SAP to Shutter TomorrowNow

TomorrowNow's Downfall

For more than two years, TomorrowNow slowly grew its customer list under SAP's logo. But its fate was most likely sealed when, in March 2007, Oracle filed a federal lawsuit in San Francisco alleging that TomorrowNow employees had illegally accessed Oracle's proprietary software products and materials, and had downloaded those materials onto TomorrowNow's computers.

In court papers, Oracle alleged that TomorrowNow had "engaged in systematic, illegal access to -- and taking from -- Oracle's computerized customer support systems." And as a result, "SAP has compiled an illegal library of Oracle's copyrighted software code and other materials," the suit stated.

What has followed has been "he said, she said" legal wrangling and millions spent on attorneys' fees. In late 2007, SAP dismissed TomorrowNow CEO and cofounder Andrew Nelson, and put up a "For Sale" sign on TomorrowNow that found no buyers. "Given the pending litigation with Oracle, it makes it quite difficult for any suitors to join," says Ray Wang, a principal analyst at Forrester Research. (The most recent trial date has been set for February 2010.)

According to SAP's 2007 annual report, the TomorrowNow subsidiary had an operating loss of approximately US$35 million in 2007.

Since all that happened, many TomorrowNow customers have given their business to another third-party maintenance provider, Rimini Street, which was founded by Seth Ravin. Ravin was the other founder of TomorrowNow but left after just three months after SAP acquired it. (To read an interview with Ravin, see "The Man Behind 'Half Off' Third-Party Software Maintenance.")

SAP's formal announcement that it was "winding down" TomorrowNow's operations was a mere press formality. According to Forrester's Wang, "SAP has made it clear that this would be coming." He says that Forrester clients have all seen the writing on the wall and that SAP had sent advanced communications to customers about TomorrowNow's upcoming demise.

The Future of Third-Party Maintenance

TomorrowNow's (and SAP's) legal entanglement has cast a harsh light and, possibly, a shadow on the third-party maintenance business. But according to industry analysts, Oracle v. SAP and TomorrowNow's failure is not an indictment of the business model.

"No, not at all," responds Wang. "What has happened is that customers have migrated over to Rimini Street during this time. In many ways, customers want third-party maintenance more than ever today." In fact, in May 2008, Rimini Street proudly announced at SAP's Sapphire event that it will now offer maintenance support for SAP's R/3 products.

Mirchandani maintains that "if anything, these customers should be mad at Oracle and SAP for not providing a choice in service packages and price points: Just because you buy a Porsche you are not required to buy service at their dealers. If anything Consumer Reports has shown independent garages often offer better value and service," he says. "Rimini Street has shown it can deliver regulatory updates earlier than Oracle can. Customers should have the choice, not be intimidated into going back to the auto dealer."

In addition, Mirchandani adds that vendor maintenance fees are still "grossly overpriced," and that software maintenance's 95 percent gross margins are some of the biggest "empty calories" in IT spend. "One price does not fit all in any market category," he adds, "and software vendors keep ignoring that truism for maintenance." (For more on dealing with enterprise software vendors, see "How to Negotiate Better Maintenance Terms.")

AMR's Richardson notes that he still sees an ulterior benefit for Oracle in continuing the legal proceedings. "It may have scared some customers into continuing to pay Oracle the 22 percent annual maintenance," he notes. (See "SAP Raises Software Maintenance Fees for New Customers" for more on SAP's pricing strategies.)

As to whether Oracle will "call off the dogs" now that SAP is shutting down TomorrowNow, Richardson believes there's more to legal rancor to come. "While the judge has urged the two parties to go to arbitration, I think Oracle is relishing playing the Christie Brinkley role of the victim," he says. "SAP would like this to go away as soon as possible. Oracle wants it to last forever."