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5/6/2009
02:50 PM
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You Spoke Up About Maintenance Fees, And They Listened

The world's two largest enterprise software vendors finally got the message: CIOs do not view software maintenance fees like death and taxes. In a surprising move, Oracle has loosened its "we don't negotiate" stance and is giving some breaks on fees, while SAP is backpedaling from a staunchly unapologetic decision to raise its fee structure.

The world's two largest enterprise software vendors finally got the message: CIOs do not view software maintenance fees like death and taxes. In a surprising move, Oracle has loosened its "we don't negotiate" stance and is giving some breaks on fees, while SAP is backpedaling from a staunchly unapologetic decision to raise its fee structure.It's a markedly different tone from what these vendors were saying just a few months ago. When I sat down with Oracle President Charles Phillips in January, he told me that Oracle's 22% maintenance fee was never negotiable, adding, "We are sticklers on that." This means if you purchase $10 million in software licenses from Oracle, expect to pay $2.2 million every year for maintenance and support of those licenses.

While Phillips stayed true to his word on not wavering from the 22% standard support rate, Oracle did do something this week that runs counter-culture to its rabid focus on using maintenance fees to feed Larry The Insatiable's goal of a 50% profit margin.

Oracle said it would delay for customers, by a year, the maintenance increases they would've started to pay in 2010 on aging software products, as rates moved from the standard 22% to the extended support rate of 24.2% for products released more than five years ago.

And over at SAP, Global Field Operations President Bill McDermott had no apologies in January when user groups complained about a phased-in price hike to an improved--yet more expensive--support package that would let it enjoy the same 22% rate as Oracle. I remember hearing McDermott's blood pressure pumping over the phone when he said, "The real criticism you can make is, 'Gee, Bill, why did it take you guys so long to increase the cost of customer support, because you were five points below the industry benchmark of 22% all that time and giving up shareholder value?'"

Sorry shareholders, but it seems SAP has come to realize it's a more important job to prove value to customers. Late last week, SAP said customers would now have until 2015, instead of the previous 2012, to move to the 22 percent rate using a multi-step formula. What's more, SAP agreed to a set of "key performance indicators" that the new support package should allow 100 test customers to achieve before SAP can ask any customers to proceed to the first stage of the price increase next year; an annual 18.9% fee on licenses. Representatives from various SAP user groups are devising the KPIs with a focus on such things as business process improvement and total cost of operations.

So where did this newfound compassion come from? Both companies said it's because they want to help customers through these tough economic times. That may very well be, but there's also been outside pressure to change.

InformationWeek has hammered away at this topic, including an in-depth story I wrote in January, followed by an open letter to Larry Ellison penned by my colleague Bob Evans. Our coverage generated some great chatter in the industry and hopefully helped highlight the importance of customers' concerns about fees.

Credit also should be given to European SAP user groups who weren't afraid to be vocal about SAP's maintenance hike, and other very active bloggers on this subject, such as Forrester analyst Ray Wang.

There's also mounting pressure from competitors to the traditional license/maintenance model, including SaaS, open-source, and even third-party maintenance vendors that offer deep discounts over SAP's and Oracle's rates.

On Tuesday, I called Dave Rowe, marketing VP at third-party maintenance firm Rimini Street, who was manning his company's booth at the Oracle Collaborate conference in Orlando. Rimini gets access to the show because it's hosted by the independent user group--"You wouldn't see us at Oracle OpenWorld," he laughed--and this year Rimini doubled its booth size to a 20' X 20' spot on the show floor.

Rowe claimed he was "busy-busy" talking to Oracle customers about its maintenance offerings, who were making continual stops at his booth despite Oracle's Phillips' announcement about the maintenance price breaks the previous day. Rimini booked $86 million in sales last year and now has about 200 customers, Rowe said. Oh, and Rowe is making quite a trip of it, hanging around Orlando next week, since there will be plenty of SAP customers and analysts in town for the SAP Sapphire user group conference.

These various forces have all had an impact, but those deserving the most credit to getting Oracle and SAP to make some concessions on maintenance fees are the CIOs who've had the courage to speak up about their concerns, and share them with both their vendors and us faithful watchdogs in the press and analyst communities.

They haven't been afraid to insist that maintenance fees are not like death and taxes, and even suggest that the current maintenance model might require some serious thinking in coming years as competitive new technologies and models emerge.

And who knows, Oracle and SAP may one day thank them for pointing out that this rich form of nourishment was not something, in its legacy form, that they could have thrived on forever.

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