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Oracle-SAP suit could be boon for third-party providers

Oracle's charges of industrial espionage against SAP may ultimately backfire by raising the public's awareness of third party support providers.

Oracle's high-profile lawsuit against SAP AG's TomorrowNow division may be casting a shadow over third-party support vendors for the time being, but the head of one such firm believes the case will actually help her business in the long term.

Punita Pandey, the CEO of netCustomer, a San Jose, Calif.-based company that provides support for Oracle-PeopleSoft users, said Oracle's charges of industrial espionage were designed chiefly to scare potential customers away from third-party support and steer them toward Oracle's own support organization. And for now, she said, they're having the desired effect.

Ultimately, however, the publicity generated by the case will serve to educate customers about the money they can save with a third-party provider, Pandey said.

According to Cambridge, Mass.-based Forrester Research Inc., third-party providers generally save users 50% or more on maintenance and support fees.

Whatever the ultimate price for third-party support, experts agree that it's sure to be a far cry from the average 17-23% of annual software licensing costs that Oracle, SAP and other large software vendors charge today.

"The more we look at this case, it really looks like it's more about [Oracle] trying to protect one of its most lucrative revenue streams," Pandey said. "A large chunk of revenue and a bigger chunk of [Oracle's] profit comes from maintenance and support, and [the case] really seems like, to put it mildly, a desperate attempt to maintain that monopoly of sorts."

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Oracle's charges against TomorrowNow have merit, Pandey added, but the bigger issue has to do with protecting Oracle's maintenance and support revenue stream.

"In some ways, for other third-party providers who do not have a mothership like SAP, [the case] could be a blessing in disguise," she said. "We don't have the marketing muscle and the sales muscle that SAP brings to bear…. To be able to get the visibility that this case brings is good."

A backgrounder

The current legal spat between Oracle and SAP began last March, when Oracle filed a federal lawsuit accusing TomorrowNow -- SAP's wholly owned subsidiary -- of illegally downloading copies of proprietary software code.

The current legal spat between Oracle and SAP began last March, when Oracle filed a federal lawsuit accusing TomorrowNow -- SAP's wholly owned subsidiary -- of illegally downloading copies of proprietary software code.

SAP acquired TomorrowNow, which provided support for PeopleSoft and JD Edwards applications, shortly after Oracle acquired the two companies as a way to draw customers away from Oracle to SAP as part of its "safe passage program."

Prior to Oracle's acquisition of PeopleSoft, netCustomer provided support for PeopleSoft users through a direct contract with the CRM giant. Following the acquisition, disagreements with Oracle over financial terms put an end to that relationship, Pandey said, and netCustomer overhauled its business model from that of an indirect support provider to a direct support provider.

The Oracle-SAP lawsuit, which is still making its way through the courts, also alleges that TomorrowNow intentionally interfered with a prospective economic advantage and committed computer fraud. In early June, Oracle amended the complaint, adding copyright violations and breached contracts to the list of alleged offenses.

The next hearing in the case is set for Sept. 18 in the U.S. District Court in San Francisco.

Third-party support not for everyone

The cost savings associated with third-party support providers may make them an attractive choice, but experts point out that they're not for everyone.

According to Ray Wang, a business applications analyst with Forrester, mature companies that only rarely need support stand to benefit the most from third-party providers.

Alternately, Wang said, growing companies that want to stay on top of the latest product features and updates are probably best off paying a premium and getting support directly from Oracle or other large vendors.

Innovation key to success with third-party support

Free publicity is nice, but third-party support organizations need to get creative if they truly want to be successful going forward, Pandey said.

One way that netCustomer is innovating on traditional methods of providing support is by offering on-demand support services -- support services that customers pay for on an as-needed basis.

Pandey hopes this sort of offering will be of particular interest to companies that would like to stop paying fees to Oracle for services they hardly use.

"We are doing that already to some extent, and we are looking at productizing that part of our service even further with some of the customer input we've gotten," Pandey said. "It makes sense for them and it makes sense for us because we would become much more of an agile player."

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