An ERP Vendor Soap Opera: A Close Look at SAP's Purchase (and Attempt to Sell Off) TomorrowNow

When SAP acquired cut-rate ERP service provider TomorrowNow, observers scratched their heads. How would the two work together? Then Oracle sued, alleging stolen information. SAP isn't waiting for its court date. It's ready to entertain buyers for TomorrowNow.

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CEO Ravin says that the company has seen a noticeable increase in potential customer calls since SAP’s announcement. “We’re seeing now that most customers are uncertain as to what SAP’s intentions are,” says Ravin. “This has sent a shockwave through TomorrowNow’s customer base, and certainly [SAP’s] lack of strategic plan caught them off guard.” Forrester’s Wang has advised his clients to look at other options, which include Rimini Street.

Ravin has not talked with his former cofounder Nelson “in a long time,” he says. “I know this has not been an easy year for him.”

Of course, the lingering question—whether Rimini Street would buy TomorrowNow outright or simply let its disenchanted customer base stream over—is one that Ravin says he’s considering. “Putting themselves in play is an interesting thing to do,” Ravin says. “Are we interested? Yes, we are. But we would have to understand what the value proposition is if the customer will be coming anyway. What exactly are we buying?”

Is It the Business Unit or the Business Model?

For now, TomorrowNow’s new chief, Mark White, is planning on supporting current customers through the management transition. “SAP is prepared to manage through these changes to ensure that TomorrowNow’s obligations to its current customers are met,” he said in the press release.

When contacted via e-mail, Andy Kendzie, an SAP Americas spokesman, said that SAP and TomorrowNow executives can’t talk about what’s going on. “As we are still in ongoing litigation, our policy prohibits us from saying much beyond what is contained in the filings and statements,” he wrote.

A lingering question remains, however, for CIOs and TomorrowNow and Rimini Street executives: Is all that has happened to TomorrowNow a one-time transgression or an indicator of more legal troubles to come in the third-party software maintenance business?

Forrester’s Wang thinks it is the former. “This is still a great business to be in,” he says, adding that despite efforts by the major vendors to improve customer satisfaction, response times and upgrade benefits, most customers still believe that they are not realizing enough benefits for what they’re paying in license fees over a typical 10-year contract period.

Ray Thomas is one IT executive who is sold on the concept. Thomas is the director of finance and technology at Beekley Corp., a midsize medical products company in the diagnostics field. His predecessor had implemented a Siebel CRM system, and when Thomas took over he says he wasn’t receiving the service from his local Siebel value-added reseller (VAR).

“We were not able to get the attention or services with Siebel or the local VAR,” Thomas recalls. In addition, he says Siebel’s maintenance costs “were a little onerous for us. We had to look elsewhere.” So, after the first year, he decided to stop paying Siebel.

Eighteen months after signing a contract with Rimini Street, Thomas says that he has received great support from the company and has saved “over six digits” at this point by not having to pay Siebel’s fees. “And I’m taking all the kudos for saving the funds!” he says with a laugh.

Thomas does recall the conversations he had with his IT peers when he told them of his plans nearly two years ago. “They were very horrified,” he says. “They said, ‘You’re kidding?’” His peers either didn’t know much about the service Rimini Street provided or knew about it but were concerned about the financial implications of leaving Oracle.

For him, however, the change came down to a phenomenon that CIOs have historically had to deal with: Nobody ever got fired for buying IBM. While he’s happy with the Siebel package itself, he says, “I don’t need a Siebel [support contract] to provide me that comfort level. It has worked out.”

As to the ongoing saga between Oracle and TomorrowNow, Thomas says that he’s aware of it, but “I didn’t feel that Rimini Street put me in any type of predicament,” he says. “I’m following the rules of the software license agreement, and I don’t anticipate there being any problems or repercussions.”

Of course, when and if Thomas goes to upgrade to the next version of the Siebel package (and he’s not sure of that right now), Oracle’s standard agreement requires that Thomas will have to pay the past support payments. (Industry experts say, however, that issue isn’t a huge sticking point when negotiations commence.) Thomas isn’t worried because he says even with those fees “we’ll still be way ahead of ourselves” in terms of the costs savings and ROI.

Will the Sun Come Out for TomorrowNow?

While TomorrowNow’s fate is unclear, the Oracle lawsuit marches on toward the Feb. 9, 2009, trial in Northern District Court in San Francisco. Questions abound, including two big ones: If SAP does sell TomorrowNow between now and then, what will that mean for the case? And will the parties settle the case before then?

Rimini Street’s Ravin says neither the lawsuit nor the SAP press release has dampened his business. “Our business grew and went through the roof after the lawsuit was filed,” he says. That’s because in the lawsuit Oracle included dozens of companies from TomorrowNow’s customer list, which, he says, made other companies wonder, “Am I the only guy paying full price?”

In a his report on the SAP announcement, AMR’s Richardson provided an intriguing scenario for how all of this could all play out. “Rimini Street succeeds in buying TomorrowNow from SAP and then later sells the whole business to Oracle. Oracle could continue the discounted maintenance program as a way of ensuring that companies remain as customers or switch them back to standard maintenance.

“As we have said many times before,” Richardson writes, “all things are possible.”

Copyright © 2007 IDG Communications, Inc.

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