The downturn has opened up opportunities for IT departments to cut the support costs of their enterprise resource planning (ERP) software.
Start-ups such as Rimini Street and Spinnaker claim to provide third-party technical support to users of big-ticket enterprise software at a much lower cost.
Rimini supports JD Edwards, Siebel and Peoplesoft business software, which are owned and supported by Oracle, and has recently introduced support for SAP software. Spinnaker provides third-party support for JD Edwards.
The trend could pose a long-term threat to companies such as Oracle and SAP, which generate more than half of their revenue from support services.
Ronan Miles, chairman of the UK Oracle User Group (UKOUG), welcomes the extra competition. "Anything that liberates a market and encourages best practice as a competitive edge is good," he says. "The third parties may pressure Oracle to bring back a maintenance-only option or put pressure on the Oracle value-added services," he says.
David Rowe, senior vice-president, global marketing and alliances for Rimini Street, claims businesses that move to a third party for software support stand to save up to 90% of previous costs from by paying lower annual fees and eliminating non-essential modules, support processes and updates.
By breaking away from enterprise software suppliers, companies can also avoid forced upgrades which can cost millions of dollars, he says. "We are not investing in building the next generation of enterprise software. We are focused solely on providing support."
Moving to a third party for support appeals to businesses with mature ERP systems, says Ray Wang, partner, enterprise strategy, at consultancy Altimeter Group. "End-users need regulatory, tax and bug fixes. This capability is what third-party suppliers provide, at up to half the cost of existing maintenance fees," he says.
But the UKOUG’s Miles says the majority of Oracle users in the UK require the ability to migrate to newer versions, which means they will stick with Oracle for their support.
"The minority that are prepared to freeze their current Oracle estate are looking to move away from Oracle," he says.
SAP senior vice-president Martin Riedel says customers want to combine new functionality and support rather than adopt support-only services. The fast and continuous adoption of the latest SAP ERP release by the installed base demonstrates high demand for the combined model, he says.
But the trend towards third-party support is unlikely to weaken as the economy improves. A proliferation of suppliers may eventually erode the service revenues of big software suppliers.