Maintenance is the battleground, innovation the prize

Summary:Rimini Street's 3rd-Party Software Maintenance & Support model could be the catalyst that completely changes the face of future enterprise software

In essence the internal world in large enterprises is split between accountants and their colleagues with process oriented tasks, and the 'line of business' folks who are tasked with making something new happen. The former group are typically the long term users of enterprise software, while the latter often experiment with - and utilize if effective - the latest and greatest cloud/mobile Software-as-a-Service tools in order to gain competitive edge.

SAP, as noted by Larry Dignan earlier , are raising their maintenance fees a percentage point this summer for those customers not on alternative agreements. Last week I spoke with Rimini Street, who provide alternative maintenance services for less money for SAP & Oracle customers, and that conversation took on greater significance today.

 For the long term dependents on Oracle and SAP's business management software and databases running their internal operations, maintenance fees have been a major irritant: SAP attempted a price hike to 22% in 2008 but backed down after customer outcry. Simplistically, maintenance is the ongoing tuning and refinement of the utility-like products that keep the IT plumbing working and the lights on, the patch Tuesday coding and a primary source of funding for research and development.

 For the bean counters and process focused this is all a cost of doing business, but for those attempting to innovate there is more and more frustration that IT is soaking up vast amounts of cash to pay off what they see as relatively generic utility like equipment, instead of focusing those funds on breaking molds and thinking differently.

 Alexia Tsotsis interviewed Marc Andreesen for a Tech Crunch article (now that she no long finds enterprise software so boring she cries about it in coffee shops), during which Andreesen came out with this zinger

...The joke about SAP has always been it’s making 50s German manufacturing methodology, implemented in 1960s software technology, delivered to 1970-style manufacturing organizations.

 In the last eighteen months there have been plenty of VC events where they wax eloquent about the coming collapse of the olde enterprise world and lick their chops over the coming feast they will enjoy with their nimble, new wave hipster firms that make the enterprise fun 'n' easy again. Keynote stage suits have given way to skinny jeaned jokers poking fun at the old wave, who have anxiously spent billions buying up new companies to look hip and happening. (Microsoft arguably spent a billion on six months of positive PR buying Yammer, and previously SAP bought cloud HR firm Successfactors and put their mercurial ceo Lars Dalgaard in charge of cloud).

 The schizophrenic culture of many large firms, with fault lines between the bean counter/process people and the innovation/marketing axis can put immense pressure on IT decision making. The first generation of social networking is collapsing under its own weight as failures around filtering and distrust of the digital inn keepers motives take their toll - what happens next may or may not be funded by maintenance contract revenue within large companies. Microsoft spend an incredible $9.6 billion on R&D in 2011 alone according to this article by Matt Smith at PCworld, yet the new version of Office shows little signs of anything new, as Peter Bright at Ars Techica noted.
('
Office 2013 is an incremental update when Microsoft needed a revolution')

The big four MISO (MSFT, IBM,SAP, ORCL) players are in a very delicate position: they have to maintain their lucrative legacy recurring revenue cash cows while being seen to keep up with the times with modern offerings. This is where Rimini Street's Third-Party Software Maintenance & Support is so problematic. Talking with SVP David Rowe last week about their recently released quarterly numbers for 2012 and fourth quarter it is apparent their business is accelerating. Cut and paste of their claims:

  • Largest new sales quarter in Company history with 40 new client transactions closed in Q4
  • $26.6. million in total Q4 invoicing, a growth of 61-percent over a year ago quarter
  • $558.5 million in sales bookings backlog, an increase of nearly 42 percent y-o-y
  • $43+ million in annual revenues for fiscal 2012, an increase of more than 30 percent y-o-y
  • Expanded global capabilities and workforce in Europe, India and Brazil

Although a rounding error compared to SAP's, their numbers going forward are looking strong, and their pitch is compelling...MISO are no longer adding incremental value, they're just adding modules to their elderly core offerings...Enterprise support models are 20+ years old with little innovation needed on utility style products, so why not use savings on this via Rimini Street to fund innovation around the edges...

 It's a pretty compelling argument, and certainly one I'm interested in because it's a contextual source of funding for development of modern collaborative practices which seeks to problem solve and join the warring elements within enterprises.

 The high noon court date between Oracle and Rimini Street (Oracle claim theft of their IP and an illegal business model) will occur at some point later this year and will likely be a pivotal moment in software history if Rimini Street win, because that will see last century process based enterprise software ring fenced and far less profitable.

Larry Ellison says the suite always wins, with Oracle converting best-of-breed outliers into features of Oracle's business management software and database conglomerations. If the suite is no longer viable financially as the cornerstone of vast enterprise software vendors, it will free up and accelerate the pace of change for business software dramatically and we may see far more innovation from all players, which would be great for end users and overworked IT staff.

Whether any of the current players, new or old, would survive this upheaval is open for debate...

* update: Mike Prosceno of SAP was in touch to say about maintenance "we deliver much more, e.g. continuous flow of innovation through Enhancement Packs, and in case of Enterprise Support Proactively, e2e solution operations etc. We are well beyond the place you describe (as are most of our customers.) "

Topics: Oracle, IBM, Microsoft, SAP

About

With extensive senior management practical experience in international enterprise collaboration, Oliver previously managed the Sony PlayStation 'WorldWide Studios' collaboration extranet, and has worked with the American Management Association, Sun, Docent/SumTotal Systems, Harvard Business School and McKinsey & Company on major initiativ... Full Bio

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