The case centers upon Oracle’s allegations that TomorrowNow, a subsidiary of SAP that provides support for PeopleSoft, JD Edwards, and Siebel software, illegally downloaded Oracle support documents. SAP claims it didn’t know of any shady practices at TomorrowNow, although it did acknowledge that inappropriate downloads took place.
What’s at stake, of course, is more than illegal downloads. SAP bought PeopleSoft in late 2004, and SAP quickly reacted, acquiring TomorrowNow in January 2005. The strategy was to draw some PeopleSoft/JD Edwards customers that were now unsure about future Oracle support and software onto SAP’s system using TomorrowNow as a transition for these customers’ support services.
TomorrowNow has signed up some big accounts, which cut away into the very profitable support revenue that would likely have gone to Oracle – both SAP and Oracle make a good amount of their sales through support services and upgrades, at sky-high margins.
At the time there weren’t too many options for support, and many companies felt they were getting squeezed into expensive maintenance deals with their software vendors without much of a return, according to Punita Pandey, CEO of netCustomer, a US-based third-party maintenance vendor that handles almost all of its work from India.
Lots of customers have stable applications environment, with a lot of customized code, Pandey said. But vendors wash their hands of any problems related to custom code when it comes to support. There’s also a trend not to move to upgrades, a lot of which are related to vendors’ recent acquisitions, not actual enhancements.
netCustomer got its start as a direct support shop for PeopleSoft, with which it had a contract to handle maintenance for PeopleSoft customers. It now has nearly 100 employees, primarily delivering support remotely from India with some onsite deployments when necessary, Pandey said.
So how will the Oracle-SAP lawsuit play out for third-party vendors like netCustomer? The allegations directed at TomorrowNow don’t exactly instill confidence in the third-party support model, but Pandey thinks that all the publicity may turn out for the best.
Form our experience, the third-party model is hurting Oracle in two ways. First, it’s losing customers through attrition. And those that choose to stay on, they’re really negotiating their maintenance contracts, forcing vendors to slash costs and lose their huge margins, Pandey said.
She said her company brings a level of customized support, with netCustomer able to provide new interfaces for client systems or handle new development work. But so far, it’s an emerging market, and the biggest competition is still mostly the big software vendors themselves. Plus there are consulting firms, from boutiques to the big notables, with onsite capabilities that can go in and take care of post-implementation support work. But this comes at a price, including by-the-hour billing and travel expenses.
Pandey said that right now the business is focused around Oracle’s products, since it’s acquired so much in the past years. She added that netCustomer has also been eying SAP work. But that’s been slower to emerge – it’s all SAP products.
Oracle now has PeopleSoft, but the next version of it isn’t a PeopleSoft product, no matter how much Oracle dresses it us, Pandey said. It doesn’t matter whether it’s a new product or a fusion product line, which isn’t going to be stable for some time. That’s why there so much uncertainty over support.
She added that as SAP moves to the NetWeaver platform, there could be a surge in demand for support firms that do R/3 work.
