Third Party Maintenance: Tomorrow is Now for buyers!

Amdahl. Skype. MicroJet Technology. AMD. The technology industry has a tradition of vendors who come along and challenge seemingly bullet-proof  incumbents. They deliver a different set of economics - and help squeeze out excessive premiums in various segments of the market.  And sure enough incumbents try every FUD, legal maneuver to bad mouth, intimidate such providers. Third party maintenance is today's "plug-compatible" alternative to maintenance offered by software publishers.

Irrespective of what happens to SAP's TomorrowNow unit after Oracle's suit, the cat is out of the bag. While Oracle in its suit makes the point that "the economics, and the logic, (of SAP's TN pricing) simply did not add up", actually the economics of software maintenance are extremely transparent.

I have said before software maintenance reflects the most empty calories in IT spend from a buyer's perspective and here's why:

a) paying for bug fixes smacks of "double jeopardy". The software industry delivers shoddy code and charges a license fee for it (with minimal warranty), then expects buyers to pay maintenance to get bug fixes.
b) most enhancements (from at least the larger) software vendors deliver tend to be "me-too" and years late. Ask Oracle's CAI partners from a few years ago the inherent tension in worrying about Oracle introducing a competitive product while also acting as a partner. I was aghast a few years ago to hear an SAP executive say "shame on us if we cannot learn from our application partners". The charges against Microsoft from smaller vendors which partnered with it are well documented. Larger vendors do not pay royalties to the innovative vendors, yet charge customers for it like it was original IP
c) Many periodic enhancements, especially in core ERP modules, are driven by statutory changes. The algorithms are publicly available, not proprietary IP of any software vendor
d) During implementation before they go live on software, few customers tax support lines. Indeed they are under another "double jeopardy" - paying the systems integrator (often Oracle or SAP Consulting) in addition to paying maintenance.
e) Similarly after year 5, the support demands of most customers drop off as they stabilize their production environment. Fair maintenance pricing would be in a bell curve - gradually ramp up years 1 and 2, gradually ramp down starting in year 5. But today the software industry expects full rates from day one through termination
f) Most software vendors have moved maintenance of older releases offshore to India, E. Europe etc, but have kept the savings without passing any of that along.

I could go on, but you get my drift. Maintenance, direct from most software vendors, is over priced by a long shot. Customers should have alternatives. Just because you bought a Porsche  should not mean you go to the Porsche dealer for every service. For peace of mind or better service you may still want to, but you have a choice to also go to your local garage.

If  Oracle's action against SAP spooks third party maintenance, I would like to see the Feds get involved. During the PeopleSoft takeover battle, the DOJ tried to stop Oracle on antitrust grounds. It chose to define the software market very narrowly and Oracle easily proved it was not being anti-competitive. This time around the Feds should use maintenance as the filter. Oracle (and other software companies) have an overwhelmingly dominant position around that revenue stream around their software.

The government action against IBM in 1969 led to the formation of today's software industry. And it has been a glorious one. No reason why similar action today against the software industry will not spawn new services and software options - and make the maintenance from the software publishers themselves much better value. It's not about being mean to SAP or Oracle or Microsoft (or IBM again). It's about customer choice.

Update: Sure enough the F word - Feds - got the most attention in my post. Several emails to me chided me for dragging the government in. Ok, so if you have read my SOX rants, I am not a big government/compliance fan. My note above was more on poor payback from maintenance and I brought in the Feds towards the end of my note and only "If  Oracle's action against SAP spooks third party maintenance..."

As leaders, I want Oracle and SAP and MS and others to be more responsible and allow for more choice around maintenance (as they do around implementation services). When I say leaders, I mean it. The top 4 have sw revenues of $ 15 to 40 b each. They are big, global players and have responsibilities just like chemical and auto companies do. Their own willingness to open up would be far more rational than government intervention. Most customers would likely continue to buy from them, but those customers that did not see value could move on. This is about customer choice. Today we don't have it around maintenance.

Comments

[Ram]

Are you suggesting for some kind of deregulation of IT industry the way it was done for Utility industry? As Utility industry was categorized into Generation, Transmission and Distribution with a controller in place, is it possible to impose similar tactics here in IT?

