App support upstarts promise lower costs

For users of corporate applications, it’s the annual maintenance fees that make the software really expensive. Now a handful of third-party support services firms are trying to lure IT managers with the following proposition: Turn your maintenance work over to us, and watch your bills shrink by as much as 50 percent.

The third-party efforts aren’t entirely new. For example, TomorrowNow began offering full-blown support replacement services for PeopleSoft’s applications two years ago, when PeopleSoft was on the verge of being acquired by Oracle.

But support firms such as TomorrowNow, which itself was bought by Oracle rival SAP early last year, are stepping up their efforts to attract users. TomorrowNow said it gained about 75 customers in 2005 while increasing its workforce from 50 to 150 and adding support centers in Denver, the U.K., the Netherlands and Singapore.

Rimini Street officially launched support services for users of Siebel CRM applications last month, and two weeks ago it announced plans to add support centers in Austin and the Pleasanton, Calif., area to augment its facilities in Durham, N.C., and Foster City, Calif.

Another third-party vendor is netCustomer, which is based in San Jose but has most of its operations in Noida, India. It announced Siebel support services last August, adding to existing offerings for PeopleSoft users.

Joe Muhlenkamp, IT director at Big Lots Stores, made the third-party switch in late 2004, just before Oracle bought PeopleSoft. Big Lots, a discount retailer based in Columbus, Ohio, runs an extensive PeopleSoft ERP system that handles human resources and payroll management for the company’s 40,000 employees. But Muhlenkamp said he grew disenchanted with People-Soft’s support services.

“From a cost perspective, the level of support I was getting wasn’t worth it,” he said. So Muhlenkamp signed on with TomorrowNow, which issues tax and regulatory updates as well as bug fixes. It also has consultants on call to handle its clients’ problems.

“The quality of the updates has been good, and we haven’t had any significant support issues,” Muhlenkamp said. “Our system is as solid as it’s ever been.”

Gauging the Risk

Recurring maintenance revenue streams are prized assets for application vendors. And however grudgingly, most users pay up. For example, since it acquired PeopleSoft 13 months ago, Oracle has retained 94 percent of the PeopleSoft support contracts that have come up for renewal, a company spokeswoman said.

The subscription rate for vendor-provided maintenance “is probably higher than it’s been at any point in history — well over 90 percent,” said Jim Shepherd, an analyst at AMR Research. “There’s a sense that it is an unacceptable risk to be on unsupported software.”

For Ace Parking Management, though, the risk has paid off. TomorrowNow last month announced that the San Diego-based parking lot operator had signed a three-year deal to renew a PeopleSoft support services contract that began in late 2004.

Stevan White, Ace Parking’s IT director, said he’s happy to rely on TomorrowNow’s services for now and avoid paying full freight for maintenance — even if he eventually has to pay the full upfront license cost to upgrade to Oracle’s promised Fusion line of integrated applications.

“Five or six years down the road, we might want to go with the latest and greatest [release],” White said. “But we will have saved enough to relicense from scratch. I can sit here on my software, nice and stable, saving money and watching as Oracle and People-Soft figure out what they’re going to do to move forward.”