For an enterprise, annual software support and maintenance typically contributes 50–60 percent of the overall IT software spend (predominantly towards OEM). Software maintenance and support fees usually range from 18–25 percent of the license cost. It should be noted that an enterprise would spend more on the maintenance and support compared to the original software license cost within five years.
In addition, software OEMs typically increase software support and maintenance costs each year. However, support requirements will often decline for an enterprise as internal technical expertise grows and the application's stability matures, thereby widening the gap between software support cost and its realized benefits. Many enterprises have not only paid software fees for licenses they are not using (shelfware), but also continue to pay 20–22 percent annual maintenance on them.
There are third-party support providers in the market who are capable of providing quality support at an affordable cost. There are organizations that have saved more than 50 percent on their software M&S by engaging with third-party support providers. When enterprises engage with third-party service providers, cost is lower because they only cover support and maintenance and do not have rights to new versions. Hence, there is an increasing trend of organizations looking to these third-party providers as a means of cost savings.
However, some third parties have faced legal penalties for violating intellectual property rights. For example, Oracle filed a lawsuit against Rimini Street in 2010 for alleged copyright infringement.
Drivers and Constraints - Third-Party Support
Support for Customization
- Enterprises should consider legal implications, and ensure there is no record of breach of IPR from third party
- In addition, enterprises should ensure that third-party suppliers use modified code to provide support, do not access any password protected websites to provide code fixes, or avoid downloading any material from the OEM’s website on behalf of the client
Rapid Response and Issue Management
Deliver software update/patch to enterprises on demand, and ensure timely access to the right resources (skill match)
Provides right-skilled resources from first request to final resolution, whereas OEMs tend to use junior-level resources at request initiation
Dynamic Environment and Lack of Highly-Skilled Resources
- Frequent changes in the technology environment make it difficult for enterprises to engage with third parties, due to lack of product roadmaps
- Lack of highly-skilled programmers is another hindrance
High Cost Saving
Third-party maintenance provides for cost savings upward of 50 percent compared to that provided by OEM
In addition, third parties help in optimizing software licenses, thereby enabling cost saving through reduced shelfware (hence, reduced outflow toward support fee)
Legalities with OEM
- Even though OEMs allows enterprises to acquire support services from third parties, there have been copyright issues raised against third parties.
- Generally, OEM develops and licenses proprietary “enterprise software”. Enterprises pay a one-time licensing fee to download the software and can then decide to buy a license maintenance contract that provides for periodic software updates.
- System integrators like Rimini Street provide third party support for enterprise software in lawful competition with OEM’s own maintenance services. In the course of providing third party services, Rimini Street also is required to provide software updates to its customers.
Examples of Copyright Violations by M&S Providers
Rimini Street, Inc.
Oracle sued Rimini Street (RS) alleging that certain RS processes violate Oracle’s license agreements, infringed upon copyrights, and violated other federal and state laws. An additional complaint alleged that RS had copied, distributed, and created derivative works from Oracle IP and then used materials obtained for one customer to support a different customer. In October of 2015, a jury awarded nearly US$53 million in damages to Oracle. Since that time, RS has been ordered to pay Oracle additional legal fees and accrued interest. A second legal battle, covering a more recent period, is now underway.
Oracle claimed that TomorrowNow had downloaded from Oracle’s Customer Connection technical support website using customers’ contract credentials without authorization. In addition, TomorrowNow had downloaded copyrighted support material for which the customers did not hold a license. The courts ordered SAP, who acquired TomorrowNow in 2005, to pay Oracle a total of US$292 million in 2011.
Oracle’s services partner CedarCrestone stole Oracle software for use in its services offerings. Oracle sued CedarCrestone for copyright infringement, breach of contract and unfair competition, and sought unspecified damages. In 2013, the parties reached a confidential settlement.
When Should Enterprise Consider Third-party Support and Maintenance?
Two main factors when considering M&S providers:
Stable – enterprises that operate in more stable environments and have upgrade cycles greater than 36 months
Highly modified – when level of customization is high and complex to incorporate software patches
- Currently, the percentage of enterprises embracing third party support is comparatively low, but it is emerging as a favorable option.
