Friday, September 26, 2008

Oracle confirms: maintenance fees are virtually all profit

If there was ever any doubt that the major ERP vendors are overcharging for maintenance, there's no question now for anyone listening to Oracle co-President Safra Catz speaking to financial analysts this week.

Catz was arguing that Oracle's maintenance contracts would continue to strengthen Oracle's financial performance through an economic downturn.
“We get to keep virtually all of that money,” said Oracle Co-President Safra Catz. Sure, some of that goes to customer service, but Catz said that mostly customers are paying for access to the new software – and Oracle is going to develop that new software regardless of whether customers pay them maintenance fees. For Oracle, maintenance is pretty much free money, about $10.5 billion worth in its 2008 fiscal and about $1.5 billion more than that this year. “When many customers just send you money for something you’re doing anyway, you literally can’t help [but increase profits],” said Catz.

Ben Worthen at the Wall Street Journal has the whole story.

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High software maintenance fees and what to do about them


Unknown said...

I believe you are missing the point on the value of maintenance. Sure, this is a profit center as they would have been developing the software anyway, in most cases.

However, do not cite a CFO bragging about profitability to investors as a sign that customers should be paying less. It's a simple choice -- pay no maintenance and you go naked on support (or contract with the knock off artists) and then have to rebuy a new application every 5-10 years. Which costs more?


PS I do not work for a software company nor am I involved in the selling/servicing of any maintenance contract

vinnie mirchandani said...

Scott, do you buy extended warranty when you buy a device at a retail store? Do you pay for insurance to the car rental company? Sure, they may give you additional piece of mind, but they are "empty calories".

Software maintenance historically was meant to go roughly a third into new development, a third into customer support, a third into fixes and tweaks, In majority of vendors very little is going into new development and when it is many customers are being forced to upgrade when they are happy with where they are, much of support has been automated, and frankly vendors do not need an incentive to stop their torrent of bugs.So the cost/benefit is off kilter - dramatically