License to not kill?

MUMBAI, INDIA: ERP Licenses are irreversibly earning the level and affection that only cricket or Bollywood gets in India. Utter this blue-eyed word, and you are sure of eliciting a lot of opinions, experiences, grudges and rational arguments on the subject from everyone who belongs to this side of the universe. And yet, every few months you are caught on a new pitch surprised with the new flavor of arguments that froth up and brim the cup over.

At a recent SAP forum P C Jain, Senior General Manager MIS and System, Indo Count Industries Ltd lauded SAP for many advantages and competitive differentiators but also added that SAP licensing is a tad costly and complex. It is not system based, he argues and wonders why it varies so much from customer to customer. "Rates often change depending on time and volumes." That said, he adds how many people think SAP support is costly but forget that regular support is required and that is something necessary to maintain an enterprise-level product.

Seasoned industry folks are not all vinegar about SAP. Sunil Khanzode, divisional manager, Corporate Information Centre, Kirloskar Brothers Ltd praises SAP for being an end-to-end application which works best for a business scenario. Support is something that we have to live with, he observes.

At the same time, he feels that times necessitate that companies like SAP pay attention to areas like transparency, points of contact for support interface and simplicity. He cites how Microsoft has an admirably transparent support system with a relationship-approach and one-person contact for any support queries and also straight-stable escalations.

The good sigh of relief is that some vendors do not turn a blind eye or a deaf ear or an arrogant chip on the shoulder to this always-there-always-painful issue. Suprakash Chaudhuri, MD, SAP India confronted many such questions at the forum and candidly reckoned many issues including the recent ECC 6.0 upgrade concerns. In such conversations spanning license fees, AMCs and upgrades, he would explain how upgrades as a whole have changed between ‘then' and ‘now'. There are no long cycles today, he reminds. "It's about non-disruptive innovation, and at the same time about new functionalities and new nuances of applications or relevance layers. Unlike our competition, we do not redo innovation but try to be non-disruptive for customer side."

Licensing and support pet peeves have been around in the Enterpise software space for years now. As far as Ranjan Tayal, Sr. VP - Business Consulting Group, Ramco System, deciphers the problem, companies have been into the product side of the game for long, and this is where AMCs make a large percentage of revenue share. "It can not be too high. It should also not be increased continuously of course. Also, if the product has been there for too long the support part goes up automatically as product demands the cost component to rise."

He however offers a view from an empathetically-sharp customer side too when he points out how customers might find the component an overbearing expense for obvious reasons. "I have talked to a few customers and they clearly express that it is an expensive part."

That is perhaps where newer models like subscription- or cloud-based software come in as an alternative.

Taking a leaf out o Ramco's progress here, he tells how subscription models work well for customers as they take care of software usage, AMC and support costs simultaneously.

But one is tempted to wonder how these new-fangled models work in an industry that has always earned its bread and peanut butter from AMCs to a large extent? Tayal from Ramco System tells how a support component intrinsically factored in here works to address that part. "If a product has not been upgraded or used at customer end for too long, the cost for vendor to support an older version goes up proportionately. Our view is that the farther away one goes from the product's current version, the more the cost of up-keeping it increases. One way is to go for an upgrade hence, and with so many versions floating around, that can get tough."

Subscription model, he points out, replaces a lot of AMC, support, feature upgrades, and hardware expenses, by its very nature. He cites how Gmail does not push a new version every now and then down the customer path, being in a perpetual state of Beta. "That's because it has only one piece of code and the versions are not too many." He argues.

Where does the money go?

Despite all reasoning billowing out of vendor podiums, where they assure how AMC dough is kneaded back into research and development work on the software per se; the point earns too much cynicism. Customers often vent out their doubts about this rationale purported for validating expensive AMCs.

Tayal chimes in with a nod here. "R&D? Not really. I guess any R&D cost should ideally get recovered in the license fee only. The challenge is that the company cannot have different support formats for different customers."

He highlights how old ones often hog a lot of support muscle and how new customers can end up feeling the brunt of this piece.

