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Software clients bet on third-party maintenance
By siliconindia
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Tuesday, 13 October 2009, 15:27 IST |
2 Comments
Bangalore: Business software customers such as Siemens are questioning heavy product maintenance fee paid to companies such as SAP and are exploring third-party maintenance with Indian tech firms.
As reported by the Economic Times, "Siemens is trying to negotiate hard with SAP and is discussing a deal wherein some 200-300 of its internal support staff could move to an outsourcing vendor such as IBM or HCL," said a source. European engineering major Siemens became the latest customer to question the manufacturer-driven support and has shortlisted HCL technologies and IBM for a potential contract. As part of software license sales contract, with a vendor like SAP or Oracle, customers have to pay 22 percent of the license fee every year for any product support or upgrade services, on top of what they spend on annual maintenance of their technology and business systems.
Of the total $60 billion enterprise software market globally, business software makers SAP and Oracle gain over half of their revenues by charging customers for product-based support including new updates and many more. For instance, Siemens could be incurring over $50 million annually towards supporting its ERP (enterprise resource planning) systems. For every dollar spent on buying a software license for an ERP software, customers need to pay some 22 cents to the product vendor for annual updates, maintenance and other patches. Maintenance revenues are the cash cow for Oracle and SAP, with both these companies earning in excess of $16 billion together from this.
Experts such as R "Ray" Wang, Partner Enterprise Strategy at consulting firm Altimeter say that in third-party maintenance, no money goes to the vendor, and that is why customers are in a better position to drive down the annual maintenance fee. "For Indian service providers, this is an opportunity to break free and start addressing the market collectively at the same time," he said. He added that the third-party maintenance could easily be up to $7 billion market for the vendors.
For Indian tech firms such as Tata Consultancy Services, Infosys, Wipro and HCL, any move to aggressively target the third-party maintenance market could be viewed as some sort of breach of trust by global software product firms, who have helped these companies build their businesses around the products.
"It's lucrative for sure, but not at the cost of a long-term alliance. Moreover, the jury is still out on whether customers should seek beyond manufacturer-driven support," said a senior official at one of the Indian tech firms. Globally, vendors such as Rimini Street have already started offering third-party maintenance services to customers. For customers not planning to upgrade to newer versions of the products, getting a vendor like Rimini to support the older versions makes lot of business sense. "It would be fair to assume that almost half of SAP customers are still on older ERP version of R/3," said Wang.
