Global CIO: Have Oracle & SAP Hit Tipping Point With 22% Fees?Global CIO: Have Oracle & SAP Hit Tipping Point With 22% Fees?

It's not hard to see how CIOs fighting for every budget dollar and struggling to fund innovative growth-oriented projects would look askance on executives at IT companies whose public statements unequivocally indicate that the 22% fees must be maintained for the express reason of maintaining (oh, so is that what "maintenance fee" means?) profit margins and propping up share prices.

Without question, SAP and Oracle need to stay very profitable to fund their massive development efforts in a rapidly changing and highly demanding IT environment. And equally without question is the fact that analysts have been trained – rigorously – to monitor these intensely profitable revenue streams and will not take it kindly if those begin to decline, which could happen if Oracle and/or SAP change their 22% model.

And Oracle's own numbers tell an eye-popping story about what it spelled out in its most-recent quarterly financial release for the line items dealing with its 22% annual fees: for "Software license updates and product support," Oracle listed revenue of $3.052 billion, and operating expenses of $293 million. Taking $293 million in operating expenses from $3.052 billion in revenue leaves an operating profit of $2.759 billion.

And that translates to an operating margin of 90% for Oracle's "software license updates and product support business." Hey, God bless profits, and may we all find ways to push them into the range of 90%. And if customers see that number and believe they're getting full value in return, then Oracle is set for life. So back to upstart Rimini Street, which is happily tapping into this opportunity because it believes very strongly that customers do not feel they're getting full value in return. CEO Ravin said customer service at many enterprise software companies is the equivalent of "bussing your own tables at McDonald's, and marketing senior VP Rowe picked up on that theme in an e-mail exchange earlier this week:

"Like fast food restaurants, software vendors have trained users to solve their own issues rather than providing full service for the huge fees they charge," Rowe wrote in his e-mail reply to my questions. "The reality of software vendor help desks, including multiple layers of people and escalations to get to a senior engineer with experience; training clients to believe it is acceptable to simply say a current issue is "fixed in the next release", and brushing off client issues with weak responses and excuses like "the manual says it was designed that way," forces customers to have to resolve their own issues."

Rimini Street, he says, is looking to exploit that opportunity by providing a higher level of service, "and that's what we believe clients pay us to provide." So, again, I'm not exactly sure what we have here, either the pimple on the elephant's rear some early indications of powerful seismic shifts about to emerge. So as you evaluate your options, I'd recommend you boil it down to these three factors:

1) Don't lose sight of the stability and global scale and vertical-market expertise that Oracle already has – not that it's hoping to build, but that it already has. And ask yourself if that's worth 22% per year.

2) Think long and hard about where your hard-fought IT budget dollars are driving the greatest business value: in paying 22% to SAP and Oracle for support and maintenance, or in funding new revenue-driving initiatives for your company.

3) Remember that nature and free markets abhor vacuums, and that they can be sustained only under artificial conditions.

information Analytics has published an analysis of the current state of service assurance. Download the report here (registration required).