Are You Paying Too Much For Application Management Services?

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If Gartner’s latest forecast is correct, enterprise software will be the fastest growing market segment in 2020. Gartner predicts that spending on enterprise software will grow 3.4% in 2019 and 9. 2% in 2020, and that Software as a Service (SaaS) will grow to reach 14.1% growth in 2019 and 17.7% in 2020.

Annual maintenance fees, with run rates of up to a quarter of the original contract value, are among the most lucrative areas of IT department software spending. These contracts were traditionally managed by SAP, IBM and Oracle to support their respective business software systems.

But in recent years, third-party vendors have started offering third-party support, often at significantly lower cost. As Computer Weekly previously reported, savings from switching to a third-party vendor can be quickly reinvested to fund future upgrades.

One of the leading figures in this type of third-party application support, Rimini Street, is now looking to expand its downstream offering in the food chain to Application Management Services (AMS), a market dominated by integrators of systems.

Rimini Street introduced AMS for Oracle, which includes coverage for the Oracle database, middleware, and a range of Oracle applications including E-Business Suite, JD Edwards, PeopleSoft and Siebel. The new service joins its AMS service for SAP, launched in August.

Gartner’s first AMS study identified a market worth $ 77 billion in 2017, growing 3.8%. The June 2018 report noted that 40% of the market is held by the 10 largest service providers, which remained largely unchanged between 2016 and 2017.

Discussing the AMS opportunity, Sebastian Grady, President of Rimini Street, said: “Our standard SAP deal could have 500 [maintenance] cases per year. AMS is a lower level. Incidents aren’t the most complex workarounds, but they must be resolved. “

This work has traditionally been undertaken by Platinum partners of SAP and Oracle, but Grady says the work undertaken by these systems integrators lacks transparency. “CIOs can’t keep track of the amount of redesign that is done,” he said. “If a project takes 200 hours with people billed at $ 100 an hour and the system integrator says it will take 1,000 hours with people costing $ 40, that’s twice as much.”

Grady says lower cost staff may not have enough experience to take the most efficient route to solving the technical issue the customer is having. “They don’t take the shortest route from A to B, and the CIO has no better idea why a project that should take 200 hours is billed for 1,000 hours,” he said. “Working hours are not the business issue. Purchasing should focus on business results, in order to reduce the number of incidents per year.

Grady says the industry-accepted model of billing time and materials through so-called hourly contracts is broken. “A lot of the contracts are based on corps and incident management,” he said.

In Grady’s view, such contracts encourage AMS vendors to solve as many problems as possible, with as many people as possible, rather than reducing the incident rate. “You can’t ask juniors to get on the bus and learn at your own pace. Most AMS contracts get vendors to do more work, so there’s a ton of changes made for the sake of change.

Grady says Rimini wants to operate in a whole different way. “We are experimenting to make the incidents go away,” he said. “If you have 30,000 issues per year and 300 of those incidents per month are due to a bad interface between SAP and Ariba, and I can fix that, I should get a bonus for that.

“The last 10 years have been spent cutting costs. Now people are looking to get better business results and what is the total cost of ownership. I haven’t met any customer who does enough with their existing AMS provider. It is possible to find a better mousetrap. This resonates with CIOs.

Discussing Rimini Street’s new AMS offering for Oracle, R “Ray” Wang, CEO of Constellation Research, said, “Constellation sees a huge customer satisfaction gap in the application management services market. The battle for price over value, the process for better results, has led to a shattered market.

“Customers are looking for partners who can provide high quality AMS support for Oracle, addressing a strong market need for a reliable and expert approach to application management services with an integrated solution that helps customers optimize their IT operations.” . “

In its latest financial report, Rimini Street reported annualized subscription revenue of approximately $ 274 million for the third quarter of 2019, an increase of 10% from the $ 250 million for the third quarter of 2018. The company positions AMS as a great growth opportunity, allowing it to have a different conversation with CIOs.

Rather than discussing the merits of moving to a third-party support provider – something some IT decision-makers may see as risky – Rimini Street has now focused on business-driven results for application management services. – a market dominated by system integrators.

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