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High cost and lack of value drive some SAP customers to third-party support

Increasing numbers of SAP customers think they are no longer getting value from the high cost they pay for SAP support and are moving to third-party support providers.

Is SAP support and maintenance worth it? Some customers view it as expensive and inadequate, leading them to ditch SAP's support and maintenance and move to a third-party support provider.

EBSCO Industries joined a small but growing list of companies that moved off SAP to go independent. The decision to leave SAP for third-party support essentially came down to a simple cost-to-value ratio, according to Bryan Bee, EBSCO's vice president of enterprise IT systems. EBSCO was paying about $1 million annually for SAP support, but determined it was no longer getting the service it needed for such a high price.

EBSCO is a holding company based in Birmingham, Ala., comprised of 26 business units. It runs SAP at the top of a tiered ERP landscape that includes more than 20 ERP systems across the various units. The company has used SAP since 2008, and the system has been stable with only one upgrade, according to Bee. EBSCO did not plan to move to SAP HANA, so Bee decided that any upgrade support the company paid for was not necessary. Company officials explored moving to third-party support, eventually contracting with Rimini Street, a Las Vegas-based company that, along with Spinnaker Support LLC of Denver, is one of the two major independent support providers for SAP and Oracle.

Rimini Street was founded in 2005 and has grown at almost 40% annually, according to CEO Seth Ravin.

"Our Q3 results showed record-breaking numbers for SAP and Oracle business. The market is growing rapidly and this is a byproduct of 30-year-old software where little value is being provided for expensive maintenance," Ravin said. "It's the result of people being pushed to upgrade when they don't have an ROI that makes sense to them, and they have other initiatives that are far more valuable to them for that spending, and we're moving out of just being the 50% off guys to really working with CIOs and CFOs on spending models that help them reallocate spend on the appropriate places that drive growth in the business."

Spinnaker Support was founded in 2008 as a third-party support vendor for JD Edwards software and added its SAP practice in 2012, which has also grown at about 40% every year, according to CEO Lee Mashburn.

Spinnaker offers support services at around 60% lower than SAP or Oracle, and some customers have signed on when they need to save on their IT budgets, Mashburn explained, but more are interested now because they are rethinking how they are spending.

"More customers are switching because they like where they are but they want to save money so that they can fund future migrations to the cloud, for example," he said.

Lower cost, better service

EBSCO went with Rimini Street because it was paying SAP $1 million annually but not getting a value that matched the cost, Bee explained. Rimini Street costs considerably less and has provided a better and more personalized service.

"The technical team and the detail team have had a good experience. The thing with the SAP support is you put in a request. It's either a development request or consulting, so our team got to a point where it almost wasn't worth putting in a ticket anymore [because it took so long to get a response]," Bee said. "Now we feel that we have someone that we can go in and ask questions to and get some direction, and if we have support tickets we can put them in in the process."

The cost-to-value ratio for SAP support was also an issue for Color Spot Nurseries, a wholesale grower and seller of plants and shrubs based in Temecula, Calif. Color Spot's 14 facilities nationwide have been running SAP ECC since 2001, and the system is the lifeblood of the business, according to CIO Eric Robinson.

If SAP goes down, the business grinds to a halt and Color Spot's plants won't be found in Home Depot, Lowe's or Walmart, its biggest customers, so the prospect of moving off SAP support and onto third party was taken very seriously, Robinson said.

The main problem, however, was that SAP's support and maintenance was consuming about 20% of Color Spot's IT budget. The SAP system was stable and Robinson explained that it had performed just one major upgrade.

"In the nursery industry, IT budgets are really thin, and there's always pressure to reduce cost, so when I looked at the budget and recognized that 20% of it was for SAP maintenance, I said, 'Why?'" Robinson said. Unable to secure a deal from SAP that satisfied him, Robinson decided to look at third-party support and was swayed by Rimini Street's proposition of providing better support at half the cost. Color Spot moved to Rimini Street in 2010 and has been happy with the cost savings. Even better for Color Spot, the improved service has exceeded expectations.

"Rimini Street can afford the luxury of providing personalized service, so we have a technical account manager who knows Color Spot," he said. "They are an extension of my IT team -- they know our business, they know how the systems run, they know our seasonality, so when we put in tickets to Rimini Street, [the account manager is] the first person that reads that."

