continue to buy other products from it. Welcome to a world of heterogeneity. Here’s a glimpse of the quantum more heterogeneous world we are moving toward. No point in pouting, threatening, ruining relationships.
b) Application vendors like to mock customizations around their software. Ironically, they are themselves encouraging a new wave of customizations using their PaaS. Many customizations are indeed frivolous but others reflect holes in delivered vendor functionality, especially when it comes to vertical or geographic coverage. A vendor recently bragged to me that one of their customers had retired thousands of customizations when they moved to a newer release. My question back was “when were the customizations written? Probably 10-15 years ago. Good that they could be replaced but if they are looking for the 2019 digital shop floor could they get that from you?” No response back. Most application software reflects business practices which is circa 2010, not 2019 – that is a major reason why customers write customizations. They don’t write them because they have surplus budgets lying around.
Mock is one thing. Vendors outright refuse to even handle tickets if they touch a customization. 3PM vendors, in contrast, gladly handle them. As Grooms told me “Interestingly, the change management [with third party maintenance) that I didn’t anticipate was with my own team. They would do all this legwork, do all this research and cut and paste everything themselves. The last thing they would attempt to do is to call the vendor. We had to retrain people to say, “Don’t do the research. Don’t worry about it. Just call right away. That’s what they’re good for and that’s what they do.’ They probably thought, ‘Oh great, we’re saving all this money but it’s not going to be any better.’ Well, no, we save the money and it’s real support. It’s what support is supposed to be.”
c) Vendors have been arguing they provide better security than 3PM vendors do. Lisa Morgan writes in Forbes “The cost of inadequate cybersecurity—lawsuits, regulatory fines, reputational damage, intellectual property theft—can be exponentially higher than the 18% to 22% annual maintenance fees software developers charge.”
I wish she had taken the argument further – will Oracle indemnify a customer for those lawsuits, fines, damage etc if a root cause analysis shows their software is responsible for a breach or an intrusion? I highly doubt it – and few customers have the battery of lawyers Oracle has at its disposal. So, frankly her argument is weak without specific protection guarantees.
d) After paying maintenance for years if you decide to move to vendor cloud versions you are told to license new SKUs, to pay conversion fees and other charges. You have been a good citizen, paid maintenance at full list and that’s your reward? More to my point the value from maintenance has declined in the last decade or so.
Look, I am fine with whatever allows you to sleep better at night. I understand why CIOs stay with the original publisher. They have bigger things to worry about. But I would encourage them to assign a direct report and take a fresh look at 3PM. The 2,500 3PM customers are sharing their experiences with each other. Bryan Bee at EBSCO told me with delight “We did multiple reference calls (about 3PM) and each time it was like, man, this is too good to be true.”
In the meantime, I do shake my head at software publishers who continue to look back longingly at their past, when they should be peddling the joys of multitenancy, machine learning and other features in their next-gen products.
Grooms said it best “Show us something that we would need to take our business forward, because what we had in (the on-prem version) was basically memorializing everything we had done in the past.
(Cross-posted @ Deal Architect)