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The link between third-party vendor support and the cloud

In this question and answer session, Nucleus Research Vice President Rebecca Wettemann explains the current trends in third-party vendor support, cloud adoption and how they relate.

Rebecca Wettemann is the vice president of research at Nucleus Research and leads the quantitative research team. Nucleus Research provides case-based technology research with a focus on value, measurement and data. The company assesses the ROI for technology and has investigated and published 600 ROI case studies. Wettemann specializes in enterprise applications, customer relationship management, enterprise resource planning and cloud. She spoke with SearchOracle about the ROI for cloud adoption and third-party vendor support.

Can you tell me what the typical return on investment is for cloud and third-party vendor support?

Rebecca Wettemann: Cloud delivers 1.7 times the return on investment of on premises. It's interesting because, intuitively, we think it's because cloud is cheaper and that's certainly partially true. But the bigger top line benefit is that I can make changes, upgrades, get more value from my cloud application over time without the cost, pain and suffering, and disruption associated with upgrading a traditional on-premises application.

Today, a lot of ERP customers are a couple of upgrades behind. Staying current, particularly if you've made a lot of customizations, is extremely expensive, extremely risky, extremely disruptive. Going through an upgrade can cost maybe half a million dollars. It's not unusual. So customers stay behind, and that's when they start to look at third-party support as an option. Support from the vendor is expensive, and, as I get further behind, I get less attention from the vendor and less support that is really focused on what my needs and particular challenges might be because they're focusing their resources on the customers who are upgrading and staying current.

I can cut my maintenance bill in half by going to third-party support and use that money to invest in cloud innovation.
Rebecca Wettemannvice president of Nucleus Research

Are companies that are already using cloud likely to be more or less interested in third-party vendor support?

Wettemann: Someone who is already on the cloud is likely to be less interested in third-party support because cloud vendors tend to recognize that they have to win that contract again every year or two. So they're in there delivering additional value, delivering upgrades, delivering enhancements and providing support because they know that the barriers to switching are a lot lower for cloud applications. What we do see is companies taking their core ERP or core critical applications like Siebel where they are a few generations behind and [saying], "I'm going to put this on third-party support." This is either because I already have a plan to implement a whole new version of what I have in a couple of years and I want to save money in order to do that, or because there are other areas of innovation in cloud that I want to take advantage of and I can put the money toward that. I can cut my maintenance bill in half by going to third-party support and use that money to invest in cloud innovation.

What we're seeing with customers is not a lot that are saying, "Okay, I'm going to move from PeopleSoft to ERP cloud." It's a very small population. What we are seeing is people saying, "You know what, PeopleSoft is mission-critical for us. We don't want to disrupt it right now. We want to watch the road map for ERP cloud and see where it's going. But we want to get a Taleo subscription, so we can manage talent management, or we want to invest in something on the CRM side in Sales Cloud or Marketing Cloud that's attractive to us." So they're looking at taking advantage of the investment Oracle has made in cloud in different areas of the organization, which is where putting the PeopleSoft portion -- to use that example -- on third-party support saves them a ton of money. Our research and talking to Rimini customers finds that they get as good if not better support as they get from the vendor.

This is definitely something we're seeing as we talk to customers about how to fund new projects. IT budgets are not flat, but not growing at a tremendous rate. And what they're looking at is: "How can I cut out this big portion of expenditure, which for many firms can be high six figures? How do I cut that out? Or cut it in half and use that to fund cloud innovation?" So, if I look at my overall ongoing IT budget, a significant portion of that is license fees. Anything I cut from there becomes, without needing more budget, funds to invest in cloud.

Is this what you see people doing?

Wettemann: We're definitely seeing folks say, "Yes, I need to do more with my IT budget." This is a great way to keep systems that I'm not ready to move to cloud yet on a much more cost-effective basis so I can divert my resources elsewhere.

When Oracle customers move to the cloud, do they remain with Oracle or start using other vendors' products?

Wettemann: I would say it's a combination.

What factors influence that decision?

Wettemann: How much they're an Oracle shop, certainly. Specific business needs that they're looking for, whether it's supply chain, CRM, HCM or another -- Marketing Cloud is a great example. But they're looking at what are the competing solutions in the cloud marketplace and how does Oracle stack up.

Is now a good time for making big decisions?

Wettemann: Yeah, absolutely. And it can also be a matter of not necessarily wanting to put all of their eggs in one basket. Because, remember, with cloud I don't have to have the level of developer skill or DBA [database administrator] skill that I do to support an on-premises application. So, I don't have to decide that I've got to have two or three Oracle DBAs that I know I'm going to be able to retain to make sure they keep my application running and everything works. I don't have to do that with cloud, so I have more flexibility.

This is the first part of a two-part interview. To read the second part, click here.

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