At Shai Aggasi's keynote at the SAP Teched the message was clear, upgrade to MySAP 2005 ERP, a similar message rang at Oracle OpenWorld user conference. But the decision of weather to upgrade or not isn't an easy one for sure. Forrester has a report titled "Application Upgrades: When And Why" by Paul Hamerman, Which provides an overview of all the factors that effect this decision making process.

This chart attached below from the report covers the factors well:


Than the report takes a stab at defining a decision framework that can be used to make this call, chart below:


In Conclusion the report states:

Enterprise application vendors face increased resistance to upgrades, which will result in gradual attrition to their customer bases. As customers fall further and further behind the upgrade path,it may be as easy to switch application vendors as it is to upgrade. During the next five years, we expect to see greater adoption of the SaaS deployment model as a result of upgrade fatigue. A key driver for SaaS is that application upgrade headaches are reduced or eliminated, since the service provider updates the software as needed. A related trend is the emergence of third-party support providers, enabling customers to mitigate compliance and technical support risks at reduced costs. Customers electing to move off vendor support to third parties or self-maintenance reduce vendor lock-in and increase their ability to re-evaluate their application needs.

The points to take note are:
1. Customer Attrition - The point here is what are the choices that the customer have, and also with the amount of internal IT capability built / existing it is really difficult to think about moving to completely different platform / product.

2. SaaS - SaaS solutions seem to be taking on the role of stepping stones. Customer is expected to start on CRM on Demand and than move to CRM on premise, this can applied to when the customer are in between products (Looking to upgrade).

3. "Third party service providers" - This model really got validated / noticed after SAP's acquisition of TomorrowNow, but if you do the math there is a real opportunity there, around 50% of the revenue for the vendors is from "Maintenance Revenue" , Customers are beginning to look long and hard at those numbers and there are quite a few third party vendors that are in the fray for the business. Some examples TomorrowNow, RiminiStreet etc

Source: 1

Prashanth Rai