Vendors are quietly trying to protect themselves from losing support contracts, by using three distinct tactics.
Oracle and SAP have been two formidable forces in the ERP market for a long time now, but things are changing fast, as competitors rise to meet (and arguably overtake) them. It’s common to open your newsfeed now to see multiple articles on Oracle/SAP vs Amazon, or Google, or even their own shareholders in their bid to become the largest Cloud/ERP/Software provider.
However, while Oracle and SAP continue to build and develop their Cloud infrastructures (their rising stars), it’s easy to forget that their legacy/on-premise customers – and those customers’ sizable contracts and support fees – are funding the research and innovation that put Oracle and SAP where they are now.
SHOCKING FACT: The average Oracle/SAP customer pays around 22 per cent of their initial licensing price in maintenance fees annually, and 90 per cent of this fee is profit for Oracle/SAP.
It’s these 90 per cent profit margins that are fuelling Oracle and SAP’s product development, sales, and marketing of your next upgrade – that you have to move to, or they cut off the support you need to maintain your systems!
That is why both Oracle and SAP are nervous about something called third-party support, a business model that replaces their official vendor support for only half the price – effectively cutting away the most profitable and stable revenue generator for both Oracle and SAP.
What is third-party support?
Third-party support is simply a different support team for your Oracle and SAP products. Rather than contacting the vendor directly, you would instead contact them to fix issues.
The main draw of a third-party provider though isn’t just getting better support, they all offer two critical things for organisations:
– At least 50 per cent off your current annual Oracle/SAP support bill
– No more upgrade deadlines – they support all versions of products indefinitely
This means Oracle and SAP’s biggest competition aren’t just the likes of Amazon or Google; third-party support providers – like Support Revolution – constitute a huge risk to their income.
The more customers who move away from vendor support models, towards cheaper, more sustainable third-party providers, the more Oracle and SAP’s safe cash-cow revenue diminishes, and the more at risk they are – lower cash flows and less money to invest in their new business models and technologies.
So, with that in mind, are Oracle and SAP afraid of third-party support providers?
Gartner: The risk to oracle and sap is real
Despite the claims of Oracle and SAP, third-party support as an alternative option is growing in popularity – with many major brands and government bodies globally joining the support revolution.
In October 2019, research & insights advisors Gartner published a market guide on the subject of third-party support, the five major use-cases organisations have, and the growing demand for these services:
Third-party support is expected to “grow from US$351 million in 2019 to US$1.05 billion by 2023 – a 200 per cent increase.”
Where has this demand come from?
While 50 per cent off one of an organisation’s largest IT bills might sound tempting, it is actually Oracle and SAP themselves who seem to be pushing the latest spike in demand for third-party support.
Oracle and SAP’s support and maintenance costs continue to rise, and their main concern is moving customers onto their SaaS Cloud products (giving Oracle/SAP full control of pricing, patches and upgrades) regardless of whether a Cloud migration is right, or even necessary, for their customers.
Result? The rise in demand for third-party support. Customers want alternative options; taking into consideration their own priorities, and not those of Oracle and SAP. They want more value for money on their current systems, cheaper support options, and the choice to avoid end-of-support deadlines and upgrade when THEY choose.