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Oracle Gives Customers A Break On Maintenance Fees

The change buys customers another year of standard fees on aging software products before increasing to extended-support rates. But is Oracle doing enough?

Oracle is making changes to its software maintenance fee structure in what it said is an effort to help out its recession-battered customers.

Oracle announced Monday that it will delay for customers the maintenance increases they would've started to pay next year on aging software products, as rates moved from the premier to the extended support stage of product life cycles.

For example, customers who bought JD Edwards EnterpriseOne 8.11 when it was released about four years ago are paying, on average, the premier (or standard) maintenance rate of 22%. Beginning in 2010 their rates would have increased by 10% of the premier rate, to the extended support rate of 24.2% of the initial software license cost. Now the extended support fee of 24.2% won't come into play until after December 2010.

To further clarify, a $1 million JD Edwards software license purchased in 2005 might carry a $220,000 yearly maintenance fee. Rather than increase that yearly fee to $242,000 in January, it'll stay at the current yearly rate until the end of 2010, saving the customer $22,000 next year.

Oracle, like other vendors, raises fees on products after a typical five years because, vendors say, older products become more costly for them to support.

Extended support rates have been waived for Oracle E-Business Suite Release 11/10, Siebel CRM 7.8, Oracle Database 10g R2, and PeopleSoft Enterprise 8.9 until various dates in 2011. All of those products were released in the 2005 time frame.

Oracle also said it would provide resolution of "severity-one technical issues and US year-end 1099 support" for E-Business Suite 11/9 users through June 2010. Oracle president Charles Phillips made the announcements at Oracle's user group conference, Collaborate, in Orlando, Fla., on Monday.

Customers "need extra time," Juergen Rottler, executive VP of customer service, said in an interview. "In these economic times, customers are looking at every dollar spend very carefully."

But are the one-year waivers of extended support fees enough? Some customers have suggested Oracle needs to be more negotiable on maintenance fees across the board. Unlike SAP, Oracle doesn't negotiate on maintenance fees with each contract. It publishes standard rates for maintenance fees based on volume purchases; the typical fee is 22%.

Phillips has said that the standard rate helps Oracle anticipate and earn a steady income from customers over a set period of years on software licenses, and that's one reason Oracle has remained healthy and highly profitable during tough economic times. The company, however, will negotiate on the one-time cost of software license costs.

And Monday's announcement shows Oracle making sacrifices on profitability, too. For every $1 million software license on the above products purchased in 2005, it will get about $22,000 less in maintenance fees next year.

However, large software vendors such as Oracle and SAP are unlikely to make major changes to their software license and maintenance strategies unless customers start moving in droves to alternative approaches, including modern hosted software approaches such as software as a service.

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