Monday, September 19, 2005

Oracle faces threat to Siebel maintenance fees

The Oracle/Siebel deal hasn't even closed yet, and a third party is already eyeing the lucrative Siebel maintenance revenue stream.

The company, Rimini Street, is so new that the its website hasn't even been spotted yet by Google. But it was the subject of a Wall Street Journal article this morning, which will no doubt give it a huge publicity boost.

Third party support organizations are not unusual. But this one is interesting because it is headed by Seth Ravin, who was already a thorn in Oracle's side when he was running TomorrowNow, a third-party PeopleSoft support organization. Ravin left TomorrowNow in March when it was purchased by SAP, prompting a veiled threat from Larry Ellison. Prior to starting TomorrowNow, Ravin was an executive at PeopleSoft.

It's a pretty good bet that SAP's buyout terms included a non-compete clause for Ravin, to prohibit him from setting up another PeopleSoft support organization. But that wouldn't stop him from taking SAP's money and setting up a third-party maintenance group for Siebel customers. Who knows, maybe he'll build up Rimini Street to the point where he can do another deal with SAP.

Ravin says he will offer support at 50% of the cost of Siebel's current fees, which is similar to what he did for PeopleSoft. Finding engineers to provide Siebel customer support shouldn't be difficult. Oracle is expected to quickly cut staff as part of the deal to integrate Siebel. That should put a number of skilled Siebel resources on the street. In addition, there may be a certain number of Siebel engineers that would prefer to work for someone like Rimini Street than become part of Oracle.

In terms of absolute dollars, it's doubtful that Ravin will take a large amount of business away from Oracle. To illustrate, TomorrowNow only reached a total of 30 people before Ravine sold out to SAP. Furthermore, most customers are not going to want to give up the rights to Oracle's product roadmap, code-named Fusion. Rimini Street will appeal primarily to customers that have heavily modified Siebel's program code and don't particularly need or want access to future releases.

But the mere availability of maintenance support from Ramini Street will be a check on Oracle's ability to dictate terms to Siebel customers. Maintenance fees accounted for $469M in revenue to Siebel last year, over one third of its revenue. With competition for new license sales extremely competitive these days, software vendors increasingly count on maintenance fees to stay profitable. In the case of Siebel, which has a particularly tough time on the revenue front, those maintenance fees certainly count for a lot in Oracle's arithmetic.

My prediction? Oracle will downplay the existence of Rimini Street for now. But if Ravin's new firm starts to get traction, it wouldn't surprise me if Oracle threatens legal action.

Related posts
SAP to provide maintenance for PeopleSoft products
Ellison threatens SAP regarding PeopleSoft support
High software maintenance fees and what to do about them

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