Rimini Street to Oracle: don't expect us to roll over

As everyone knows by now, Oracle won a huge ($1.3 billion) judgment in its lawsuit against SAP/TomorrowNow (TN) for copyright infringement. SAP had acquired its now-shuttered TN unit to provide third-party support for some Oracle business applications in hopes of winning those customers over to SAP. SAP is considering an appeal of the jury verdict, the largest ever in a copyright case.

In the meantime, Oracle has a lawsuit pending against another third-party support provider, Rimini Street. At first glance, Rimini Street "looks like" TN in that both are/were providers of third-party support for Oracle applications. Furthermore, Oracle's lawsuit makes similar allegations--some of it appears to have been cut and pasted from its suit against SAP.

So it would be easy to assume that Oracle's hand against Rimini Street has been strengthened by its win against SAP.

Why Rimini Street isn't TomorrowNow

It would be easy, but it would be wrong. Here's why:

• Admission of liability. Nearly from the start, SAP admitted that something was wrong down at its TN unit. By the time the case went to trial, SAP had basically thrown in the towel, admitting not only that TN had violated Oracle's copyrights but that SAP itself knew about the illegal behavior.
  
  In contrast, Rimini Street is making no such admissions. It has from the beginning steadfastly rejected all allegations that it is violating or has violated Oracle's IP rights. In several interviews I've conducted with the firm's executives over the past three years, it has claimed to have established clear policies and standards to prevent such misuse and has offered to have Oracle audit its practices. Oracle has refused such offers, choosing instead to file a lawsuit. So much for allowing Rimini Street to compete fairly.
  
  
• Counter-punching. From the start, SAP was playing defense against Oracle's allegations. It never counter-sued or alleged misdeeds on the part of Oracle.
  
  In constrast, Rimini Street is fighting back. In a statement sent to me by Rimini Street last week, the firm writes, "While SAP chose not to challenge Oracle's allegations of liability, Rimini Street is aggressively challenging Oracle's allegations and prosecuting its own claims against Oracle."
  
  It goes on, "While SAP chose not to challenge Oracle's allegations, Rimini Street has countersued, accusing Oracle of defamation and using illegal and unfair practices to stifle competition for the lucrative support and maintenance business. Rimini Street intends to stop what it believes are Oracle's illegal actions and is seeking to hold Oracle responsible for its conduct."
  
  In other words, if Oracle thought Rimini Street would simply roll over, it thought wrong.
  

I suspect Oracle would like to have these two lawsuits run together in the mind of customers, prospects, and the general public. But, Rimini Street appears determined not to let that happen.

SAP's hands were tied against Oracle

The ironic part of the Oracle v. SAP/TN case is that SAP couldn't mount a vigorous defense without shooting itself (forget about the foot!) in the head. SAP, like Oracle, is addicted to its lucrative maintenance business. It is baffling why SAP chose to acquire TN in the first place, for some tactical advantage in converting a few Oracle customers to SAP? While undermining its whole business model for sustaining revenues from its installed base? What was SAP thinking?

So, when Oracle filed suit against SAP, what was SAP supposed to do--counter-sue Oracle for restraint of trade and unfair competition, and thereby conceding to any large hungry system integrator or competitor (think, IBM or HP) that its own installed base maintenance revenues were ripe for picking? Of course, SAP had to defend itself. But it couldn't defend itself too strongly, lest it wind up giving legal precedent to the third-party support industry. As it turns out, as the case proceeded through discovery, Rimini Street announced it would begin offering third-party support services for SAP's customers in addition to the services it was offering to Oracle customers. So, SAP was stuck between the proverbial rock and a hard place.

Rimini Street has no such baggage. It can and appears to be willing to mount a vigorous defense of its own rights to offer third-party support services, based on the contractual rights of customers to self-maintain their licensed software, while respecting the IP rights of OEM software vendors.

Why Rimini Street's case is important

As Rimini Street stresses in its statement this week, "both Oracle and SAP have acknowledged that third-party support is legal." I covered this point back in 2008 in a post entitled, Legal basis for third-party ERP support industry. In a little-noticed letter filed by SAP as part of pretrial discovery, TomorrowNow strongly asserted its legal right to offer third-party support for PeopleSoft customers, and PeopleSoft backed down from its claim that such support was illegal. Furthermore, to my knowledge, Oracle has not gone so far as to argue that TN had no right to offer support. Only that it did so by stealing Oracle's IP.

Rimini Street is strongly claiming not to be infringing on Oracle's IP. If it can back up that claim in court, then, in my opinion, a strong legal precedent will be established for the third-party support industry. Furthermore, if Rimini Street is successful in its counter-claim against Oracle, it will strongly restrict the attempts of vendors to prevent customers from seeking third-party support--which, ironically, SAP itself appears to have tried to do in 2009!

