Third-party enterprise application support providers promise savings of up to 70% per year, but mind the gaps in coverage.
Enterprise software isn't cheap. Nor is ongoing maintenance and support, which in the case of SAP costs an additional 18% to 22% of the initial software purchase price per year. Enter Spinnaker Support, which introduced on Thursday a third-party support option for SAP applications, promising to cut customers' costs by at least half.
For companies making seven- or eight-figure investments in ERP, the prospect of a six-figure savings per year may be appealing. But be aware of the gaps in third-party service coverage.
Spinnaker, which is based in Denver and has offices in London and Singapore, has offered global support for Oracle's JD Edwards ERP applications for three-and-a-half years. The company has 160 customers, including three (unidentified) charter customers that have helped it establish the new SAP services. By adding support for SAP ECC and R/3 ERP systems, Spinnaker is dramatically expanding its addressable market, as SAP is the leading supplier of ERP systems.
The big promise from Spinnaker and its chief rival, Rimini Street, is substantially lower costs. Both companies say their services, which include round-the-clock, global troubleshooting and issue resolution, are half the cost of services provided by the likes of SAP and Oracle. Spinnaker says the savings are even higher if customers must use additional services from the big application vendors.
"Customers incur much higher costs between forced upgrades and customization support that SAP charges for on top of their usual maintenance fees," says Matt Stava, managing principal of Spinnaker Support. Spinnaker's service includes support for customizations, and by forgoing upgrades that "many customers find offer little value," Stava says, SAP customers can save as much as 70% on their annual support bill.
Of course, customizations usually need support the most when software upgrades cause them to break, so Spinnaker's additional 20% savings might prove illusory. Customers also have to consider that third-party vendors can't offer the enhancement packs and upgrades that are covered under original-vendor maintenance contracts.
What's more, the original vendors have software-based optimization and configuration tools that third-party vendors can't use or match--in SAP's case, its hosted Solution Manager software, included with Enterprise (22% per year) support. Solution Manager is designed to monitor systems, identify baseline performance, and help customers institute best practices for system optimization.
Spinnaker can't use Solution Manager, Stava acknowledges, but he says his firm assigns dedicated engineers to each customer who quickly become familiar with the particulars of a client's implementation.
Spinnaker and Rimini both say their customers are looking for long-term application stability rather than the latest bells and whistles. "In the early days it tended to be companies running legacy apps, but now it's a mix, with plenty of customers who are looking to run relatively new applications into the next decade," says David Rowe, senior VP and CMO at Rimini Street. Rimini has been in business since 2005 and has 475 customers.
The aspect of software upgrades that customers can't do without are changes made to comply with new or changed tax, legal, and regulatory requirements. In these cases, third-party providers can access application source code and make required changes directly, but there are instances where the third party simply won't go there.
Spinnaker, for example, isn't currently supporting SAP HR or payroll functionality, which is subject to constant tax, legal, and regulatory changes. Spinnaker says it plans to offer that support in the future. Rimini Street, meanwhile, does support SAP HR and payroll.
"We have a global tax and regulatory research team and a development team that can deliver those updates," Rowe says. "We've also built a tax engine to support customers in the U.S., which required a multimillion-dollar investment."
Spinnaker says its differentiator is a guaranteed 30-minute response time, with callback waits currently averaging eight minutes. To meet that service level, Stava says Spinnaker maintains a five-to-one ratio of customers to engineers, and he contends that Rimini's ratio is as high as 20 to 1 (a claim that Rimini denies).
Of course, third-party support providers have seen their share of controversy. Oracle has an ongoing lawsuit against Rimini Street, and Oracle also sued and won a case against SAP and its now-shuttered TomorrowNow unit. Oracle sought a new trial in its case against SAP/TomorrowNow after a judge knocked the jury award down from $1.3 billion to $272 million.
Third-party enterprise application support isn't for everyone, but as shown by Spinnaker's expansion into SAP services, it's a growing market that will likely benefit from competition. "We estimate that there are roughly 25,000 deployments of SAP out there," Rimini Street's Rowe says, "so the market is definitely big enough to support a set of choices for customers."
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