For over a decade, a bitter feud has been raging in the enterprise software industry, pitting SAP and Oracle against Rimini Street, a relative unknown in comparison that's trying to undermine one of their most lucrative revenue streams. Now, that battle is nearing a pinnacle as the legacy providers try to persuade their customers to make the pivot to the cloud.
Founded in 2005 by former PeopleSoft executives, Rimini Street made a name for itself offering cheaper support for Oracle and SAP products than the vendors themselves provide. The business model hits at an under-the-radar, but critical aspect of deploying big-ticket products from any software titan: the need to continually keep the systems up to date. And the importance of that maintenance revenue stream — one of the largest for both SAP and Oracle — is evident in the intensity of the drama with Rimini Street.
Oracle has long claimed that the company's core business model is effectively illegal and infringes on its software trademarks (93 of them, to be exact). So far, Oracle has been victorious in the courts with that argument. But after readjusting its strategy following an unfavorable ruling, Rimini Street filed its own lawsuits against Oracle in a bid to force the vendor to recognize the legitimacy of its operations, creating a lengthy trail of tit-for-tat litigation that is poised to continue well into 2022.
For its part, SAP has largely avoided battling in public, but waded into the dispute in 2005 when it purchased TomorrowNow, Rimini Street CEO Seth Ravin's first company, which operated under a similar business model. After that deal, Oracle sued SAP, alleging that TomorrowNow infringed on its copyrights, and ultimately won $357 million in damages. Now, current SAP CEO Christian Klein largely downplays the intensifying competition from Rimini Street.
"That doesn't really worry me," he told Protocol. "When it comes to support … it's really highly-sticky, but also highly-healthy revenue."
But now — as both SAP and Oracle try to convince customers to take the expensive and time-intensive, but potentially lucrative, move to the cloud — Rimini Street is proving particularly irksome. The company often touts its ability to help clients maintain their existing systems and put off the costly updates SAP and Oracle are pushing for as long as 20 years. And for Ravin, the litigation and broader backlash is simply the cost of being a disruptor in the enterprise tech industry, one that, despite competition from a number of smaller vendors, is largely segmented to a few top providers.
"We came at this with a disruptive competitive offering that we knew was a multibillion business," he said. When the support business generates "more cash than most countries have, you're going to fight pretty hard to hold on to that money. There's no surprise there."
'It's like going to a used car dealer'
To avoid the same legal fate in the future, Rimini Street is taking a new approach to its business.
It's probably easiest to understand the scale of Rimini Street's market with an example. When President Obama signed his healthcare law in 2010, companies had to scramble to adjust their backend HR support systems, such as those offered by SAP and Oracle, to make sure they were compliant with the new requirements. Now, zoom out to every country that a company operates in and to all employment legislation, and you can see how difficult a task it can be just to ensure compliance with local laws on a constant basis for just one application. And that's just one kind of update: Tax laws around the world change often, meaning all back-end finance systems need to be adjusted regularly.
Prior to the advent of third-party support, SAP and Oracle handled those updates. But companies are increasingly outsourcing that to Rimini Street, along with other services. Historically, when enterprises deployed a new, on-premise ERP system (basically the IT backbone for functions like finance and supply chain operations) from SAP and Oracle, they underwent a costly and time-consuming effort to customize the platform to their own specific needs. The vendors, however, refuse to provide service for any software modified by system integrators such as Deloitte, according to Rimini Street, industry experts and tech leaders at organizations like CF Industries. That means those customers are forced to either pay significantly more for support or turn to Rimini Street, which has capitalized on that practice to bring in customers.
Oracle said it supports "customized solutions" under its standard service agreements, but not "custom code," which costs extra. And in a statement, SAP said it supports "customizations developed with our workbench," referring to the company's own tools. That does not, however, include any custom changes made by consulting firms, a common approach that many clients take.
"Staying close to SAP Standard solutions is a joint interest of our customers and SAP. We have also seen this translate into less operations cost and shorter time to innovate using the new developments delivered by SAP," the company added.