Strange, isn't it? SAP was defending itself as a provider of third-party support for Oracle customers, while at the same time apparently trying to prevent its own customers from using third-party support.

So, SAP was fighting Oracle with one hand tied behind its back. As Rimini Street's statement now points out, "Had SAP availed itself of the claims and defenses pleaded by Rimini Street in its case against Oracle, SAP would have placed its own policies and third party revenues in jeopardy. "

So, why is the Rimini Street case important? Because the rights of customers to not be locked into a single source for maintenance and support needs to be preserved. As I've written many times in the past, when you buy a Lexus, you have the right to take that Lexus to any third-party repair shop. Lexus cannot try to stop you or threaten to void your warranty if you do so. If they tried, the US Department of Justice (DoJ) and 50 state attorneys general probably would file suit. Why should the enterprise software industry be any different?

DoJ is reported to be looking into the Oracle/SAP matter. If so, and while it's learning about this industry, it should also take a look at the restraint of trade and antitrust implications of both SAP and Oracle's behavior in attempting to prevent a viable third-party support industry.

Statement from Rimini Street

Here is the full statement from Rimini Street, sent to me last week.

While SAP chose not to challenge Oracle's allegations of liability, Rimini Street is aggressively challenging Oracle's allegations and prosecuting its own claims against Oracle.

We believe the resolution of the Oracle vs. SAP case does not impact Rimini Street’s case against Oracle and does not change anything in the fast-growing third-party support market.

A few key facts:

Both Oracle and SAP have acknowledged that third-party support is legal. Oracle's claims relate to the specific processes and procedures used to provide support for their products. The processes and procedures used by Rimini Street are very different from those used by SAP.

The only substantive similarity between the offerings of SAP/TN and Rimini Street is that they both provide third party support at 50% off the software vendor's annual fees. As clearly articulated in the court documents and the thousands of pages of process documents provided to Oracle by Rimini Street, every other aspect of Rimini Street’s operations is significantly different that the operations of SAP/TN. Oracle knows this to be true.

We believe the magnitude of the damages award is a result of SAP's peculiar decision to concede liability and ultimately not challenge Oracle's claims. It bears noting that SAP, like Oracle, derives many billions of dollars from maintenance and update services to its customers with profit margins not unlike Oracle’s.

SAP’s practices and conduct in their attempts to chill growth of third party maintenance are similar to Oracle’s. Had SAP availed itself of the claims and defenses pleaded by Rimini Street in its case against Oracle, SAP would have placed its own policies and third party revenues in jeopardy. SAP abandoned these claims and defenses at its own peril, as the size of the damages award illustrates. While SAP chose not to challenge Oracle's allegations, Rimini Street intends to stop what it believes are Oracle's illegal anti-competitive actions and will hold Oracle responsible for its actions.

While SAP chose not to challenge Oracle's allegations, Rimini Street has countersued, accusing Oracle of defamation and using illegal and unfair practices to stifle competition for the lucrative support and maintenance business. Rimini Street intends to stop what it believes are Oracle's illegal actions and is seeking to hold Oracle responsible for its conduct.

Update, 1:40 p.m.: Dennis Howlett has a good post on the long-term implications for customers if vendors can get away with squashing the nascent third-party maintenance industry.

Related posts

SAP and third-party maintenance: good for me but not for thee
Legal basis for third-party ERP support industry
Oracle slams Rimini Street with lawsuit over third-party maintenance

Oracle applications customers: wedded bliss or battered wives?

The results of my Oracle Apps customer survey have just been published by Computer Economics, and I've been fielding calls from media representatives on the findings. The most common question: if customers are so unhappy with the quality and cost of Oracle apps support, why do they keep spending money with Oracle? Why do they stay in this relationship?

It's not an easy question to answer. But first, let's summarize several main findings of our study.

Three negatives for Oracle

The Computer Economics Media Alert and Research Byte provide a more complete description of the report. But let me point out three major negatives for Oracle in the findings:

• Apps customers unhappy with Oracle support. There is no way to avoid the conclusion that there is tremendous customer dissatisfaction with the quality and cost of Oracle support. Specifically, 42% are dissatisfied with the quality, while 58% are dissatisfied with the cost. This is across the board for all products, including E-Business Suite users, but is especially pronounced among PeopleSoft customers. The respondent comments in this section are devastating.
  
  
• Fusion apps not top-of-mind for Oracle customers. Oracle’s next-generation applications, dubbed Fusion Applications, are not on the radar for most customers, with only 10% planning to migrate to Fusion. There is substantial difference in migration plans, depending on the Oracle product currently installed.
  
  
• Oracle apps customers not flocking to Sun hardware. Only 25% of Oracle application customers are currently users of Sun hardware, but among these customers, expectations for increasing support costs are high. Very few Oracle application customers have plans for Oracle’s new Exadata storage systems.

