Company executives at Oracle OpenWorld 2008 in San Francisco this week said that, given the near 100% renewal rates Oracle software maintenance and support gets under the present system, it makes no sense for the vendor to turn any of that business over to third parties.
This is not quibbling over chump change: Oracle charges 22% of the license price for support. Maintenance and upgrades account for 55% of total revenue. Last quarter, that amounted to $2.9 billion. Overall, software maintenance and support represents the most profitable piece of Oracle's business, according to none other than Oracle CEO Larry Ellison. And Oracle solution providers see none of it.
With many other tech vendors, including Cisco Systems, Sun Microsystems and NetApp, solution providers share in the update-and-maintenance wealth. The same was true of Stellent and BEA Systems -- but both companies have been acquired by Oracle so those legacy partners were in for a rude awakening.
Ironically, Microsoft, which proclaims itself the king of vendor-partner relationships, isn't much better on the software maintenance and support front.
"Microsoft and Oracle may count support a bit differently, but the story is similar for partners either way," said Directions on Microsoft analyst Paul DeGroot via email.
Microsoft's main Premier Support option -- which includes break-fix services, account management and documentation -- is sold direct. And the company's Software Assurance maintenance, which includes some support (and for which Microsoft charges 25% of the license fees), also sells direct, DeGroot said.
Meanwhile, SAP, which shares direct sales roots with archrival Oracle, does cut partners in on software maintenance and support, at least in its small and medium-sized enterprise (SME) segment. Like Oracle, SAP charges 22% of license cost for that support. It then gives partners a 45% discount on maintenance. Partners pay 22% to SAP on that discounted number but can then invoice the customer for 22% of the larger list price. That typically amounts to a 9.9% margin per year for participating partners, a spokeswoman said.
Oracle: No plans to change
Oracle execs said that, going forward, it will be business as usual for software maintenance and support. It's hard to argue with their near perfect renewal rate, they said. They contend that renewals in partner-led support can't compare. John Gray, the group vice president heading North American channels for technology products, said one company Oracle acquired -- he would not specify which -- had renewal rates of less than 25%. "Our job is to make sure customers are up to date with Oracle technology and support. It's not a good sign when renewal rates are so low," he said.
Solution providers have heard that argument before, but maintain that customers are best served if partners are involved in the software maintenance and support business.
Bluenog's Scott Barnett said his company, a BEA Systems partner that has made a successful transition into the Oracle fold, lobbied the vendor to change its model. "BEA did allow us to have part of the maintenance, and we've been very vocal that we'd like that to continue. It's obviously good for us and our customers, and we think it would be good for Oracle as well," he said.
Barnett characterized Bluenog's renewal rates as very healthy -- much higher than 25% but not 90%. One plan would be for Oracle to set a high bar for partners in renewal rates and customer satisfaction. "If partners can't hit SLAs [service-level agreements] then fine, they're out," he said.
Oracle was willing to discuss the subject, but the company's stance was that the current operation is "a well-oiled machine" that doesn't need tweaking, Barnett said.
It's not that solution providers get rich on support. "On the BEA side, [support] margins depended on many factors and the money was not all that significant," Barnett said. But being involved in the maintenance process kept the partner in the loop on all aspects of a customer's business, and customers like that, he said.
Barnett explained that with BEA renewals, in many cases, Bluenog had to pull together purchase information and check it against BEA's records to work out discrepancies. "But when we presented the plan to the customer, it was right and our customers loved us for it," he said.
Virtually every Oracle solution provider asked about the topic said they would love to see Oracle change its process to include them, although one said the subject isn't even worth broaching with Oracle because "it'll never happen."
And as more customers shift to on-demand applications, the point may become moot.
"The support issue does not matter in CRM on Demand, because there is continuing revenue stream. It does matter for on-premise CRM where we do not get that support money. For on-premise, this is an issue," said Balasubramani Ganesh, CEO of MTSI Inc., a Brea, Calif.-based solution provider that was a Siebel Systems partner when Oracle bought that vendor.