Dear Mr. Ellison:
Since you founded Oracle about 30 years ago, one quality that's defined you as much as any other is leadership: in databases, enterprise applications, acquisitions, the America's Cup, and the voicing of strong opinions. And in the midst of the global economic downturn that is hammering your customers, you have a perfect opportunity to exert that forceful leadership once again in a way that will help those customers while also helping Oracle.
The issue that needs your fresh thinking and attention in today's brutal economic climate is the one-size-fits-all, nonnegotiable 22% annual maintenance fee Oracle charges your customers. As you well know, those customers are desperately trying to cut costs and conserve cash, and are exploring every possible option for doing so. You can help those customers very directly while also advancing Oracle's cause in a variety of ways by being willing to modify your stance on that single-tier, unmodifiable policy. Here's what you might consider:
1) First off, stop referring to this annual fee as "maintenance." While a name change won't address the financial issue, it will reflect to your customers that you're looking hard at this complex issue. Your president, Charles Phillips, emphasized repeatedly in a recent interview with InformationWeek that those "maintenance" fees fund new-product development and allow Oracle to create next-generation products. That's a hugely important initiative, so whether or not you decide to change the fee structure, change the terminology -- instead of "maintenance fees", call them "innovation and development funds."
2) Your customers' businesses are changing rapidly and in profound ways as global sourcing, commerce, partnerships, and supply chains are forcing them to revamp product portfolios and business models. Yet when they turn to you and suggest new ways for them to do business with Oracle, your current policy says, "We're not interested, it's simply not negotiable, so pay the 22% or get lost." Is that the right message for the world's leading enterprise-software company to be delivering in an industry that crushes status quo and rewards innovation?
3) Nature abhors a vacuum and so do IT entrepreneurs, who are rushing to fill the gap between the exceptional but expensive solutions you offer and still-emergent models such as SaaS and cloud computing. In the fat times of the recent past, Oracle customers whose businesses were growing nicely would probably have said "thanks but no thanks" to such alternatives as SaaS, cloud, third-party maintenance, and open-source bundles. But today's times are anything but normal and those alternatives -- for all of their real and/or perceived flaws -- are gaining traction and revenue and market share because these desperate times are requiring desperate measures from CIOs.
4) No one's asking you to slash the 22% fee irresponsibly and give away your ability to create great new products and support the ones your currently have. But the longer you dig in and tell CIOs that you're not interested in the wicked expense challenges they're facing, the longer they're going to remember that when the current recessionary climate fades and new alternatives gain strength. As Manjit Singh, CIO of Chiquita Brands, suggested to InformationWeek, what about some alternative tiers for which you charge less and in turn provide less? Singh proposed a 12% fee that would offer bug fixes but not upgrades -- is that not an idea worth considering? Or 12% for support 9-to-5 rather than 24 hours? Or 15% with support delivered by a third-party network of Oracle-authorized teams?
Mr. Ellison, it's easy to see why you like the current system, where someone pays, for example, $4,000,000 for a software license and then pays you $880,000 every year for "maintenance." And maybe CIOs will continue to find that's a fair exchange of value. But maybe they won't -- as you know better than just about anyone, the IT industry is an archetype of creative destruction, where faster/better/cheaper alternatives relentlessly stalk, attack, and kill older/slower/more-expensive models. Perhaps the model you and Charles Phillips and the entire Oracle global team have built is so extraordinarily singular that it will endure forever and remain unassailable from the forces that have ground down every previous eternal model in the technology business. But maybe not.
And that's why this is a matter of leadership. You can decide to stick with the policies that have made you and your company one of the great business success stories in the world, and history may reward you with recognition for sticking with your traditional models in the face of challenging times. But when it comes to the IT industry, history has never been much of a fortune-teller. So I would urge you instead to use this opportunity to exert your leadership in these challenging times in a way that perhaps no other tech-company executive can match, and that is by being willing to reshape some core policies of your company in a time when the short-term benefits to your customers will be huge. And over the next couple of years as those customers' businesses stabilize and begin once again to grow, they're going to remember that it was Larry Ellison and Oracle that gave them a fighting chance, that listened to them, that shared some risk. And they're going to be more committed to Oracle than ever before, and that commitment will be based on loyalty rather than on an aversion to the pain that a switch would require.
Exert your unmatched leadership, Mr. Ellison, and negotiate the nonnegotiable.
Bob Evans is senior VP and director of
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