Amdahl. Skype. MicroJet Technology. AMD. The technology industry has a tradition of vendors who come along and challenge seemingly bullet-proof incumbents. They deliver a different set of economics - and help squeeze out excessive premiums in various segments of the market. And sure enough incumbents try every FUD, legal maneuver to bad mouth, intimidate such providers. Third party maintenance is today's "plug-compatible" alternative to maintenance offered by software publishers.
Irrespective of what happens to SAP's TomorrowNow unit after Oracle's suit, the cat is out of the bag. While Oracle in its suit makes the point that "the economics, and the logic, (of SAP's TN pricing) simply did not add up", actually the economics of software maintenance are extremely transparent.
I have said before software maintenance reflects the most empty calories in IT spend from a buyer's perspective and here's why:
a) paying for bug fixes smacks of "double jeopardy". The software industry delivers shoddy code and charges a license fee for it (with minimal warranty), then expects buyers to pay maintenance to get bug fixes.
b) most enhancements (from at least the larger) software vendors deliver tend to be "me-too" and years late. Ask Oracle's CAI partners from a few years ago the inherent tension in worrying about Oracle introducing a competitive product while also acting as a partner. I was aghast a few years ago to hear an SAP executive say "shame on us if we cannot learn from our application partners". The charges against Microsoft from smaller vendors which partnered with it are well documented. Larger vendors do not pay royalties to the innovative vendors, yet charge customers for it like it was original IP
c) Many periodic enhancements, especially in core ERP modules, are driven by statutory changes. The algorithms are publicly available, not proprietary IP of any software vendor
d) During implementation before they go live on software, few customers tax support lines. Indeed they are under another "double jeopardy" - paying the systems integrator (often Oracle or SAP Consulting) in addition to paying maintenance.
e) Similarly after year 5, the support demands of most customers drop off as they stabilize their production environment. Fair maintenance pricing would be in a bell curve - gradually ramp up years 1 and 2, gradually ramp down starting in year 5. But today the software industry expects full rates from day one through termination
f) Most software vendors have moved maintenance of older releases offshore to India, E. Europe etc, but have kept the savings without passing any of that along.
I could go on, but you get my drift. Maintenance, direct from most software vendors, is over priced by a long shot. Customers should have alternatives. Just because you bought a Porsche should not mean you go to the Porsche dealer for every service. For peace of mind or better service you may still want to, but you have a choice to also go to your local garage.
If Oracle's action against SAP spooks third party maintenance, I would like to see the Feds get involved. During the PeopleSoft takeover battle, the DOJ tried to stop Oracle on antitrust grounds. It chose to define the software market very narrowly and Oracle easily proved it was not being anti-competitive. This time around the Feds should use maintenance as the filter. Oracle (and other software companies) have an overwhelmingly dominant position around that revenue stream around their software.
The government action against IBM in 1969 led to the formation of today's software industry. And it has been a glorious one. No reason why similar action today against the software industry will not spawn new services and software options - and make the maintenance from the software publishers themselves much better value. It's not about being mean to SAP or Oracle or Microsoft (or IBM again). It's about customer choice.
Update: Sure enough the F word - Feds - got the most attention in my post. Several emails to me chided me for dragging the government in. Ok, so if you have read my SOX rants, I am not a big government/compliance fan. My note above was more on poor payback from maintenance and I brought in the Feds towards the end of my note and only "If Oracle's action against SAP spooks third party maintenance..."
As leaders, I want Oracle and SAP and MS and others
to be more responsible and allow for more choice around maintenance (as
they do around implementation services). When I say leaders, I mean it. The top 4 have sw
revenues of $ 15 to 40 b each. They are big, global players and have
responsibilities just like chemical and auto companies do. Their own willingness to open up would be far more rational than government intervention. Most
customers would likely continue to buy from them, but those customers that did
not see value could move on. This is about customer choice. Today we don't have
it around maintenance.