Software
Commentary
7/23/2009
00:04 AM
Bob Evans
Bob Evans
Commentary
Connect Directly
RSS
E-Mail
50%
50%

Global CIO: Have Oracle & SAP Hit Tipping Point With 22% Fees?

Alternative providers of support and maintenance services are winning over CIO hearts and wallets, but is this a real threat to SAP and Oracle or just a fad?

So just what do we have here: a pimple on the keister of an elephant, or the first echoes of what could become a very big bang? The stakes are enormous: for CIOs, billions of dollars from IT budgets that have already been squeezed tighter than two coats of cheap paint; and for software vendors typified by Oracle, the fate of a pricing and business model that many customers say no longer reflects the realities of today's market.

Setting the stage for this rumble, in this corner we've got global powerhouse Oracle Corp., which just reported $12 billion in annual revenue from support fees and maintenance fees that it generates by collecting from customers annual fees totaling 22% of their software purchase price. And in this other corner we have Rimini Street, a four-year-old company that says it offers equivalent or better support and maintenance services on Oracle products but charges only 11% per year. That model, by some estimates, could give Rimini revenue this year of between $250 million and $300 million.

That means Oracle's in-the-books revenue from support and maintenance fees is somewhere between 40 and 50 times bigger than what Rimini hopes to have if its aggressive second-half pipeline comes through as planned. With a revenue disparity that large, why am I even talking about this? Why should you care? Well, let me offer a few reasons:

1) In our recent Global CIO Next Practices study, we asked CIOs from around the world what they'd be spending the greatest amount of time on, and the top answer was figuring out ways to spend less of their precious IT dollars on internal operations so that they can devote more to customer-embracing projects. So, for some of the big-company CIOs that have turned to Rimini for some or all of their Oracle (and now SAP as well) support and maintenance services, this new approach has been a helpful means toward that end.

In fact, responding to a question about what we sometimes refer to as the "80/20 ratio" that has 80% of a CIO's budget going to internal costs such as maintenance, Ravin referred to that 80% figure as "entitlement costs": "the software companies have been getting so much for so long that they feel they're entitled to it."

2) Rimini is indeed a relatively small company but it is growing very rapidly: it tripled its revenue this year over last. And while that's easier to do when beginning with relatively small numbers, the company says it is confident that it can continue its rapid acceleration because the market opportunity in front of it is so large.

3) While Rimini Street is hardly a household name – in fact, it's name can fairly be called obscure or strange or both – it is assembling a list of customers that are known around the world, with the Fortune 500 now making up its largest customer segment, according to CEO Seth Ravin. Rimini also says it is doing business with nine of the Fortune 100 – again, nine out of 100 is not exactly a match for Oracle, whose penetration of that elite group is probably around 90%, but nevertheless it's probably about nine more than most CIOs might have guessed.

Previous
1 of 3
Next
Comment  | 
Print  | 
More Insights
Google in the Enterprise Survey
Google in the Enterprise Survey
There's no doubt Google has made headway into businesses: Just 28 percent discourage or ban use of its productivity ­products, and 69 percent cite Google Apps' good or excellent ­mobility. But progress could still stall: 59 percent of nonusers ­distrust the security of Google's cloud. Its data privacy is an open question, and 37 percent worry about integration.
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek Tech Digest September 18, 2014
Enterprise social network success starts and ends with integration. Here's how to finally make collaboration click.
Flash Poll
Video
Slideshows
Twitter Feed
InformationWeek Radio
Archived InformationWeek Radio
The weekly wrap-up of the top stories from InformationWeek.com this week.
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.