Save 50 percent on Enterprise App Support with Third-Party Providers

About this research note: Operate & Optimize notes provide Save 50% on recommendations for effective and efficient IT practices that help improve Enterprise App the performance or reduce the cost of technologies already deployed in the Support with Third-enterprise. Party Providers Publish Date: May 18, 2007 Revision Date: February 9, 2009 IT managers that are unhappy with the often excessive money they are paying for software Maintenance and Support (M&S) can replace their apps vendor with a third-party provider. When third-party M&S is the right fit for the enterprise, it can lead to savings of 50% or more.
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Executive Summary IT managers are increasingly frustrated with the large amounts of money they are paying to apps vendors for Maintenance and Support (M&S). While M&S fees go up, service usage often goes down, and upgrades don't add significant business value. In response to these challenges, an industry of third-party M&S providers has emerged. This research note discusses the third-party M&S model. Specific coverage includes:
» An analysis of the importance of M&S revenue in the enterprise apps industry.
» A list of the main vendors in the third-party M&S industry and an analysis of the limitations of the M&S model.
» The benefits that companies can achieve by using a third-party M&S vendor.
» The risks of using a third-party M&S vendor, and relevant risk mitigation strategies.
» Recommendations on when to upgrade and when to use a third-party M&S provider.
IT managers that are unhappy with the often excessive money they are paying for software M&S must consider replacing the apps vendor with a third-party provider. When third-party M&S is the right fit for the enterprise, it can lead to savings of 50% or more.
Operate & Optimize 2 Save 50% on Enterprise App Support with Third-Party Providers
Optimization Point
Info-Tech estimates that enterprises of all sizes spend between 50% and 90% of their IT applications budget on software maintenance. A large portion of this money corresponds to Maintenance and Support (M&S) M&S Accounts for a Large
contracts with enterprise application vendors. When the application is Portion of Apps TCO
mature and stable, this money is largely wasted because the company M&S annual fees from apps vendors rarely uses the services. usually range between 16% and 25% Another issue has to do with upgrades. Apps vendors constantly push of the application's original purchase companies to spend additional money in upgrades that are not always price. After only five years of using required. In response to these challenges, a new industry of third-party an application, companies end up M&S providers has emerged. Companies that run applications approaching paying more for maintenance than the end of the support cycle must assess this third-party support alternative they did for licenses. before re-signing an M&S contract.
M&S Revenue: A Top Priority for Vendors With margins of up to 90% (due to low customer usage), M&S services are the main growth drivers in mature application markets, such as Enterprise Resource Planning (ERP) or Customer Relationship Management (CRM). According to IntelligentEnterprise, M&S revenue accounted for $86 billion in 2005. This number, which corresponds to 41% of the total apps vendors' revenue, is expected to grow to $137 billion in 2010 (see Figure 1).
Operate & Optimize 3 Save 50% on Enterprise App Support with Third-Party Providers

Figure 1. Enterprise Apps M&S Spending Source: IntelligentEnterprise
$160.0 Compound Annual Growth Rate (CAGR) = 9.76%
$140.0$120.0s $100.0noill $80.0iB $126.5 $137.0$ $60.0 $116.5$86.0 $96.6 $106.5$40.0$20.0$- 2005 2006 2007 2008 2009 2010Year
Third-Party Support: A Fast Growing Market Since M&S is a very profitable and healthy business, many third-party M&S offerings have emerged. Info-Tech expects this industry to continue growing at a fast pace. For a list of the main players in the third-party M&S industry, refer to Table 1 below.
Operate & Optimize 4 Save 50% on Enterprise App Support with Third-Party Providers

Table 1. Key Third-Party Supporters Source: Info-Tech Research Group
Vendor Apps Supported
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