But that is all changing quickly as companies migrate to the cloud and adopt SaaS products from companies such as Salesforce and others. Maintenance, for example, is often included in the monthly subscription costs and, to ensure customers retain their services, providers are reorganizing their teams to prop up "customer success" functions — basically employees that are dedicated to certain accounts in order to provide more robust client care. That's also the case at SAP and Oracle, which are both in the process of pivoting away from the on-premise solutions that made them famous to the cloud-based offerings that customers are increasingly seeking.
That could put a strain on Rimini Street's business, as it becomes more difficult to drive a wedge between the provider and the customer. But Ravin is prepared for that. For one, he says the on-premise software market, one that Rimini Street only holds 3% of the overall share in, will remain prevalent. The company is also using a partnership it has with Salesforce as a model for the future. While Salesforce does offer its own support, it sends part of the work to Rimini Street. In return, the company says it saves clients money that is ultimately redirected to invest in more Salesforce products.
And as chief information officers try to navigate the increasingly complicated world of IT spend, Rimini Street is pitching itself as an unbiased partner to help guide them on the journey by providing blunt advice. Executives say that consulting giants such as Accenture and Deloitte, who make major bucks by serving as the system integrators for SAP and Oracle's software, shy away from offering straightforward advice in order to retain that close relationship, creating what Rimini Street would say is a virtuous cycle of self-serving decisions.
"It's like going to a used car dealer and asking if you should drive your car for the next five years," Ravin said. The whole ecosystem is "all designed to work together."
David versus Goliath?
Rimini Street's business is getting a bit more complicated with the move to the cloud. But one thing remains constant: SAP and Oracle still despise it. Search for Rimini Street in Google, and one of the top results that pops up, just below the company's own site, is one from Oracle with the headline: "Thinking of Leaving Oracle? - Don't Make a Mistake."
The backlash isn't too surprising. SAP and Oracle get as much as $42 billion combined in revenue each year from providing maintenance and support for their pricey software. And Ravin estimates the margins on that are around 94% profit. Rimini Street says it only makes a 60% profit margin on its services.
The adoption of third-party support also removes some of the leverage SAP and Oracle traditionally had over their customers. When the two companies release new products, they often phase out support for the older products, effectively forcing users to upgrade or maintain their existing systems without the regular maintenance from SAP and Oracle.
Oracle, for example, recently ended what it calls "extended support" for an update to its database products, known as 126.96.36.199. As of Jan. 1, companies still running that version will be unable to receive support on key areas, including new "tax, legal, and regulatory updates" and "update, fixes, security alerts, data fixes, and critical patch updates," per an Oracle document. That's basically everything needed to continue to sustain that release, meaning users are almost forced to pay to update to the newest version, which would be a cloud-based offering that some customers are hesitant to jump to.
Oracle does offer something known as "market driven support" for recently out-of-date software like 188.8.131.52, but that only applies to the most critical issues and doesn't encompass regular updates. The company also urged users to upgrade to "benefit from the innovation, flexibility, and stability provided by" the latest release. In contrast, Rimini Street is pledging to support version 184.108.40.206 for clients for up to 15 years, though Oracle would argue doing so could put the jeopardy of the software's security at risk.
Or take SAP's efforts to convince customers to make the jump to S/4HANA, software that some clients think is still too new to make it a worthwhile investment. Such a move, which can range in the hundreds of millions of dollars, was off-the-table once the pandemic struck, as IT spending was redirected to cloud and other applications that helped support the pivot to remote work.
That's where Rimini Street jumps in. It markets itself as a way to help enterprises delay those costly upgrades and elongate use of their existing systems, freeing them up to funnel the money to other places where they may see more of a return on investment. And companies save as much 75% on their annual service costs by making the switch to Rimini Street, according to an analysis by Valoir.
"Rather than accept SAP's pace, they are taking control of their SAP roadmap," Valoir analysts wrote in the recent research paper. "Rimini Street enabled them to lift the time pressure off their decision, take the time they need to fully evaluate SAP's offerings and roadmap, and maximize value from their existing SAP investment."
SAP, however, said it did "not see such patterns" in its business, adding that "the path to SAP S/4HANA that our customers consistently take is to stay on SAP support and leverage the extensive tools and services available."
