High-Maintenance

I have said plenty in past about the empty calories that software maintenance spend represents - here, here, here. So, Vinnie Mirchandani Maintenance goes to a conference of a vendor which has made a career acquiring maintenance annuities and has nothing to say about maintenance?  

Here are three perspectives from Oracle OpenWorld:

1) From Charles Phillips, President

The EIs had 45 minutes with Charles, and Jeff Nolan asked questions that were being Twitter-ed to him, and I moderated to ensure the EIs present got to ask at least one question each. So, as a consequence, I just smiled when Charles made the statements below. I am including points I would have made if I had hogged the 45 minutes

"Customers see the value of having a guy who owns the IP providing the support" - you are correct Charles, but customers also like choices. Like I say just because you buy a Porsche does not mean you go back to its dealers for every service. You are justifiably proud your services ecosystem has blossomed in the last few years. But while you let them do far more complex implementations around your product, you don't think others can support your acquired products? Firms like Rimini have shown they can deliver regulatory updates BEFORE Oracle can at much lower cost.

"They (TomorrowNow) can’t update the IP–the bug fixes and patches don’t work. It turns out they were stealing" Realize the matter with TomorrowNow is under litigation but is not the word "stealing" a bit provocative? With the thousands of software and services alliances Oracle has can it say unequivocally one of its employees has not used documentation - or other IP - from any of its partners? Also, many of Oracle products are licensed with source code. Which means customers or their proxies could legally maintain it even after they sever relationship with Oracle.

"Once past 2 1/2 years, we could make more money on software-as-a-service than on perpetual licenses and maintenance" Charles, I know you said that because you think you are reasonably priced today. The reality is many customers pay more per month per user to Oracle for maintenance on applications and database than they would salesforce.com or NetSuite for maintenance and license and hosting and database administration and application support and upgrades and and and.... You would need to rebook Moscone Center to handle all the customers who would line up if you priced PeopleSoft or Siebel SaaS at $ 60 to 100 (depending on scale) a user a month for all that

2) Input from third party providers

I went to see the execs at Rimini at a hotel near the OOW event. Business is good, with plenty of interest from non-profits under budgetary pressure and more recently financial services firms hurting from the sub-prime meltdown. Also, they said they were getting a number of referrals from industry analyst firms when clients ask them for alternative support scenarios. Another provider which does not publicize its third party maintenance offering but does it for clients on a one-by-one basis said even companies in healthy industries are signing up. If they have no plans to upgrade to Fusion or within their Oracle, PeopleSoft, Siebel etc family tracks (in line with Oracle's Application Unlimited vision) why pay Oracle so much more for maintenance?

3) Comments by Jesper Andersen, SVP, Application Strategy

In a session with the press, Jesper was talking about upgrades to the latest application releases. He mentioned about 600 customers are in stages of moving to Oracle ebiz 12. He did not have numbers for PeopleSoft 9, but did not disagree that the numbers of customers upgrading was small compared to the total population in each family. No different than the SAP or Microsoft experiences as they have pushed their customer bases to move to newer releases.

So I asked Jesper whether Oracle would consider a tiered maintenance pricing strategy:  like 10% for customer category a) those happy at current release, with no desire to upgrade and mostly seeking bug fixes and tweaks (in line with what third party maintenance firms charge for basic support); 15% for category b) those that plan to stay and upgrade within their Oracle, PeopleSoft, Siebel etc family tracks and full rates for category c) those eager to get to next generation SaaS, SOA applications including Oracle's own Fusion.

He did not disagree with my POV that "one size fits all" pricing cannot work for the entire customer base but deferred any pricing decisions to Juergen Rottler, EVP for Customer Services.

I can only guess what Juergen will say. Great idea. Let's just make the rates for the 3 tiers - 25, 30 and 35%. You know with the weak dollar and the energy inflation and all -)

Update - SAP may sell TomorrowNow.

Comments

[Punita Pandey]

Hi Vinnie,

Thanks for keeping the focus on Support/Maintenance. It is one of the biggest cost buckets in the software world today but hardly gets any mention in vendor conferences or any other major announcements. As the software industry matures, the attention has to be on efficiently servicing the software that has already been bought, implemented, upgraded (many times over) and customized. However, product vendors continue to focus on new features and releases, whether the customers need it or not. They continue to push for upgrades, not related to business needs of their customers but driven by their own agenda and timelines. And they continue to charge what they see fit for routine support, in the absence of competition. While they do little to innovate on service and support, they seem to go out of their way in quashing competition.

With the current service “partner” ecosystem geared primarily towards big implementation and upgrade projects, one would not expect much thought leadership or innovation from that camp on support & maintenance. Besides, the SI firms are not known to upset the (vendor) apple cart for obvious reasons. This leaves true service innovation to a new category of companies, loosely called the third-party support providers.

However, we believe it is going to take much more than the limited approach of replacing vendor maintenance, as many third-party support providers seem to offer today. It will require a whole new approach to servicing existing software, including vendor, consultant, and in-house aspects of support and maintenance. To push the service envelope well beyond what exists today, one would have to creatively blend many innovative concepts such as collaboration/community, pay per use, service on demand, and global delivery. Please keep the focus on this important topic while the evolution happens, slowly but surely.

Best wishes,
Punita Pandey
netCustomer

[From a long time Oracle customer]

by email from an Oracle customer who would prefer to stay anonymous

"Oracle used to offer tiered support - that's where the term Metalink comes from - Metal - the tiers were bronze, silver, gold. bronze was 8-5 M-F, silver included weekends, gold went to a special desk. That was also when all support was by phone. When the internet became defacto, Oracle went to two tiers, regular and platinum. Regular is 22%, Platinum is (I think, don't know for sure) 35%. Platinum will get you your own analyst. Most companies opt for regular. The support also used to be broken into two tiers, one for support, one for upgrades. A lot of people opt to pay just support. However, when they do decide to finally upgrade, they either have to re-license the product or pay back support. I don't remember the split - I believe support was 15-18% with upgrade the rest. Oracle made the difference small enough that most people would continue to pay it (i.e. you'd have to hold the software at it's current level for at least 10 years to make re-licensing pay off).

Customers would scream if the rates for support go higher. Most of the products Oracle has purchased are being moved to this support tier pricing and for most of the products, the cost is higher. Companies are confused and trying to get all their contracts under one support contract (for simplification) and are finding that the costs are going up.

Oracle is always interesting"