- With increased adoption by enterprises, legal issues would also be mitigated as it is evident from recent court rulings that validated the support model offered by such parties. Nevertheless, enterprises should look for providers that:
- Protect the OEM’s intellectual property in order to avoid risk of litigation
- Are not facing legal judgments that could affect their processes or even their capability.
Operational characteristics to look for:
- Remote Access - Support should be provided through remote connections to the enterprise clients’ systems and environments.
- Code fixes are coded by the third-party provider and in the client’s environment.
- Code fixes are specific to each individual client.
- The support provider’s staff do not have access to any password-protected websites from the software publisher to provide code fixes.
- Access to password-protected websites should be denied for support provider’s staff to prevent an IPR breach from the software publisher’s website. In addition, support provider’s staff should not download any material from a software publisher on behalf of their clients.
Contract Considerations for Third-party Support and Maintenance
- Expert first call response – Third parties provide right-skilled resources from first request to final resolution, whereas OEMs tend to use junior-level resources at request initiation.
- Upgrades – Third parties do not deliver future publisher-built upgrades or new releases.
- Intellectual property protection – Third-party support providers need to operate in ways that protect the intellectual property rights of the publisher, such as only working in customer environments and not accessing publishers’ subscriber-only systems.
- Provider risk – Some third parties have incurred or could face legally mandated financial penalties for intellectual property rights violation.
How to Choose a Third-party Support Provider?
- Select – Consider third-party support provider who can provide business requirements for all needed software support services: application and technical managed services, and traditional consulting services.
- Validate – Check the preferred third-party service provider’s delivery practices, processes, and ask to include redressed mechanisms in the contract in the event of any copyright violations including “innocent violations.”
- Confirm - Verify that the preferred partner’s financial viability is not threatened by litigation costs.
- An organization typically spends anywhere between 50% to 60% of its IT software spend on maintenance and support.
- The maintenance and support fees can be up to 25% of the license cost and an organization can be expected to spend more on the fees within a span of five years.
- Costs for support and maintenance generally increase every year although if technical expertise increases in an organization then the requirements for support will likely decline.
- Many businesses end up paying up to 22% maintenance annually on software and license fees for software they don’t use.
- What is 3rd party maintenance? It is when 3rd party maintenance providers provide support and maintenance which are typically more affordable to organizations.
- Third-party IT maintenance can enable organizations to save about 50% in some cases in maintenance and support because the costs of support and maintenance are much lesser.
- Third-party support and third party maintenance is cheaper as they only provide support and maintenance but are not authorized to provide new versions.
- There are many advantages and disadvantages of technical support provided by third-party service providers.
- Third-party software support can include customization where technical support is provided for software versions.
- The rapid response by third-party M&S ensures organizations get the update quickly when they need it.
- The issue management is faster by 3rd party IT maintenance and support as the best resources are provided from the start.
- One of the challenges and constraints is that technology is changing at a faster rate than ever before.
- Many 3rd party maintenance companies got into legal trouble in the past which shows that enterprises should also be careful.
- Oracle 3rd party support by Rimini Street led to the latter violating the intellectual property rights in 2010 and had a lawsuit filed against it.
- There was another complaint from Oracle 3rd party maintenance as Oracle alleged that the third-party support provider had taken information from Oracle IP and used it.
- In the case of Oracle third party maintenance, the verdict was that Oracle received over US$50 million for damages and Rimini Street had to pay Oracle other fees.
- Oracle sued TomorrowNow where the latter had to pay over US$290 million in 2011 because it had violated Oracle’s copyrights.
- CedarCrestone was sued by Oracle because it stole software. In 2013, the two reached an agreement for an undisclosed amount.
- When organizations are stable and they have an upgrade cycle of more than 3 years, then they can consider third party M&S.
- When organizations find that the provider is providing high-level customization which is complex, then they can consider getting third party M&S.
- At present, not many organizations are choosing third party maintenance and support but this trend will change because of the benefits.
- When choosing a third-party support provider, enterprises should ensure they are not legally in trouble and they protect the OEM’s intellectual property.
- Enterprises should consider the level of services they provide, validate how well the third-party provider works, and verify that it is financially viable.
When considering cost objectives and multi-software publisher support, third-party support is the preferred option. However, enterprises need to consider issues that may arise due to copyright infringements on software by third parties through their type of support service delivery. Contracts need to account for events that may arise including cost escalations and impact on vendor stability.