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Posted by on Jul 21, 2010 in Business, Technology, TG Roundup, Worldwide

Bad News to IT Systems Vendors and Consulting companies

Analyst firm Gartner has formed a new advocacy council around the issue of IT maintenance contracts and issued a “code of conduct” it wants vendors to follow, actions that could further intensify an already hot topic.
Maintenance fees, which are charged annually in exchange for product updates, bug fixes and technical support, have come under increased scrutiny in recent years as companies have looked to reduce IT spending amid the economic crisis. SAP’s 2008 move to transition customers to a richer-featured but pricier support service was met with considerable blowback, and the applications giant ultimately made some conciliatory concessions.
For vendors, maintenance dollars are crucial, as they provide a steady stream of income even when new license deals are scarce.
But maintenance also represents the single largest expense for many IT shops, Gartner said in a report accompanying the announcement.
The new code of conduct, developed by Gartner along with a number of technology executives in its newly formed Gartner Global IT Council for IT Maintenance, seeks to correct any imbalances between the value customers receive for maintenance fees and the revenue they provide vendors. It includes the following clauses:
• a right to “regular, appropriate, predictable updates to software products”;
• response times and support levels “based on application criticality and other business factors”;
• fair percentage ranges for annual maintenance fee hikes or reductions, and long-term caps on increases;
• the ability to stop or alter support at any time for unused products;
• predictable and reasonable support levels for the entirety of a product or contract’s life cycle;
• clearly spelled-out support time lines for older systems; and
• the right to “explicit statement and approval of support details at the line-item level”
Members of the council hope the code will act as a starting point for discussion, “with the goal of transforming these basic principles into standards that are accepted and respected across the industry.”
Altimeter Group analyst Ray Wang, who has carved out a niche as an advocate for end-users concerning maintenance issues, praised Gartner’s action, but with a caveat.
“It’s a good start. Customers need a good base line and a bill of rights evens the playing field,” Wang said via e-mail. “There could be more rights across the lifecycle, and third-party maintenance should be a key requirement.”Third-party maintenance firms offer reduced-price services to companies with no immediate desire for upgrades, which are only available through vendor-provided support.
Another industry observer echoed Wang’s stance.
While the code’s recommendations are sound, “the elephant in the room, of course, is third-party maintenance, and Gartner is silent on this point,” said Frank Scavo, managing partner of the IT consulting firm Strativa, via e-mail.
“Some vendors these days are attempting to preclude customers from seeking service and support from third parties,” Scavo added. “A customer-friendly maintenance contract should explicitly allow customers the right to go to a third party for software maintenance without jeopardizing warranties.”
The market for third-party maintenance has been clouded by ongoing litigation. In 2007, Oracle sued SAP and its former subsidiary TomorrowNow, which provided third-party support for Oracle software. Oracle claims TomorrowNow workers made illegal downloads of its IP in the course of servicing customers.
Earlier this year, Oracle also sued Rimini Street, which is led by CEO Seth Ravin, a co-founder of TomorrowNow. Rimini duplicates TomorrowNow’s “corrupt business model,” according to Oracle.
Rimini Street has denied any wrongdoing. SAP has said TomorrowNow was authorized to download materials from Oracle’s website on behalf of TomorrowNow customers. It also acknowledged some” inappropriate downloads” had occurred at TomorrowNow, but said those materials remained in TomorrowNow’s systems.
Some observers believe the outcome of these cases could lay clear ground rules regarding third-party maintenance rights.
Meanwhile, to be a true advocate for customers, Gartner needs to do more than release the report and bill of rights, according to Vinnie Mirchandani, of the consulting firm Deal Architect and a former Gartner analyst.
“I would love to see Gartner put some teeth behind this code. Have the guts to call out IBM, Oracle, SAP, Microsoft and others as they violate those principles,” he wrote in a blog post Tuesday. “Gartner could easily anonymize the client names but share them with the world.”
But Gartner must execute a careful dance, added Mirchandani, long nicknamed “Vinnie Maintenance” for his constant drumbeat on the issue. “Given these software vendors are also some of its biggest clients, the language will likely be ambassadorial and likely take years to show much progress.”