Can IT industry be deregulated by decentralizing the Product and Service sectors to ensure that service division of a product company will not have any undue advantage over other 3rd party service providers?

With deregulation in place, service division of a product company has to be competitive enough to survive on a level playing field.

[Sadagopan]

Vinnie – completely agreed. besides the US government, the EU and some other asian government/government bodies can also play a role here. The discretionary spending of CIO’s are less than 25% on an average and several arbitrarily forced expense items like maintenance tie the hands of the CIO and in turn limit the ability of business to spend more on technology and go after innovation centered on technologies abilities. I have never been able to get a convincing reply from product vendors on why the maintenance cost structure never changes much. In every other industry with scale, the maintenance charges or for that matter the service charges shall come down-benefits of scale would reach the customer. Strangely, software industry has no such compulsions. More here. http://123suds.blogspot.com/2007/03/enterprise-software-customers-need-for.html

[Jay]

Vinnie,
From someone who writes some of this (bad) code. You don't have any commmenters of this genre. So here goes another perspective.

(1)'paying for ...........to get bug fixes'

A lot of pple have this complaint. In my (admittedly limited) experience this statement is not the case.Most of the stuff which do get logged as bugs are really enhancements . Stuff which gets shipped out from the development team after QA always conform to the basic specs. (btw I don't work in dev).

'Bugs' logged by support which are really bugs most of the time happen in the interface - between functional modules, between technology stacks etc for particular data sets, particular configurations etc has been my experience.

This happens mostly due to a less than perfect testing. But Steven Chan makes a very important point here

http://blogs.oracle.com/schan/newsItems/departments/general/2006/05/29

- 'comprehensive testing is near impossible due to an infinite set of possibilities.'

(2) I won't want to work for one of these 3rd party support providers. 'Cause a lot of issues can be plain unsolveable if you don't have access to the whole code and tech stack docu.

Believe me, I don't want to attend another conference call in which a hot-shot is screaming 'YOU KNOW WHO I AM? GIVE ME A TURN AROUND TIME NOW!!. I DEMAND THAT THIS GETS FIXED.(actual words)' at a developer who does not have access to the whole code. (who btw is thinking - 'fix it urself, u fat middleAged a**hole!')

I can see that it can be a transition plan - a client does not want to do a re-implementation and migration rt now - but will surely do in the future to a competitor system.
But do clients do this long-term?

[Chuck]

Excuse my ignorance, but there's one really big point about third party maintenance that I don't understand. How can a third party deliver a "fix" for proprietary software, such as PeopleSoft? Source code is not normally made available for proprietary software, and, even if it is, how can they legally change it? And if they do, aren't you as a customer really accepting all of the risks that come with a "forked" version of the code?

[vinnie mirchandani]

Jay, thanks for your comment. Good to have someone in the trenches comment on the issues.

I don't have an easy answer - but do want to ask - how are third party maintenance signing up for specific SLAs about response and turnaround times without access to the full stack...are they exaggerating their ability to deliver or they redefining the support model?

[vinnie mirchandani]

Chuck, some vendors like PeopleSoft did deliver source code. Customers decide to go with third party maintenance when they decide to part ways with the publisher so yes they are willing to accept a customzied version but obviously the savings jsutify it.

Ram, basically yes - but I expect the publisher would have over whelming advantage to start with but other services providers would compete on price, more specific SLAs etc. Exactly what happened with IBM almost 40 years ago. The apps software industry was born when the governement forced IBM t0 unbundle software from hardware.

[Ram]

I am sure Oracle (including Peoplesoft) is having a different support model compared to SAP. Had Oracle been following the similar model as SAP, then this might not have become an issue. I think in case of SAP, it is fairly balanced and may not require any imposed changes.

More here [ http://careerless.blogspot.com/2007/03/oracle-vs-sap-product-maintenance.html ]on SAP's maintenance model.

[vinnie mirchandani]

Ram, SAP charges 17% a eyar and charges customer upgrade fees. Their model is just as punitive to buyers as Oracle's