ET BureauBANGALORE: A lucrative new source of revenue in the form of maintenance deals is beckoning Indian software companies, but it comes with high levels of risk that could threaten their existing business. To save costs, many top companies are insisting that enterprise software from the likes of SAP and Oracle should be maintained by third parties, resulting in savings of up to 50 per cent. This new market for offering maintenance support is worth $125 billion (Rs 6.8 lakh crore), according to a March study by sourcing advisory Constellation Research, far larger than the $100-billion Indian IT services industry.
The opportunity is arising just when demand is tepid — Nasscom predicts export growth of just 12-14 per cent this year — but the danger is that Indian companies such as Tata Consultancy Services, Infosys and Wipro could annoy SAP and Oracle, with whom they have ongoing business relationships. “Third-party maintenance represents an untapped opportunity for IT services firms, to not only demonstrate value to their customer, but also help them free up funds for innovative new projects,” said Ray Wang, principal analyst and chief executive officer of Constellation Research and one of the world's most respected technology analysts.
Large corporations such as the UK’s United Biscuits, German steelmaker Thyssenkrupp, and defence contractor BAE Systems have all recently moved to third-party maintenance. Typically, for companies like Oracle, SAP, IBM or Microsoft, such contracts provide a sustained revenue stream for 5-10 years. While smaller, US-based companies such as Rimini Street and Spinmaker Support are fast tucking into this emerging market and gaining mindshare, risk-averse Indian IT firms are going slow for fear of falling out of favour with SAP and Oracle. All the top Indian IT companies declined comment for this story.
“Third-party maintenance is an opportunity they will not officially recognise given their strong ties with SAP and Oracle,” said Frederic Giron, vice-president and principal analyst at Forrester Research. According to Giron, Indian IT companies may not be trumpeting about this opportunity, but still provide similar services buried in their typical application management services engagements with large clients. It is critical for IT services companies to be in the good books of large enterprise software makers as it helps them make good money during the initial rollout of their software and its client-specific customisation.
In other words, if SAP stamps Infosys as a preferred partner, there is a higher likelihood of clients choosing the Bangalore-based company for customisation and initial rollout whenever they buy software from SAP. “System integrators depend heavily on the goodwill with software vendors. We have to ensure that we get access to their technologies and marketing support,” said a senior executive at one of the top three Indian IT firms, requesting anonymity as he is not authorised to speak to the media. For its part, SAP was dismissive of third-party maintenance as a meaningful proposition for its clients.
“Third party maintenance is not a value proposition for our customers,” Gwisdalla, Martin, a Germany-based spokesperson for SAP, wrote in an emailed statement. “Our impression from the very few customer engagements we had on this topic is that customers see it the same way.” Experts caution that going the thirdparty route also involves possible monetary penalty by the software makers, if and when a client chooses to go back to vendor-provided maintenance or at the time of software upgrades.
According to Somak Roy, analyst at Ovum, the support policies of Oracle and SAP have a built-in clause that penalises a client for the years it has been using third-party maintenance. “However, real world discussions depend a lot more on the transaction in question and the overall negotiating position of the enterprise,” Roy said. For now, given Indian IT’s reluctance to ruffle vendors’ feathers, this market remains one where enterprises will have to invite these companies to achieve their cost savings objectives, rather than one where service providers barge in aggressively to offer cheaper service.
[email protected]
The opportunity is arising just when demand is tepid — Nasscom predicts export growth of just 12-14 per cent this year — but the danger is that Indian companies such as Tata Consultancy Services, Infosys and Wipro could annoy SAP and Oracle, with whom they have ongoing business relationships. “Third-party maintenance represents an untapped opportunity for IT services firms, to not only demonstrate value to their customer, but also help them free up funds for innovative new projects,” said Ray Wang, principal analyst and chief executive officer of Constellation Research and one of the world's most respected technology analysts.
 |
Large corporations such as the UK’s United Biscuits, German steelmaker Thyssenkrupp, and defence contractor BAE Systems have all recently moved to third-party maintenance. Typically, for companies like Oracle, SAP, IBM or Microsoft, such contracts provide a sustained revenue stream for 5-10 years. While smaller, US-based companies such as Rimini Street and Spinmaker Support are fast tucking into this emerging market and gaining mindshare, risk-averse Indian IT firms are going slow for fear of falling out of favour with SAP and Oracle. All the top Indian IT companies declined comment for this story.
In other words, if SAP stamps Infosys as a preferred partner, there is a higher likelihood of clients choosing the Bangalore-based company for customisation and initial rollout whenever they buy software from SAP. “System integrators depend heavily on the goodwill with software vendors. We have to ensure that we get access to their technologies and marketing support,” said a senior executive at one of the top three Indian IT firms, requesting anonymity as he is not authorised to speak to the media. For its part, SAP was dismissive of third-party maintenance as a meaningful proposition for its clients.
“Third party maintenance is not a value proposition for our customers,” Gwisdalla, Martin, a Germany-based spokesperson for SAP, wrote in an emailed statement. “Our impression from the very few customer engagements we had on this topic is that customers see it the same way.” Experts caution that going the thirdparty route also involves possible monetary penalty by the software makers, if and when a client chooses to go back to vendor-provided maintenance or at the time of software upgrades.
According to Somak Roy, analyst at Ovum, the support policies of Oracle and SAP have a built-in clause that penalises a client for the years it has been using third-party maintenance. “However, real world discussions depend a lot more on the transaction in question and the overall negotiating position of the enterprise,” Roy said. For now, given Indian IT’s reluctance to ruffle vendors’ feathers, this market remains one where enterprises will have to invite these companies to achieve their cost savings objectives, rather than one where service providers barge in aggressively to offer cheaper service.
[email protected]
Get Unlimited Access to The Economic Times