As I said, not good news for Oracle.

But most customers sticking with Oracle

At the same time, despite their dissatisfaction with Oracle support, their lack of interest in Fusion, and their complaints about Sun costs, only 25% of our respondents expect Oracle to have a smaller share of their IT budgets over the next three years. Another 37% indicated such factors as organic growth, purchase of additional Oracle applications, and standardization on Oracle technology would result in Oracle having an even larger share of their IT budgets. The remaining respondents judged Oracle’s share of their IT spending would be about the same in three years.

In other words, whatever their complaints, the majority of Oracle apps customers do not plan on changing course.

So why do customers stay?

This is the big question. If things are as bad as our respondents say they are, why aren't they moving en masse away from Oracle? We didn't specifically ask this question in our survey, but based on many of the comments, I can postulate three types of Oracle apps customers:

1. Organizations that have standardized on Oracle products. These are like married couples in a committed loving relationship--they may have their squabbles from time to time, but their commitment is secure. These include died-in-the-wool "red stack" customers, those that have committed to do most new development on Oracle database and tools. Most of these customers are running E-Business Suite and have no intention of leaving. These are the ones that are most likely to be considering a migration to Fusion Apps, when they are generally available. These also include users of other Oracle applications, such as JD Edwards, PeopleSoft, and Siebel, who are generally satisfied and see no overriding reason to abandon them.
   
   
2. Organizations that find breaking up hard to do. These are like wives that would like to divorce but decide to stick it out for the kids' sake. They are miserable, but they are going to hang in there, at least for the time being, as making a change is simply too difficult. Many customers have made substantial investments in their current Oracle systems, either in predecessor applications (e.g. PeopleSoft, JD Edwards, Siebel) that Oracle acquired, or in Oracle's own E-Business Suite. In many cases, it's not easy to replace these systems. The apps are deeply embedded as part of how business is done, or if enhancements have been built on top of these apps.
   
   
3. Organizations that don't see an alternative. These are like wives that would like to be married to someone else, but don't see any attractive choices. These organizations are likely to be running Oracle's E-Business Suite. If they are of sufficient size and complexity, they may perceive that there is really only one other choice: SAP, another large Tier I vendor. From what they've heard--rightly or wrongly--that might not be a happy marriage either. And, they don't realize that in many cases, there are other choices, whether as a complete replacement for Oracle or as a partially replacement as part of a so-called two-tier ERP strategy.
   

Nevertheless, comments from respondents make it clear: a substantial minority of customers are planning to completely or partially replace Oracle in their applications portfolio. They are planning either for a total replacement of their existing apps, or to make new investments with technology from other vendors, around the edges, especially with SaaS solutions.

Make no mistake: Oracle has some great software and some great people. My own dealings with Oracle find that there are many outstanding professionals within the ranks of its applications business and its partners--smart folks that really care about serving customers.

For example, I know quite a bit about FDA requirements for electronic records and electronic signatures, and I find Oracle's approach with its E-Business Suite to be about the best I've seen from any vendor. Furthermore, by many accounts, its next-generation Fusion Apps raise the bar for ease of use, embedded analytics, and enterprise collaboration. I could list many other examples. As in any relationship--for many, being an Oracle customer has its good days and its bad days.

Chances squandered

Ultimately, though, it is hard to avoid the conclusion that Oracle is missing a major opportunity. By its own admission, Oracle makes at least 85% margin on its maintenance and support programs. In fact, it's nearly ALL profit. If Oracle would just take a 2% or 5% hit on that margin and invest it into improving the quality and reducing the cost of its support programs, it could probably reduce the level of complaints and engender tremendous good will among its installed base. Customer retention would not only increase, but it would open the door to additional purchases from these customers. And it would be a positive response to the threat of third-party maintenance.

Postscript: So, is Oracle planning any improvements in its service and support programs? It's possible. Oracle recently brought Charles Rozwat, a respected Oracle executive, back from an extended leave of absence, to head up its worldwide support organization, and he reports directly to co-President Mark Hurd. But I have no idea what changes may be planned. Oracle refused my repeated requests to make Rozwat--or anyone else--available to discuss these matters.

The full report, Go-Forward Strategies for Oracle Application Customers, is available for sale on the Computer Economics website.

Related posts

Oracle confirms: maintenance fees are virtually all profit
Oracle profits strong, thanks to your maintenance payments

Update on Microsoft Dynamics products and plans

I'm participating today and tomorrow at Microsoft's Dynamics Fall Analyst Event--a series of briefings at Microsoft's facilities here in greater Seattle area. I won't attempt to do a complete rehash of what was presented, but rather a few key impressions.

