The headline of this post may sound surprising at first, given the history of neither SAP nor Oracle really appreciating publicly, what the 3rd party maintenance providers are doing. But keep in mind, the only big tuzzle in the history of third party maintenance, has been between Oracle and SAP - and not so much for the service itself, but for the intellectual property violations committed by the SAP subsidiary TomorrowNow.
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When it comes to maintenance, the only true difference between a SaaS vendor and a traditional enterprise vendor is, that they usually do not support back releases. And that is a sizable reduction in maintenance labor, as any defect detected needs to corrected and tested and released only in the production and latest code line. No need to do that for any of the older, but still supported releases, as Oracle and SAP obliged themselves to do in their maintenance contracts. This is a very size able chunk of workload.
But in itself there is a contractually identical value proposition between the SaaS vendors and the traditional on premise vendors. If you keep paying your subscription / maintenance fee - you have access to the latest release of the software you have licensed, free of charge. Personally I would not be surprised of the SaaS vendors getting creative in this respect at some point of maturation of the SaaS model, too. It's just too tempting to go back and charge customers again.
But the prices have not been reduced, au contraire SAP is ramping up prices year over year. To be fair, SAP has also unofficially increased services, e.g. with the announcement of lifetime support for the HCM functionality till 2020 at their recent HR2013 conference. But that was a proactive move by SAP - not a reaction to the 3rd party maintenance vendors carving out a significant chunk of their customer base.
SaaS vendors get paid maintenance, too!
The often forgotten fact in the discussion around support and maintenance rates is, that SaaS vendors do charge for support and maintenance, too. It's part of the monthly subscription fee, which funds the error corrections, compliance work etc. And pays for the support desk, hotline etc on the support side. SaaS vendors have not been scrutinized much in this regards (yet). Mostly they have been able to keep the value side of the equation up for their subscribers with the regular release of highly functional updates. But as less functional white space will be available to be covered, the functional richness of these releases will get reduced (compare Workday releases over time, for instance) and with that the question of the return of value for the monthly subscription will creep up, sooner than later in my view.When it comes to maintenance, the only true difference between a SaaS vendor and a traditional enterprise vendor is, that they usually do not support back releases. And that is a sizable reduction in maintenance labor, as any defect detected needs to corrected and tested and released only in the production and latest code line. No need to do that for any of the older, but still supported releases, as Oracle and SAP obliged themselves to do in their maintenance contracts. This is a very size able chunk of workload.
Egalitarian Simplicity
Oracle and SAP want to keep the rates identical, for simplicity reasons. In reality, what they spend on support and maintenance for each of their products, varies significantly. But think what complexity would come up of maintenance and support rates would become variable, depending on functional footprint and age of release. Very difficult to explain and even more difficult to budget for. So it's better to keep the maintenance and support rate at their respective steady percentages of 17% etc vs 22% for all customers.When on premise meets a SaaS value proposition
There is one more factor, that is often forgotten in the discussion around maintenance rates. And that is, that an active subscriber to maintenance, is always eligible to the latest release of the licensed software. This used to be a significant value proposition, until the enterprise vendors carved it out with more creative license changes, think of the SAP engine model for instance.But in itself there is a contractually identical value proposition between the SaaS vendors and the traditional on premise vendors. If you keep paying your subscription / maintenance fee - you have access to the latest release of the software you have licensed, free of charge. Personally I would not be surprised of the SaaS vendors getting creative in this respect at some point of maturation of the SaaS model, too. It's just too tempting to go back and charge customers again.
The Arbitrage Model
For the traditional enterprise vendors it comes back to a simple arbitrage: Keep the model simple (one rate) and as high as possible, to get the most revenue from their install base. A few defections do not matter, as they make the rest of the customer group more coherent, less noisy, less unhappy. I am sure, that some customer have not been wept after too much when they moved to the 3rd party maintenance vendors. Of course that would never be admitted publicly of course, but everybody knows a difficult customer.Success of 3rd party maintenance?
While the number of customers serviced by 3rd party maintenance vendors is certainly up, the business model is not a screaming success. How can you tell? Well, if customers were leaving the enterprise vendors in buses - then they would react. They would either increase the value of their services or lower the price for support and maintenance.But the prices have not been reduced, au contraire SAP is ramping up prices year over year. To be fair, SAP has also unofficially increased services, e.g. with the announcement of lifetime support for the HCM functionality till 2020 at their recent HR2013 conference. But that was a proactive move by SAP - not a reaction to the 3rd party maintenance vendors carving out a significant chunk of their customer base.