Support upstarts promise to halve costs

Third-party services providers are going after vendor software maintenance revenue. Stacy Cowley reports

For users of business applications, it’s the annual maintenance fees that make the software really expensive. With that in mind, a handful of third-party support services firms are trying to lure IT managers with the following proposition: turn your maintenance work over to us and watch your bills shrink by as much as 50%.

The third-party efforts aren’t entirely new. For example, TomorrowNow began offering full-blown support replacement services for PeopleSoft’s applications two years ago, when PeopleSoft was on the verge of being acquired by Oracle.

But support firms such as TomorrowNow, which itself was bought by SAP early last year, are stepping up their efforts to attract users. TomorrowNow said it gained about 75 customers last year while increasing its workforce from 50 to 150 and adding support centres in Denver, the UK, the Netherlands and Singapore.

Another example is Rimini Street, which officially launched support services for users of Siebel CRM applications last month and two weeks ago it announced plans to add two more support centres to augment its three existing facilities.

Another third-party vendor is netCustomer, which is based in California but has most of its operations in India. It announced Siebel support services in August, adding to its existing offerings for PeopleSoft users.

Joe Muhlenkamp, IT director at Big Lots Stores, made the third-party switch in late 2004, just before Oracle bought PeopleSoft. Big Lots, a discount retailer, runs an extensive PeopleSoft ERP system that handles HR and payroll management for the company’s 40,000 employees. But Muhlenkamp said he grew disenchanted with PeopleSoft’s support services.

“From a cost perspective, the level of support I was getting wasn’t worth it,” he says. So he signed on with TomorrowNow, which issues tax and regulatory updates, as well as bug fixes. It also has consultants on call to handle its clients’ problems.

“The quality of the updates has been good and we haven’t had any significant support issues,” Muhlenkamp says. “Our system is as solid as it’s ever been.”

Recurring maintenance revenue streams are prized assets for application vendors and users, however grudgingly, generally pay up. For example, since it acquired PeopleSoft just over a year ago, Oracle has retained 94% of the PeopleSoft support contracts that have come up for renewal, an Oracle spokesperson says.

The subscription rate for vendor-provided maintenance “is probably higher than it’s been at any point in history — well over 90%,” says Jim Shepherd, an analyst at AMR Research in Boston. “There’s a sense that it is an unacceptable risk to be on unsupported software.”

For Ace Parking Management, though, the risk has paid off. Tomorrow-Now last month announced that the parking lot operator has signed a three-year deal to renew a PeopleSoft support services contract that began in late 2004.

Stevan White, Ace Parking’s IT director, says he’s happy to rely on TomorrowNow’s services for now and avoid paying full freight for maintenance, even if he eventually has to upgrade to Oracle’s promised Fusion line of integrated applications.

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