Pradeep Sharma, Senior Manager IT and Finance at Global Wind Power Ltd feels that support is logical as no one has full-fledged knowledge of schema, database matters etc in a solution, like that of SAP. That's why there is something called ‘support'. "I wonder why no one minds paying a toll tax but the industry looks at support so differently when it comes to enterprise software." He quips.

The real elephant in the room

While the volley of sighs over expensive support models has been around for a long time and there's nothing new that either accentuates or extenuates the issue, one more problem has started rearing its head if only vendors want to spot it.

Including a major version change of core ERP software by a mega vendor recently, upgrades have started receiving a new kind of flak. They are not just expensive any more but also tough and tardy to execute. Many customers have shifted their complaint box from ‘why is it expensive' to ‘why is it not smooth and seamless' lately.

As per Pooja Kewalramani from ITC Infotech, upgrades can get complex. "Overall experience then depends on the kind of technology. The upgrade can be a free spot if one is thinking in terms of Cloud. On-premise is definitely a scenario of paying-extreme for a new version. In Cloud, one does not to pay extra. Cloud products come with negligible AMC headaches," she suggests.

Analysts like Sunil Padmanabh from Gartner opine that there is still some time to be covered before ideas like Remote or third-party support can work in India for the reasons of absence of required scale and mega-sized transactions to make them viable. First the vendors' perspective. Tayal feels that the further away customer is from a current version, the large the effort and pain for the upgrade. It is bound to get a bit uncomfortable as he reasons.

"In some cases, a very big version fails to allow a seamless migration and that's where a customer feels the pinch of the migration. It ends up being almost a re-installation."

Migrations can be a genuine technical need or just another way for some vendors to spin revenues. It is the customer who has to calibrate value from the upgrade. It is not hard to understand why customers cry foul when lack of functionality or real architecture issues cobble the path. Often customers do not mind paying for what is worth the buck. Vendors exist to make money but they should never tradeoff between money and functionality. It should be a win-win. At the same time is it crucial that customer should evaluate that vendors can get inhibited for natural reasons and that is why backward compatibility issues should not be a surprise. "Customers should keep pace" he suggests.

"If you are putting in a critical customized part that caters specially to your line of business that you can of course not expect for such upgrades to go smooth." One should also consider concurrence of certification from vendors here, advises Pradeep Sharma, Senior Manager IT and Finance at Global Wind Power Ltd.

Talking about how customizations play a role in making upgrades more difficult, as many have often complained of, Sharma opines that there is different between enhancements and customization, and it is vital for customers to grasp that difference. "Tailor-made custom work scenarios are different from enhancement set-ups. It would be like comparing orange to apples here. Even industry-based solutions are not always standardized."

The real dinosaur in the room

The list of customer pain points is longer than any vendor's nightmare. Apart from complexity and cost-burden of upgrades or licenses, customers point out how even after paying through their nose, the support stinks at times. It is not friendly and can usually end up making the customer jog many points and levels in support hierarchies of a vendor rather than being served with a hassle-free, one-point support service.

Tayal avers with these expectations and finds them naturally reasonable on any customer side. "They will be unhappy if this is how they are served. Support function is also about resources, at the end of the day," he reminds, explaining how attrition and movement of support-talent can make the service challenging for a vendor. That said, vendors should ensure that people are equipped to give a prompt and right treatment to customer," he hastens to add.

That may be one of the reason why Ramco sees Cloud as model picking up fast gears in the new lanes of market. "Our offerings in Cloud solve most of these problems that we discussed, specially AMC pains.

Firms in search of new or additional functionality have a choice about whether to upgrade to the latest version of a vendor's ERP software or whether to build their own extensions to that software or purchase enhancements from a partner, China Martens, Analyst, Serving Application Development & Delivery Professionals, Forrester Research, lets on. "ERP vendors have opened up or are opening up access to their development platforms, particularly in relation to their SaaS applications. Perhaps, the long-term use of ERP app stores (if that purchasing model really appeals to customers) is to showcase and sell the extensions ERP vendors, their partners, and their customers have created on top of the ERP vendors' software. ERP vendors themselves, in recent years, are working more to create a mix of standardized functionality, which would be less changeable, alongside much more changeable functionality - meaning firms could invest in the former set of functionality once every five to ten years, and upgrade the latter set of functionality on a much more regular basis - every six months to once every year."