• CRM is where the action is. Although Microsoft Dynamics ERP products (AX, NAV, GP, SL) were presented, the discussion always seemed to lead off with MS Dynamics CRM. I'm left with the impression that many of the new deals are for CRM, although ERP deals probably carry a higher average price.
  
  Why would this be? It is probably no coincidence that the CRM product is the most recently developed, with the most up-to-date architecture, and the most innovative features, such as new mobility options being introduced in the 2011 version. Such characteristics garner more mind-share from partners and prospects. Some good new features are being introduced in the ERP products as well (e.g. we saw some interesting new features in AX for retail) but one senses that these enhancements do not generate the sort of excitement as what Dynamics is doing with CRM.
  
  It also helps that Microsoft is aggressively discounting the CRM product on a promotional basis, as discussed in a moment.
  
  
• Microsoft Dynamics serious about going "all in" on the cloud. Traditional on-premise license sales may still account for the bulk of Dynamics sales, but the most interesting developments are in its cloud offerings. These offerings are still in a state of flux--hosted deployments are currently provided by Microsoft partners. But uptake has been good, as evidenced by the four customers Microsoft put forward to tell their stories and take questions from the analysts gathered here. Microsoft's Azure services--primarily platform-as-a-service (PaaS) and software-as-a-service (SaaS) are still being built out. But we had a fairly deep dive into what Azure's data centers look like, and what the build-out of services will include. It's an impressive initiative and an enormous investment by Microsoft.
  
  
• Microsoft not afraid to compete on price. As just mentioned, Microsoft is offering promotional pricing on its CRM product with online deployment, starting at $34 per user per month. This is well below the entry point for Salesforce.com, generally perceived as the leader in SaaS CRM.
  
  I've often wondered why more vendors don't take this approach, to compete explicitly on price, especially under current economic conditions. As my late business partner, an expert on strategy, told me: there are only two basic business strategies--low-cost leader and differentiation (everything else). But most software providers choose to compete based on their claim to be able to offer something "unique"--something that demands a premium price. The reality, however, is that as the ERP and CRM markets mature, premium pricing for advanced functionality may not be the best path to success. Frankly, many prospects these days just want a good, basic product they can grow with, offered at a reasonable or low price. Never underestimate the power of lowest price.
  
  Now, Microsoft will never concede the uniqueness or superiority of their product offering. Nevertheless, its willingness to compete on price shows that they understand what is really driving deals these days. I've heard that Oracle is also aggressively competing on price for its Oracle CRM On-Demand offering, further confirming where the basis for competition is moving--at least for CRM.
  
  And, it's no coincidence that these two low-priced products are both on-demand offerings. To sustain a low-price strategy you have to have a low-cost delivery model, which only an on-demand offering can provide.
  
  
• The partner channel continues to be a key to success. Microsoft Dynamics sells nearly all (if not all) of its deals through sales and implementation partners. For all the changes in the products, there is no change in this sales model. Nevertheless, I was interested to find that the Dynamics partner classifications of gold, silver, etc. has become muddled, with the majority of partners listed in the "gold" category. This is upside-down and absolutely of no use to prospects or customers. As in the mythical town of Lake Wobegon, all the children are above average. Or, more directly, if everyone is gold, then no one is gold.
  
  Microsoft realizes the problem with the classification of its partners and is taking steps to address it. However, I had one Twitter conversation with a Microsoft business partner who feels the certification exams are meaningless--a complaint we've heard concerning other vendors as well.
  
  To be fair, some impartial observers consider Microsoft's partner program to be better than most. Nevertheless, as critical as its partners are to Microsoft, it is essential that it put real teeth into its certification and classification processes.
  

Dynamics is in an interesting, and in some ways, difficult position. It is a business unit of one of the world's largest technology companies, with access to deep pockets and technology that for many organizations is "industry standard." At the same time, many of Dynamics' competitors, such as Epicor, Infor (Syteline), or Syspro, are building on the same technology--which means that the "big" Microsoft enjoys the same or similar pull-through of Microsoft technology, whether the deal is won by Dynamics or one of these competitors. So, in some ways, Dynamics is an independent software vendor (ISV) that happens to be located within Microsoft's four walls.

Current economic conditions are not easy times for Dynamics competitors, however. The new developments across all of Dynamics products show the benefits of being inside those four walls.

I'll update this post, as appropriate, based on additional insights gained tonite and tomorrow.

Related posts
Key success factor for SaaS suites: functional parity
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Outlook for IT spending in 2011: call for survey respondents

Is the IT spending recession over, or are there still tough times ahead? Will companies hire IT staff in 2011, or are we facing more layoffs?

To answer these questions, we're looking for IT managers in the US and Canada to participate in a 10-minute survey about their IT budget and staffing outlook.

What's in it for you? A free copy of the final report, which will otherwise only be available to Computer Economics subscribers or to those who purchase the report

Take the 10-minute survey now