| QUESTION & ANSWER |
Interview: Seth Ravin on third-party software maintenance |
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By Linda Tucci, Senior News Writer
28 Aug 2007 | SearchCIO.com |
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It doesn't take much to get Seth Ravin badmouthing big software companies. Ravin co-founded TomorrowNow, which he sold to SAP, and eventually went on to found Rimini Street Inc., an independent provider of enterprise software support services for Siebel Systems Inc., PeopleSoft Inc. and J.D. Edwards & Co. licensees. The companies share the same aim: make software last longer. Ravin's idea of software maintenance evolved from his work at PeopleSoft in the late 1990s. He was in charge of getting 4,000-plus customers through Y2K. The board authorized Ravin to quietly sell customers a Y2K package of support -- on top of their regular maintenance support -- so they could stay on their older releases.
Indeed, as word of the special program spread, enthusiasm reached fever pitch. By 1999, Ravin had customers left and right willing to pay him more than regular maintenance fees, so they wouldn't have to upgrade. Not long after, he left PeopleSoft to join former colleague Andrew Nelson, who had a little consulting business, TomorrowNow.
Was there debate within PeopleSoft that it might be a bit shortsighted not to give steady-as-you-go maintenance?
Ravin: Other than from me? You had development lining up on the side of, 'Absolutely hold to these support polices.' The consulting group wants to sell upgrade services. The development organization only wants to support a limited number of product lines, and there are practical reasons for that. They can't technically support 10 lines forever. In general, they were just incensed it accreted life to releases that they wanted to see retired.
Isn't this a problem for all software?
Ravin: Everyone has to carry forward their baggage, and a backwards compatibility. Very rarely do you come out with a brand new release that has no connection, in technology, to what you had before, because then you open up the whole competitive realm. 'Well, hell, if your new product isn't really an upgrade, it's a migration, then I might as well look at everybody's else's if I am going to move to a migration.'
How have companies managed this problem before your software maintenance businesses existed?
Ravin: They thought they could basically use the stick to beat customers forward by threatening them. You've seen that with Oracle. Siebel is the same way -- basically, if you don't upgrade, we're going to pull your support, you'll rue the day, you'll get nothing from us, and we'll still charge you the full amount.
What are the reasons your customers opt for third-party software maintenance?
Ravin: They do it for different reasons. The small customers were making the move, because it was right after the dot-com meltdown. Prior to that, people were very optimistic, thinking they would be growing 10 times their size. They went in and bought PeopleSoft; it was the Rolls-Royce of HR systems and finance. So now they're stuck with the Rolls-Royce. They love it; they don't want to get rid of it. But they can't afford to keep it. So, a lot of those people, by switching to third-party maintenance, actually were able to keep the software they loved at price points they could afford.
Why did you leave TomorrowNow after the acquisition by SAP?
Ravin: I left three months after the SAP acquisition; as an entrepreneur I needed to be on to my next thing. I actually was going to go build a software company, but after looking at it, I couldn't stay away from the maintenance stream. When you've got a 90% profit margin, it's just too hard to resist. And TomorrowNow didn't even take 1% of the market. As soon as Oracle announced its acquisition of Siebel, I decided to launch Rimini Street and offer the first third-party alternative into Siebel space.
Oracle must love you, especially given its suit against SAP -- targeted at TomorrowNow.
Ravin: Oh yeah. I announced Rimini Street at OracleWorld 2005 and I think the words were, 'He's back.' As soon as my noncompetes expired with PeopleSoft and J.D. Edwards products, we introduced those at Rimini Street, too. So now you have two companies -- the captured, SAP-TomorrowNow and our independent Rimini Street -- and we are the only two really credible companies in the industry.
The Oracle lawsuit against TomorrowNow is notable for its strong language -- "corporate theft on a grand scale." Some analysts said that one of the aims of the lawsuit was to scare companies off using third-party maintenance.
Ravin: Just to give you that color from the lawsuit -- it hasn't deterred the business. The lawsuit actually opened up business -- because some people didn't even know there was a choice. A lot of people read the lawsuit and said, 'My God, Merck and Honeywell, and all these large companies using third-party support.' And instead of saying, 'Wow, look what happened here!' The issue really is, 'Holy gee, am I the only guy paying full price?'
What about maintenance of SAP software at Rimini?
Ravin: I have a noncompete that expires in January. Let's just say, we're looking with interest at the SAP market. With 30,000 customers, who wouldn't be? They recognize what is good for the goose is good for the gander. You can't complain and say you want Oracle to open up and allow third parties more access and think that is not going to boomerang back on you. They know this is about open access.
AMR analyst Jim Shepherd makes the argument that because everything is changing -- the software platform, the underlying components, your company's business -- that the software needs to be continuously updated.
Ravin: That's not what we're hearing from clients. They have incredibly stable platforms that they feel like they can run their business on for 10 years. And, in fact, if you look at the recent enhancements from the PeopleSoft product line, it is akin to heated and cooling cup holders -- they're really cool, but it doesn't help me pay my employee any faster.
Who do you go to when you make your pitch? The CEO, the CIO -- who is most receptive to your message?
Ravin: It's gotta be the CIO and the CFO. The reason is, this is a lot like outsourcing. You're not going to go pitch the IT team how great it is to send your jobs to Infosys. When we come in, how much excitement is there to tell a team, 'Hey, we've got some great news for you -- you guys are going to drive the same car for the next five to seven years instead of that new one you were hoping to play with.' A lot of IT folks do want the excitement of getting new tools and new technology to play with -- and that is part of the fun of it.
Our decision is very much a cost-driven decision, so it is very often the CFO or the CIO who says, 'I'm the guy who has to go before the board and justify we need to spend $2 million on an upgrade when we did it just three years ago, and I can't put down on paper how that money is going to be returned to us in benefits.'
What about people who have just upgraded to the newest version of software -- are they off-limits?
Ravin: We used to work primarily with more retired or retiring-level versions of the software. Today, 30% to 40% of our business is on the latest versions of the software, so it is people who literally go and do the next upgrade and say, 'You know what, we are done for the next decade. And all that money we bank over the next decade? We will then do a capital expense because a whole new version of software is coming.' In 2015, '17, as late as 2018, you'll see a mature Fusion product against a mature NetWeaver product from SAP, hell Microsoft will probably be offering a full enterprise-level product at the rate they are investing. Rather than play the upgrade game every two or three years that doesn't necessarily yield results but ties up the entire IT team, costs a fortune, instead we're going to make a generational change.
How long should a company hold on to a software product?
Ravin: We have more customers than ever looking for five- and 10-year guarantees for support. No one makes this change for a six-month change; it is not worth it.
Let us know what you think about the story; email: Linda Tucci, Senior News Writer
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