Turns out that more changeable set of ERP functionality could also be supplied by the ERP vendor's partners. Key to making such models work, particularly, where different elements of ERP functionality, are coming from different vendors, is two-way integration between the different applications.

Third party support however is still a far-off possibility for Indian market as a quick chat with some customers lets on. Dilip Shende, manager, Sales and Distribution module at Kirloskar Brothers Ltd admits that they have never considered a third-alternative for main ECC support, for the sheer reason that the solution is too critical and it can get risky. "We do not want to take any chances. However, for areas like some application development, we take support from companies like Invnio Consultants alongwith in-house team and our expertise. Our functional design capabilities couple well with the technical expertise they have to offer."

Is anyone making hay?

Third-party support and the strides made by the likes of Rimini Street make one inclined to anticipate a lot of action possible with this hole in the ERP dyke.

"There is exceptional demand for the benefits of third-party support in the Asia-Pacific region," said Powell. "Just like customers in the rest of the world, Oracle and SAP customers in Asia-Pacific want more value from their annual support program and are seeking to maximize the return on current system investments without having to complete expensive upgrades just to stay supported. Rimini Street's positive global reputation and dedication to client success are already becoming known in this region and I couldn't be more excited to help the Asia-Pacific market realize the financial and service benefits of Rimini Street support."Andrew Powell managing director, Asia-Pacific recently remarked in a press note.

Rimini Street has grown to a new level if its growth numbers are noted. It supports clients operating in sixteen countries throughout Asia-Pacific, including Australia, Singapore Malaysia, India, China and Japan wherein, on a total calculation, over 600 clients have selected Rimini Street for support of their enterprise software, (including 71 of the Fortune 500 and 15 of the Global 100).

Some firms might look at third-party maintenance as a way of continuing on an older version of a vendor's ERP software in the near-term (the next couple of years), as they start to move towards a different vendor's ERP within a three-to-five-year time frame, feels Martens from Forrester Research.

"Such firms are also keen to outsource the support burden so they can free up their internal IT staff from software maintenance to software development."

But would a proposition like this be viable and worth the switch for enterprise customers? Tayal admits that the third-party support side of the market is catching up. But he defrosts the growth mirror, when he explains how growth is happening more on the hardware side rather than software side. "If a product goes out of support from OEM or out of support cycle then other third party options can pitch in for sure. Only if they can use it with APIs and interfaces. A defect in underlying product though makes a run to the vendor imminent. Level one support or where new reports have to be created or integrated is where third-party players can do very well. Or in cases where third-party players can seek patch releases from vendors which is quite possible in certain instances."

There are players like Panaya that jump in at this cliff-edge, purportedly offering customers the ease of managing a big ERP suite without the risk and disruption of patches et al. Companies like Panaya apparently have service offerings SAP customers while Rimini Street supports SAP and Oracle product lines.

As a media report highlighted, a Panaya customer will continue to pay SAP etc its annual maintenance fee; but with help from Panaya on the re-engineering of the update process as well as customer-environment compatibility testing, helping the customer to be clear on which patches will work, or which ones may cause issues or chances of a botched-up upgrade or system crash should one look out for.

The final bullet

More firms are looking to revisit their current on-premises licensing and support deals with ERP vendors, Martens from Forrester warns. In many cases, firms have grown by acquisition and now find themselves with a vast inventory of software. In some cases, they might be paying maintenance on software modules which they've never had time to install. 

"So, firms are re-examining their ERP investment and considering whether or not to continue with the current arrangement or what alternatives might be available, which might be more cost-effective and a better fit for the firm's specific business, regional, and industry needs. For some firms, there's a debate around which elements of ERP they should continue to source from an ERP applications suite, and which modules they might substitute with best-of-breed software."

And that's one shot vendors might want to hear without a silencer. Time to to 'go to the mattresses' perhaps.