Still, Valoir estimates that companies paying $1 million annually for SAP support for on-premise systems would need to spend as much as $30 million to move to and operate S/4HANA. Instead, Rimini Street often advises clients that "what you are running today is perfectly fine for another five, 10, 15, 20 years,'' Ravin said. "You don't need to spend several billions dollars and focus all your resources … on a project that will drive zero competitive advantage for you."
But the vendors don't make those decisions easy. If a company eventually wants to upgrade to the newest Oracle or SAP system, for example, the tech providers require customers to pay back maintenance costs that cover the time after they left to go to Rimini Street, industry sources told Protocol. SAP confirmed the practice; Oracle said they "could potentially need to pay back support."
Taking the battle to the courts
There's a reason why Rimini Street could worry execs like Klein or Larry Ellison. In the nine months through September, the company's sales rose 16% to $239 million as profits increased 12% to $146 million. In a reflection of that success, its share price grew 93% in the past year. To be fair, Oracle and SAP's combined market caps, roughly around $344 billion, dominate Rimini Street's $647 million.
Still, the success of Rimini Street is reflected in the intensity with which SAP and Oracle are trying to protect their own support businesses. Both companies have special teams within the organization dedicated at least partially to Rimini Street, which monitor its customer outreach and sales, according to Ravin.
SAP has "various teams that focus exclusively on driving the success of our customers," the company said. "One important part of this work is to help customers understand the value of SAP support." Oracle declined to comment.
But the feuds have burst into the public on multiple occasions, namely in the courtroom. Oracle has been tied up in litigation against Rimini Street since 2010 (there's a whole website unpacking the saga), when the company alleged that Rimini Street infringed on Oracle's copyrighted software. At its core, the lawsuit argued that Rimini Street's practice of updating software for one client and distributing that to other customers — basically the method that allowed the company to undercut on price — was a violation of its intellectual property. Oracle ultimately won. Overall, Rimini Street paid a total of roughly $90 million in damages.
In response to the 2014 ruling, and before an injunction from a judge initially filed in 2018, the company says it changed its business model to address the areas that were found to infringe on Oracle's copyrights, specifically that its updates are now unique to each client, not widely applied to every customer. The company says it can still offer support services for much lower than SAP and Oracle.
Oracle claims that the new practices still amount to copyright infringement. But Rimini Street is so confident that it sued Oracle in 2014 to solidify that its current business practice is lawful. Most recently, a Nevada court found that the case could proceed. It's expected to go to trial in 2022, per a Rimini Street slide shown to shareholders at a recent investor's day.
Hiring the industry veterans
Despite that litigation, business at Rimini Street is booming. Which is as well, because while it's carved out a lucrative niche for itself in the software industry, in order to continue competing Rimini Street has to spend heavily and refocus its strategy.
Given it has to basically follow on to any updates or new products from SAP and Oracle, there's often a time period when Rimini Street is unable to service the offerings. Ravin downplayed the significance of this, arguing that it's only a small subset of the overall customers who upgrade immediately, and that many of those users would be loyal to the service provided by SAP and Oracle — at least initially.
It's also limited by the talent it can bring onboard. There isn't an abundance of individuals with the in-depth knowledge of SAP and Oracle systems, which run in the hundreds of millions of lines of code. And many of those that do have it probably work for the providers or one of its trusted partners.
"We hire people that would typically be consultants or developers at an Oracle or an SAP. And nobody like SAP or Oracle would put them on the help desk, they are too valuable," said Rimini Street President Sebastian Grady. "The people who answer the phones for us, they are on average 46 years old. They've been 10, 15, 20 years in this business."
Rimini Street declined to say what its average salary was for those on the help desk, but said it typically hires from software vendors and system integrators.
Ultimately, as Rimini Street grows, its battles with SAP and Oracle over talent and customers are only poised to become more heated. Still, the move to the cloud isn't prompting a transformation at just SAP and Oracle, and it's clear that Rimini Street is trying to reinvent itself alongside those vendors. If its history to date proves one thing, it's that Rimini Street is ready to play scrappy to try to win.