Global CIO: Oracle President Phillips Says 22% Annual Fees Great For CIOsGlobal CIO: Oracle President Phillips Says 22% Annual Fees Great For CIOs

He contends that Oracle later this year will be giving customers a great deal by rolling out a whole new set of significantly improved applications and middleware for the same price as its current generations of products. Again, I can see Phillips' point and understand why he would make that case—but the bigger issues is this: will customers agree?

"So we're building all these Fusion applications, and the same support dollars that you've been paying, you get new versions of the things you've been using—at our cost!" Phillips said. "You're getting a whole new product suite written on Java—we're the only company that's done that in the last 15 years, and no one else has even tried—but we didn't charge any extra for that, and now you have the rights to it and whatever you've licensed under the Apps Unlimited, you have the same right to that with Fusion. Which is a good deal, okay?"

The enterprise-software market of the last 10 or 15 years, Phillips said, is littered with companies that failed to invest like that in their future, and "the companies that didn't do that died, or got bought, or whatever." Conversely, he says, plenty of Oracle's big customers are telling Phillips that they want Oracle to keep investing in innovative new products and technologies because Oracle allows those CIOs to go forward at their own pace without having to incur additional costs.

"That's the model. Everything has to be paid for in some way, and at least you can see what we're investing in: new releases. I think most people by far, when we talk to customers, understand that. 'I want you to invest in the product'—that's what they tell us."

Calling the 22% annual fees a "fair tradeoff," Phillips elaborated on the strategic interplay that has unfolded as big customers become increasingly dependent on technology and the global marketplace requires them to crank up their operations as close to real-time as possible. And when customers have to spend support dollars on patches and integration, they will inevitably fall behind.

"We'll protect you into the future, we're giving you innovation, we're investing on our dime in the future and you want us to do that, and the only way we can fund that is having a recurring support model," Phillips said. "So our model was set up over time to let us invest in new products forever—you build a bigger business over the long term that way. Nobody likes to pay anything—they all want it to be free, of course—but if you look at the value they're receiving, the amount of software they have installed—I mean, we have customers with billions of dollars' worth of licenses installed paying not that much in support (laughs) relative to that, and running their entire business—don't you want the product to work, don't you want the products to be updated, don't you want me to fix the security issues?

"So yeah—relative to what they're spending in other areas, and yeah, you may hear a discussion about a support bill of, whatever, but they're paying Accenture 5 times that every year! Well, let's automate all that—use your support dollars to automate your business. So I think the standard of value for that support dollar is shifting because when they standardize and replace a lot of these bespoke processes, that support dollar creates more value for them. So that's our motto and it seems to work," he concluded with a laugh.

That claim--"it seems to work"--is certainly supported by Oracle's financial results and also the license-renewal rates it claims. But for lots of Oracle customers, there's still a yawning gap between the value Phillips describes and the value some CIOs perceive.

And that sounds to me like a major communication and perception bug that Oracle needs to focus upon before the company can claim that its model works as well for customers as it does for Oracle.

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