Dunn-Edwards Paints is another relatively small company with a stable SAP system that left SAP support for economic reasons. The Los Angeles-based paint manufacturer considers its SAP ECC 6 systems as the backbone of the business, said vice president and CIO Pete Girgis. However, the SAP support agreement was consuming too much of its IT budget. At the beginning of 2016, Dunn-Edwards waved goodbye to SAP and turned on support from Spinnaker. Money that was essentially unproductive is now freed up.

"We've been running SAP for some time now and have a stable ERP environment, so we wanted to reallocate our dollars to other initiatives," Girgis said. "By using Spinnaker third-party support, we were able to reduce our maintenance fees and move a tactical spend over to something more strategic. That's allowed us to take on some additional products and projects for our business and continue to accelerate development in other areas which [we] would otherwise not be able to do with the high cost of SAP maintenance."

Spinnaker has provided better value for the cost of support, according to Girgis.

"Spinnaker is able to stretch the support dollar more, they will work with you to resolve your issues inclusive of your maintenance contract versus sending you to a consultant," he said. "If we had an issue, SAP would most likely have sent us to professional services to resolve it."

SAP support model outdated

Vinnie Mirchandani, analyst and CEO at Deal Architect, said that third-party support is becoming more of an attractive option for SAP customers for three basic reasons: cost, customizations and service. Traditional support for long established enterprise vendors like SAP and Oracle is outdated.

"The SAP-Oracle model is 20 years old at this point, which says, 'We will support the core software, but first you have to do self-serve to go find a fix yourself and then set up a ticket,'" Mirchandani said. "That's the maintenance process as it's evolved over 20 years, and it's dramatically broken at this point because people customize and they want better and more timely support. It's remarkable to me that customers continue to write checks for [a] service that hasn't evolved in 20 years."

It's remarkable to me that customers continue to write checks for [a] service that hasn't evolved in 20 years.
Vinnie Mirchandanianalyst and CEO, Deal Architect

SAP is confident that it offers the best and most flexible support, with three support levels that cover all stages of customer needs, according to the company.

"Support from SAP is way more that bug fixing, handling incidents or sending technological updates. It is the baseline for value realization. Therefore, the important discussion is about how to maximize business and IT outcomes leveraging SAP support services. Here, SAP has tremendous value to offer," an SAP spokesperson said in an email.

One of the main worries that customers have is that they won't get upgrade support if they move off SAP, but many have determined that they won't move to SAP HANA or S/4HANA in the next five years or more, so they are beginning to weigh how much they may save by using third-party support.

"The more realistic CIOs are saying, 'I'm not dramatically [increasing] functionality, I'm only getting support for the core product. I'm getting poor service and have to fight with the vendor and take so long, what am I getting for the big maintenance check that I write every year?'" Mirchandani said. "When that light bulb goes on, people make the move."

Going third party not for everyone, and most stay put

Although there are many reasons why companies may consider canceling their SAP support contract, not everyone is a good candidate to go independent, according to Pat Phelan, research director at Gartner.

"If you've got a fragile solution [for which] the software vendor is constantly working with you to make core code changes, then it's probably not a good time to cancel," Phelan said. Customers might also want to stay put because they want to stay on the current product release or are planning an upgrade. Although Rimini Street and Spinnaker Support are growing, the vast majority of customers remain on SAP support. For all its growth, Rimini Street has around 300 SAP customers and Spinnaker 80, which is a tiny fraction of the thousands of SAP customers.

"I'm puzzled that third-party support hasn't grown faster given the value proposition that they have," Mirchandani said. "I would have thought by now that there would be at least a thousand SAP customers that have moved and that there would be another 500 every year, but maybe we're near that point where the dam may burst as customers look and ask what exactly are they getting with SAP support."

"Third-party support is in an expansion stage, but it's a small market relative to the total number of SAP and Oracle clients out there," Phelan said. "It could conceivably grow much larger, but we'll need more players in order to do that, as I don't think Rimini Street and Spinnaker can grow fast enough to support a substantially larger population at this point."

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This was last published in November 2016

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