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Friday, September 16, 2005

Maintenance :The Party Will Not Be The Same In Future

Oracle’s horizontal acquisition success in large measure hinges on its ability to hang onto the lucrative maintenance contracts with customers. TomorrowNow, a third-party maintenance provider for PeopleSoft and JD Edwards, released results of a study on the renewal ratio and reports that more than 80% of JDE's customers "believe they're paying too much for their maintenance and support and would consider a third-party provider" presumably like TomorrowNow. Forbes reports that around half of Oracle's total revenue of $11.8 billion came from maintenance. For end customers, switching software providers is not easy. Most experts and customers agree that replacing big applications from one company with those from another is far too costly (millions at minimum) and time consuming to be worth the bother. Oracle has promised to support PeopleSoft and JDE products for years longer than the companies would have independently, a message that seems to be resonating with customers. Still, TomorrowNow chief Andrew Nelson says, "The vast majority [of customers] aren't on the latest versions of software," he says. It's not surprising that JDE customers, or any customer for that matter, would respond "yes" when asked if they are willing to consider paying less for the same product or service. While TomorrowNow offers no implementation services or training – and they don't have a full-service services organization to duplicate Oracle's, but they are doing [maintenance] for half the cost … a much more minimal level of support, but an acceptable level of support for some customers.Oracle is well aware of the increased pressure and urgency to keep customers happy. I can confirm from field level interactions that oracle has indeed stepped up support efforts significantly. But through TomorrowNow, resource-rich SAP could recruit laid-off Siebel service and support personnel in an attempt to divert Siebel maintenance revenue away from Oracle. I agree the landscape is changing and customer expectations are increasing and we shall begin to see third party supports coming in and several customers are also demanding annual lease contracts in place of perpetual license – atleast in emerging economies.Chris is right - the era of enterprise software as we know may be over. The straightforward calculations about existing customers continuing to pay very high maintenance revenue year after year may prove to be wrong moving forward and in fact may choose to converge into one homogeneous platform and look at saving lot more costs. The real test of one's ability to hang onto customers will not come when maintenance contracts expire but when the major software companies, transition to so-called "service oriented architectures," a fundamental change in the way applications are deployed, integrated and accessed.

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