Rimini Street chief: Where's the maintenance cost 'peace dividend'?
Enterprise software maintenance and support---the cash cow that keeps giving---has becoming a hot topic amid an economic downturn that has customers questioning a never-ending stream of price increases.
I caught up with Rimini Street CEO Seth Ravin (right) via phone from the SAP Sapphire conference in Orlando. Here are the highlights of our chat:
How's demand and how do you save me 50 percent off of my maintenance?
Ravin said "IT budgets are stretched thinner than anyone would like" and that translates into an increase in demand. Ravin noted that Rimini's pipeline is bigger than ever. On the 50 percent savings claim, Ravin divided the savings into three buckets:
- "The first is the annual maintenance you pay to vendors. We slice that in half. We may save them more money than that if they are paying for shelfware (products that have never been used)."
- "No 2 is that we only deliver the maintenance required. We ship fixes that are only required and that saves a ton on labor on an annual basis."
- "The third is the fact that we don't require them to do any upgrades to remain in a supportable position."
What are the biggest reservations that potential customers have?
Ravin acknowledged that Rimini Street is "a good fit for many customers but not all." A company that wants to be on the bleeding edge with frequent upgrades isn't a good fit for Rimini. "We're about extending the lifespan of applications and return on existing software," said Ravin.
Also see: Cutting software maintenance costs 101
What are the nuances with the launch of SAP support relative to Oracle?
Ravin noted that the biggest nuance is that SAP has "more moving parts and names of parts" on various product lines. The other challenge with SAP support is that it is global relative to Oracle, which has mostly U.S.-based customers.
How do you handicap the delicate maintenance revenue dance between large vendors and customers?
"If you're SAP you're thinking that you only raised your maintenance fees to 22 percent, which is what Oracle had. But Oracle didn't miss the backlash. There's a huge understanding that maintenance and support fees can only go up. But you expect a peace dividend at some point. You stabilize your system and the price of support keeps going up. Your reward for running stable is to pay 10 percent to 15 percent more a year.
"It's a backlash against the model not the companies. If SAP has twice the number of customers it used to shouldn't the pie get divided up so everyone benefits from the economies of scale."
On recent moves by SAP and Oracle to allay customer concerns about price increases, Ravin noted that spreading price increases over 7 years instead of 4 in SAP's case and a limited year break from Oracle isn't a win for customers. "Customers are still paying too much today," said Ravin.
So if I merged SAP and Oracle and put you in charge what would you do about the maintenance schedule?
Ravin noted that Oracle and SAP are in a bind and he would probably milk support and maintenance too in their shoes. He added that the economics of software have become no different than the printer industry---you give away the applications to sell maintenance and consulting. Those fees are the equivalent of ink to a printer company. "It's the only way these guys make money and they are not in a position to drop margin," said Ravin. "They have entered this legacy mode where they are more in the business of maintenance than selling software. The only way to grow the top and bottom lines are to raise prices because the (stock) valuations are based on maintenance."
What's the role of SaaS for chipping away at maintenance costs?
Ravin said that SaaS is one bookend chipping away at maintenance costs with third party support on the other side. However, Ravin noted that SaaS wasn't for everyone either. The appeal of SaaS only goes so far. "If you attach your core financial systems to a vendor month to month the only way to get your data is to pay month to month," said Ravin. "SaaS can be like a car lease: The payments are lower, but at the end of the day you don't own anything. SaaS is full of one-stop shops full of stacks you can't take anywhere else."
How do you see Rimini's margins and future shaping up?
Rimini spends about 30 cents on every dollar spent by one of its customers. SAP and Oracle spend roughly 8 to 9 cents per every dollar, according to Forrester data. "We have strong margins, but we're competing against companies with monopoly margins. We can afford to give some margin back," said Ravin.
Ravin added that Oracle and SAP can't give back margin because they'll risk a disaster. That's why you always hear Oracle and SAP executives maintain that they don't discount.
On Rimini's plan, Ravin said Oracle and SAP are likely to ignore his company even if it takes 5 percent to 10 percent of their support customers. He said:
"If you're Oracle and SAP it's much better for you to ignore us and continue to raise fees," said Ravin. "It will serve you better. If you start to discount it's a disaster. They (SAP and Oracle) have to raise those maintenance fees to deliver top and bottom line gains. They will continue to act like we're a small part of the industry and that's fine. We're up against billions of dollars and we're just a small part of what they're doing. They can just assume that some percentage of customers will go to the competition."
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