Paul Willis comments on Frank Scavo’s blog
“To take up your point about maintenance, I’m surprised that yet again a representative of a large enterprise software vendor doesn’t take the opportunity to more forcefully defend the company.”
Then he blogs more extensively about it here – it is a bit SAP centric but he could be speaking for most legacy, on-premise software vendors
First let me me say it is ironic that Paul and Frank and I and others on our free blogs are debating the value of maintenance when software vendors spend 20, 30, 40% of their revenues in high-powered sales and marketing and corporations spend enough (though somewhat less than vendors) on IT, procurement and attorneys to manage that budget line item.
We are the dumb ones for charging nothing for analyzing those tens of billions in annual maintenance. While Paul and I ponder how to twist our business models, though, let me disagree with some of the points he makes on his blog:
a) SAP’s move to 22% is justified
It is opportunistic for SAP to say “we are getting on par with Oracle’s 22%”. SAP’s maintenance is typically calculated on a much higher application license cost base than Oracle’s - its 17% in many cases, normalized for comparable functionality is in dollar terms already higher than the 20% customers pay Lawson or 22% they pay Oracle. The belly aching about SAP costs we have heard for two decades is not just about project overruns. The base cost and shelfware is itself pretty pricey. So maintenance increase from 17 to 22% on that base just adds straw on the camel’s back.
b) Accept the vendor’s development plans – slow as they may seem
Hmmm. Let’s pick on one area - vertical applications. Remember all the exotic licensing metrics SAP and other software vendors dreamed up for vertical modules – number of students for higher education, number of meters read etc. Remember the “wall-to-wall” coverage promises? There are still huge chunks missing. So if software vendors want to get miserly on spending those maintenance dollars they collected on the incremental licenses let’s reset the clocks. Let’s refund the vertical licenses.
c) Support is insurance policy
I can see this argument. But then software vendors should be prepared to pay out for claims when their software does not work as promised. Even if it costs tens of millions. Game?
d) Don’t expect pricing based on components of support
All I can say is be glad you are not a major supplier to Walmart. They would tear down components and hand it back in a heap and tell you what you can expect to get for it. Oh, and btw tell you to share hotel rooms when you go to Bentonville. Since when did suppliers expect to keep savings from efficiencies and not pass them along?
I could go on and on. Somehow doing it for free when discussing 90% + margin maintenance just gnaws at me :)
Do the red corpuscles get a new chance at Oracle?
Oracle is buying Sun.
While the major reason may be Java, it makes Oracle a major hardware player - an "applications to disk" player.
That was Larry Ellison's vision 10 years ago, if you read Timothy Chou's column in my Cloud Pioneer series. But, as he puts it, Oracle's "white corpuscles" have fought that integration (and other innovation) even as Ellison-funded salesforce and NetSuite have shown that integrated offering is attractive to customers.
Scott McNealy, if he has a serious role, could bring radiation to the leukemia that the excess of white corpuscles have spread at Oracle.
But I am not optimistic. Oracle's numerous acquisitions over the last few years have not been rationalized and there has been little new or innovative stuff coming out of Oracle (ironically, one of the few is Exadata, a joint development with HP, which will need to be re-evaluated with this acquisition) while the executives continue to brag about the margins they squeeze by consolidating SG&A from the acquisitions.
As I wrote in February "Its top executives are deal makers, not technology visionaries. Worse, when it comes to their acquisitions, they cannot retain or easily replace the entrepreneurial talent."
It is a sad commentary on the state of the industry that Sun's only other home would have been IBM, which in its own way has also become a graveyard for once innovative technology companies.
John Chambers is probably chuckling this morning that his move into servers was well timed.
April 20, 2009 in Industry Commentary | Permalink | Comments (2) | TrackBack (2)