Oracle Maintenance Fees Under Attack
Well, you just don’t mess with maintenance fees, or so we thought. In my career it has been my experience that a software developer, in particular, the large ERP Vendors, would be willing to grant some pretty large discounts on the licensing of their software. There would be a standard discount and this could be followed by a non-standard discount which could then be followed by a special one-time discount and so on. As long as we could think of inventive names for the next round of discounting and the business approvals kept coming, a savvy customer could get what appeared to be an incredible buy. So you might wonder how a large ERP vendor could discount the initial one-time license fee of their product 50% to 65% to 80% and above. The secret my friends (well it’s not really a secret) is that an annual maintenance fee was exacted as a percentage of the “net” license fee after the first initial standard discount. I remember when this maintenance rate was 15% and then it was raised to 17% and recently it has been raised to 22% by the big ERP vendors. It really doesn’t take a rocket scientist to figure out that after approximately 4 ½ years the customer has paid for the software again. As long as the ERP vendor can receive their annual cash inflow from these maintenance fees on their customer installed base, these vendors will be willing to discount their license fees.
So what does a customer get for this annual maintenance fee? Since we are talking about software, any Director of IT will tell you that maintenance gives you access to the 24/7 help desk. But there’s so much more than the help desk. A customer will need access to the latest patches and fixes that are inevitable when dealing with software. Maintenance also allows the customer to receive the next version and/or release of the software. With the new higher maintenance rates of 22%, the vendors are providing more and more enhanced support in order to justify the higher fees.
However, it seems that the current economic downturn has made the untouchable somewhat vulnerable to attack. For a more in-depth report on this phenomenon read Barbara Darrow’s article in IT Channel entitled Oracle fees for maintenance and support under fire. In it she describes the sea-change in the attitude towards maintenance fees coming from the customer base. There are some reports that customers are switching their application servers just to avoid Oracle altogether. Another approach customers have been taking, but one fraught with pitfalls, is to forego maintenance completely.
“There's definitely been a significant spike in the percentage of clients pushing back on Oracle support rates or who have let support lapse," said Eliot Colon, president of Miro Consulting, a firm that specializes in license negotiations.”
As Darrow reports, one option customers are exploring is to limit their maintenance fees to only what is deployed (e.g. users, modules, functionality). But it looks as though Oracle will not capitulate and only offer an all or nothing alternative. When customers choose “nothing” they run the risk of losing out on new upgrades. Once they decide to reinstate maintenance, they’ll be hit with all back maintenance fees during the period they declined maintenance and also a reinstatement fee.
And still another option for customers is to use third party support. David Rowe, senior vice president of marketing for Rimini Street states:
“Take your existing bill for maintenance, cut it in half, and then cut it further, because we let you drop maintenance for modules you're not using, whereas vendors have some very tough policies on that.”
For further discussion on this topic see also:
- IT shops renegotiate contracts to get savings out of vendors
- Rework vendor contracts to save money in tough times
- IT Shops renegotiate contracts to wring savings out of vendors
