Third-Party Support An Option For PeopleSoft Customers

Jack Hughes, IS director for The Park Associates, operator of a 27-unit nursing home chain, says he's not worried whether Oracle will support his PeopleSoft applications.

"I don't know what I can trust of Larry Ellison's quotes in the press. Will they eliminate support? Will they force you to switch over to Oracle?" he says. But he isn't suffering from doubts about his future technical support. As of Jan. 1, the East Aurora, N.Y., company began getting support from TomorrowNow Inc., an independent third-party vendor that specializes in PeopleSoft applications.

His firm's contract with TomorrowNow will overlap with a maintenance contract with PeopleSoft, which is paid up through Feb. 28. During that time period, IS staffers at Park Associates will download upgrades to their PeopleSoft 7.5 applications from PeopleSoft, as allowed under the maintenance agreement. For the past four years, the company has been using PeopleSoft payroll, general ledger, accounts payable, purchasing, and asset-management applications and it will upgrade them all to Version 8 over the next 60 days.

TomorrowNow isn't acting as an upgrade implementer, but it will help Hughes get the upgrades running the way Park Associates wants through the maintenance agreement. "They know PeopleSoft applications inside and out. It seems like they're all a bunch of ex-PeopleSoft people," Hughes says.

Hughes says he will save about half, or $100,000, on his existing maintenance bill through the agreement with TomorrowNow, which promises to support the Version 8 applications for the next 10 years.

TomorrowNow president Seth Ravin, former director of customer service and strategy at PeopleSoft, says PeopleSoft charged 18% to 20% of the purchase price of PeopleSoft applications for ongoing maintenance.

Hughes says Park Associate's total savings are actually greater than $100,000 because his firm was due to renegotiate its three-year maintenance agreement with PeopleSoft. The applications supplier "bumps up" the price on maintenance 25% at the end of a three-year agreement, he says.

PeopleSoft says "their new customers are paying more for maintenance, so they want you to pay fair-market value. That's ludicrous because we rely less and less on support the more familiar we get with the applications," he says.

Hughes says he faced a battle each time he negotiated his IS budget to continue paying what his business managers saw as maintenance fees that were too high. The IS department at Park Associates is small, just four people, and he defended the fees as necessary.

But Park Associates was making needed changes to the PeopleSoft applications and using its own skills to engineer reports the way its accountants and payroll departments wanted them.

TomorrowNow says it will make adjustments in existing applications to meet changes in the tax code and reporting needs, a service that Hughes says his company found "very appealing," particularly combined with the lower support costs. He thinks PeopleSoft Version 8 applications will serve the firm well for many years, if not the full 10-year lifespan of TomorrowNow's support guarantee.

His company's example raises a question of whether Oracle, which took over PeopleSoft effective Dec. 29, can realize all the gains it hoped for in the merger. "The margin on maintenance revenue is very high," observes Bill Swanton, analyst with AMR Research. If Oracle can capture the maintenance revenue coming from PeopleSoft customers, it will have a stronger revenue base with which to produce a new generation of applications that challenge SAP, the market-share leader in enterprise applications.

But if a percentage of the PeopleSoft customers switch to an outside service company such as TomorrowNow, they will cut into how much revenue Oracle gains for its competition with SAP. TomorrowNow also may force Oracle to spend more on delivering good technical support as a defensive measure. Near the end of the protracted takeover attempt, TomorrowNow announced Dec. 7 that it would support J.D. Edwards' software for 10 years as well as PeopleSoft applications.

Oracle CEO Larry Ellison's tone switched from being dismissive of the J.D. Edwards product line at the start of his takeover campaign, calling it a defensive acquisition by PeopleSoft, to promising 10 years of support for J.D. Edwards' EnterpriseOne and World applications. Ellison began saying Oracle would "over-support" PeopleSoft customers.

"Third-party maintenance of enterprise applications is coming into its own," predicts AMR Research's Swanton, because the cost of maintenance through application suppliers is generally high.

Another user of third-party technical support is Toni Faval-North, CIO of Pomeroy IT Solutions Inc., an IT-services firm with $850 million in revenue in 2004. The company, a user of PeopleSoft human-resources applications since 1997, decided during a downturn in 2002 to switch to TomorrowNow technical support.

"We saved $120,000, or 70% less than what PeopleSoft was charging," Faval-North says. She acknowledges that Pomeroy IT Solutions won't be able to receive upgrades, but "we're not counting on upgrades." The firm will operate on its existing PeopleSoft applications for the next two to three years, "then evaluate what's available," including a possible combined product from Oracle, she says.

Many PeopleSoft customers will stay with Oracle, but "some will go to Microsoft applications in the small- and medium-business space," she predicts. "The existing customer base is nervous, but people are just not in a position to kick off their enterprise resource planning applications and adopt new ones," she says.

TomorrowNow's Ravin says his company is receiving heightened interest because of uncertainties over the merger. Traffic to the firm's site jumped 300% in the days following Oracle's announcement that it had acquired a controlling share of PeopleSoft stock. The company also has received 200 resumes of "primary support engineers, talent that we would normally have to search out" in the last several weeks, he adds.

TomorrowNow was established in 1998 by CEO Andrew Nelson, a former PeopleSoft Installation Services worldwide executive and manager of PeopleSoft Upgrade and Technology consultants. The firm has 100 customers, including the city of Atlanta, Coors, Lockheed Martin, and Safeway.

"Our clients use 10% to 15% of the application's functionality. They have all they need for the next 10 years," he said. TomorrowNow has about 35 employees and is privately held. No revenue has been disclosed. TomorrowNow's Ravin says his company is receiving heightened interest because of uncertainties over the merger. Traffic to the firm's site jumped 300% in the days following Oracle's announcement that it had acquired a controlling share of PeopleSoft stock. The company also has received 200 resumes of "primary support engineers, talent that we would normally have to search out" in the last several weeks, he adds.

TomorrowNow was established in 1998 by CEO Andrew Nelson, a former PeopleSoft Installation Services worldwide executive and manager of PeopleSoft Upgrade and Technology consultants. The firm has 100 customers, including the city of Atlanta, Coors, Lockheed Martin, and Safeway.

"Our clients use 10% to 15% of the application's functionality. They have all they need for the next 10 years," he said. TomorrowNow has about 35 employees and is privately held. No revenue has been disclosed.