News Analysis: Rimini Street Says "No" to Tomorrow Now

Recent press releases from Rimini Street indicate that the third party maintenance provider will not pursue an acquisition of Tomorrow Now from SAP. A few reasons why an acquisition of Tomorrow Now might not make sense:

• Why buy when they are coming for free? Many global and big named customers already have made the decision to migrate to Rimini Street. Money spent on an acquisition could be used to improve existing service offerings instead.
• Top talent has moved on to SAP. Many of the best account managers and support engineers have transitioned over to SAP's Active Global Support (AGS) organization and no longer work within the TomorrowNow unit. Existing customers have expressed some frustration with the "skeleton" crew.
  
• Tomorrow Now currently a money losing operation. With SAP losing and estimated $35M a year at the Tomorrow Now operations, only a provider with enough scale could stem the losses. In addition, the pending litigation from Oracle continues to put a damper on any potential acquisition.
  

The bottom line.
With Erwin Gunst at the helm as COO and his board mandate to cut costs and increase margins, its inevitable that a deal to unload Tomorrow Now will become a near term reality. However, the new buyer will have to stem the tide of customer defections to Rimini Street as well as find a way to keep Oracle off its backs. Despite such set backs, expect the pressure for third party maintenance options to increase as the recent maintenance price increases by SAP for new customers will only add to the mounting pressure for new options.


(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2008 by R Wang. All rights reserved

News Analysis: Too Early to Call the Death of Third Party Maintenance

Problems at Tomorrow Now unfairly cloud the market
Recent announcements about a management change of control at Tomorrow Now and letters to clients indicating a change in service agreements (we've been told that both sides could have a 60 day window to cancel contracts in the new agreeemnts) could be perceived as a death knoll for 3rd party maintenance. However, the trends for third party maintenance look good because:

• Value for maintenance fees still too low. Despite efforts by the major vendors to improve customer satisfaction, response times, and upgrade benefits, most customers continue to believe that they are not receiving the 2x to 2.5x they are paying in license fees over a 10 year period.
  
• Customers seek options. Third party maintenance, which halves the cost of maintenance, frees up money for new projects and other key IT initiatives. Customers who may have gone to Tomorrow Now look to alternatives. Rimini Street founded by Seth Ravin , a TomorrowNow cofounder, is one vendor who has grown its base to 50 customers and a beneficiary of this trend.
  
• Third party provider market may emerge from China. Chinese IT vendors, not beholden to SAP or Oracle the way the Indian SI's are, have an opportunity to provide this capability and provide some relief to the market. As the Chinese players like Augmentum, Achievo, Neusoft, Worksoft build their outsourcing capabilities, they will be best positioned to provide 3rd party maintenance. For them to succeed, they must do this before they become enticed by Oracle and SAP.

The bottom line for end users
Despite competitive and market pressures from Oracle and SAP, this issue remains a huge pain point for customers. Vendors for too long have milked the maintenance revenue to juice quarterly profits at the expense of customers. Expect new IT players to emerge and take this space and free companies from the shackles of vendor imposed policies while delivering on the true promise of "perpetual" licenses.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2007 by R Wang. All rights reserved