Tuesday, January 26, 2010

Oracle slams Rimini Street with lawsuit over third-party maintenance

Chris Kanaracus at Computerworld alerted me, via email, to the news that Oracle filed has filed a lawsuit against Rimini Street, alleging massive theft of Oracle's intellectual property, in connection with Rimini Street's delivery of third-party maintenance services.

Chris was kind enough to send me a PDF of the actual complaint. A quick read reveals allegations similar to those Oracle made in its lawsuit two years ago against SAP in connection with SAP's now-discontinued TomorrowNow operation. For example, "massive theft of Oracle's software and related support materials through an illegal business model." I won't repeat them here. Read Chris's reporting for a summary of the lawsuit.

As I wrote in response to Chris, I'm not a lawyer and cannot comment on the legal aspects of this case. But I do suspect it will have a chilling effect on others that are contemplating the delivery of third-party maintenance services, at least for now.

Having said that, however, I am told that Rimini Street has had top notch legal advisors from the beginning, and I expect that they've prepared for this contingency, both in terms of their internal procedures and their legal standing to do what they do. I do not expect them to roll over.

A risk to Oracle
In fact, there may be a silver lining in this case for those of us who want to see a viable third-party maintenance industry. That is, this case is going to bring increased legal scrutiny of Oracle and other major software providers in terms of how they lock in customers to their maintenance and support programs. Oracle runs a risk in filing this lawsuit. If Oracle does not prevail against Rimini Street, the case will strongly establish the legal basis for the third-party support industry.

I see an analogy in the court rulings that forced IBM to unbundle its software and hardware, creating the IBM-plug compatible mainframe industry in the 1970s, led by third-party hardware providers such as Amdahl, Fijitsu, and Hitachi. The unbundling created competition in the mainframe hardware market, the lack of which had led to inordinate profits in IBM's mainframe business.

Today, can anyone argue that Oracle (and SAP for that matter) earn excessive profits on their maintenance and support contracts? They have a 90% profit margin, by Oracle's own admission. The only reason that Oracle (and SAP) can do this is because there are a lack of alternative support providers. Is this not a case for antitrust action?

As I've written in the past, I don't need to go to my Lexus dealer for routine auto maintenance. There are a whole array of authorized third-party support organizations for the major automobile manufacturers. Why should enterprise software be any different?

I've written many posts in the past on this subject, only a few of which are listed in the Related Posts section below. To find the rest, use the search field on the right to search for "Rimini" or "TomorrowNow."

Shane Schick has a very good take on the lawsuit as well, "The vampires vs. Rimini Street."

Helmut Gumbel has a good post, making some of my same arguments, plus some others. Worth reading.

Related posts
No recession for Rimini Street third-party maintenance business
Rimini Street, SAP, and the future of third-party maintenance
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

Thursday, January 14, 2010

Flash: SAP backs down on 22% maintenance fees

SAP has finally thrown in the towel on its fight to unilaterally increase maintenance fees from 18% of software license cost to 22%.

According to SAP's press release:
SAP...today announced a new, comprehensive tiered support model that is being offered to customers worldwide. This support offering includes SAP Enterprise Support services and the SAP® Standard Support option and will enable all customers to choose the option that best meets their requirements. Additionally, in response to the financial challenges organizations continue to face, SAP also announced that its 2010 fees for existing SAP Enterprise Support contracts will remain unchanged from 2009 levels.
Translation: We tried and failed to move all customers to Enterprise Support at 22% but the blowback has been so strong that we're giving up.

I would like to think that SAP's decision had something to do with the focus that I and other bloggers, such as Vinnie Mirchandani and Dennis Howlett, along with many other independent voices, brought to this issue. (See related posts, below) But ultimately, it was SAP customers, who finally said enough is enough that tipped the scales.

The move speaks well of SAP, which remains the leading enterprise software provider globally. Nevertheless, the basic question remains: what is the value of SAP's maintenance and support offerings? If moving all customers to 22% was too much, what's to say standard support at 18% is the right number? Again, SAP customers will need to decide.

Other analysts are already weighing in on the announcement and what it means for customers. An early post by Amy Konary is worth reading. Forrester's Paul Hammerman also has good analysis.

Update, 12:30 p.m. Vinnie weighs in, suggesting that if two tiers of pricing is good, three tiers is better, with a bare-bones support option at 8-10%.

Update, Jan. 15. Hmm. David Dobrin takes a little time to run some numbers on SAP's new tiered pricing and finds that the new arrangement may not really be a price reduction, as SAP is now stating it will increase pricing for standard support based on some yet-to-be-determined annual cost of living increase. His conclusion: "Whatever SAP is doing, it is not a U-Turn, and it is not a rescission of the price increase." Read the whole thing.

Update, Jan. 19. Dave Dobrin continues his analysis by looking at the results from SAP's KPI measurement initiative (done with the SAP user group SUGEN) and the fact that there is less there than meets the eye. An excellent piece of work, Dave.

Related posts
SAP postpones its maintenance fee price hike
Enterprise software: who wants to be the low-cost leader?
Attacking and defending software vendor maintenance fees
SAP and third-party maintenance: good for me but not for thee
SAP maintenance fees: where is the value?
SAP under the spotlight for "broken promises"
Mad as hell: backlash brewing against SAP maintenance fee hike