InformationWeek: Some CIOs say that software maintenance fees across the industry are too high and getting worse. Oracle charges an annual maintenance fee that's 22% of the license cost. What's your response to those that claim the traditional cost model isn't working?
Phillips: It certainly has worked for a long time. People keep coming back to the model that's simple and has worked. [Customers] like owning their software. If they want support, that's an option.
Support dollars go directly into products, and dollars go into high-priced developers you have to pay to keep around. Those developers come up with the [software] enhancements, and there's a long list of things that customers want. We've got 22,000 developers, who are high-priced people, making those enhancements. If you want an enhanced product, you have to pay for it with support dollars. There's no other way to fund it.
InformationWeek: Some CIOs have told us that with some software issues, they're told the problem isn't covered under their maintenance contracts, and are referred to high-priced consultants. They felt their problems should be covered under maintenance contracts they've already paid for. Have you heard of this complaint?
Phillips: That's not something I hear a lot of. Usually we go well beyond [what's expected]. If there's an issue, we're going to fix it.
The problem [usually] isn't the result of a product defect; it's because someone didn't read the manual or get the right training. It's a how-to question, or, "I changed my router [and now there's a problem]." Then we end up calling Cisco. Normally, we're solving the problems. We build customer relationships that way, and have gotten all sorts of kudos for the quality of our support. We offer support across 147 countries -- it's one of the reasons people go with us.
InformationWeek: Why is Oracle often willing to negotiate on the price of a software license, but not on its 22% maintenance rate?
Phillips: We tend to optimize our pricing over the long term. We'd rather get a normal support cost and not negotiate on that, but on the license up front. So [the customer pays] 22% on a smaller cost. If you discount support to sell the license, then you can't fund products anymore, so we are sticklers for that. We'd rather take the hit up front.
InformationWeek: Oracle has been working on its next-generation Fusion applications for several years, and one of your execs told us it will enter formal beta this year. Some CIOs tell us it's hard to get clarity from Oracle on Fusion Apps.
Phillips: Until people can see and demo Fusion Apps, we can't reach everyone. It’s a complex topic without people out there demoing it. Generally, I think we've struck the right tone. We don’t want to spend 100% of our time [talking about a product] not shipping yet. We'll talk more about it when we ship it in volume.
With Fusion Apps, we're the only company even investing in next-generation applications. No one else is even trying to do that. Only [Oracle] is saying I'm going to take your support dollars and build a whole new product line. These are modern apps natively build in Java for modern business IT.
