ERP Support Drama: How Far Will Oracle Go to Protect Its Golden Egg?

Oracle has been litigating against third-party support providers, including Rimini Street and TomorrowNow/SAP, for years. But today, one of its own partners continues to sell maintenance and support services. Customers are asking: Will Oracle try to litigate away all lower-cost support options, or just some?

1 2 3 Page 3
Page 3 of 3

SAP, amid the ongoing legal battle with Oracle over TomorrowNow, which started in March 2007, was obviously more than just a little interested in Oracle's subpoena of CedarCrestone: Exactly who were these vendors in Oracle's partner ecosystem that offer unlicensed and unsanctioned third-party support and maintenance? SAP lawyers asked, court documents show.

In turn, SAP served CedarCrestone with its own subpoena, requesting discovery documents describing CedarCrestone's business model, any partner agreements between itself and Oracle, and how CedarCrestone provides third-party support for Oracle enterprise software. SAP lawyers argued that Oracle's relationship with CedarCrestone was "directly relevant" to calculating damages Oracle sought in the TomorrowNow suit, according to an IDG News Service article.

In short, SAP wanted to show there was third-party competition, even from Oracle's own partners. (SAP also declined to comment for this article.)

Shortly after SAP subpoenaed CedarCrestone, court documents show, Oracle withdrew its subpoena. CedarCrestone objected to SAP's subpoena. Legal wrangling ensued. And finally, in February 2009, a federal judge ruled that SAP was "entitled to some non-burdensome information regarding [Oracle's] partnership program." The result, ordered by U.S. Magistrate Judge Elizabeth Laporte, was this:

Specifically, Plaintiffs [Oracle] shall provide a list of the "small percentage of its partners" with which Oracle contracts to provide support services for PeopleSoft, J.D. Edwards or Siebel applications.... Plaintiffs shall produce its partnership agreement(s) with CedarCrestone for the relevant time frame from 2002 through 2008. Plaintiffs shall also produce to Defendants [SAP] the two master agreements regarding support, including fee schedules, referenced at the hearing. At the hearing, Plaintiffs agreed that Defendants may issue a subpoena to CedarCrestone regarding its activities supporting the use of Plaintiffs' software outside of the services it provides pursuant to its Partnership Agreement with Oracle.

The More, The Merrier

If CedarCrestone was scared off by its head-first plunge into the Oracle v. SAP legal foray, it apparently hasn't influenced CedarCrestone's business in any way.

Several customer-testimony documents on CedarCrestone's website show that the Tucson Unified School District (TUSD) is not CedarCrestone's only maintenance and support customer: Companies such as BWAY, George Weston Bakeries and Williams Lea all utilize CedarCrestone's maintenance and support services. BWAY, for example, "has a whole team, from CedarCrestone, responsible for the support and maintenance of their PeopleSoft investments," according to the customer documents on CedarCrestone's website.

In CedarCrestone's RFP to the TUSD, there's a wealth of information showing that its Managed Services Group has plenty of business.

There are a handful of players in the third-party maintenance and support arena, besides Rimini Street and CedarCrestone. The most notable are: netCustomer, which sells support services for Oracle's PeopleSoft, JD Edwards and Siebel products; and Spinnaker Management, which offers JD Edwards consulting and support solutions.

Of course, there are those system integrators and consultancies that provide some support services for their customers—simple fixes and debugging (what's called "break/fix") where there's no heavy lifting involved. What differentiates a company like that from, say, Rimini Street is that Rimini Street (and CedarCrestone, for that matter) can handle those important regulatory, legal and tax software updates for unsupported ERP systems.

Enterprise Software Customers Take Notice—Finally

Timing is everything. And just as the Great Recession has rocked the economies of the world, it's no coincidence that software buyers have become more aware of the arduous fees of their support contracts. Industry analysts, such as Altimeter Group's Wang and Forrester Research principal analyst Paul Hamerman, say there's been a noticeable increase in interest for third-party support services. Wang's survey data from his clients and software user group meetings shows a 22-point increase (113.7 percent) among clients looking at this option as part of their apps during the past six months.

Oracle is not alone in its lucrative maintenance and support service: SAP, Lawson, Infor, Epicor—right on down the list of enterprise software vendors. Those vendors can earn roughly 50 percent of total sales for maintenance and support fees, according to the Cowen and Co. research report. Those fees, notes the report, are "a highly reliable, high margin, recurring revenue stream that provides earnings stability and enables margin expansion even if license sales falter."

While Oracle has been able to squash most customer resentment regarding its 22 percent maintenance fees for years, SAP has not. SAP was embroiled in a year-long maintenance and support saga that ultimately resulted in a PR nightmare with high-profile customers such as Siemens, creation of a new "tiered" maintenance offering and the dismissal of of CEO Leo Apotheker.

Yet Oracle's maintenance fees keep on rolling in, despite a couple of recent and very public mistakes: more problems with Oracle's new My Oracle Support portal and a head-scratching PR-brouhaha over why Oracle shut down a free and extremely popular support services blogger—all as Oracle execs try to assuage edgy Sun Microsystems customers about their future together.

Now, Oracle's legal sights are squarely set on Rimini Street and another protracted courtroom war. Which takes us back to where this started: Oracle v. SAP, which commenced with Oracle's filing on March 22, 2007, and appears to have an end in sight. After multiple delays and extensions, and scores of hearings, depositions and motions to compel, the trial has been scheduled for Nov. 1, 2010.

Oracle has been dogged about protecting its maintenance and support revenue streams. That much is unambiguous. But if more award-certified partners in its channel start following CedarCrestone's lead, will Oracle start throwing its legal might at them, too?

One potential action was suggested by Judge Laporte. During the CedarCrestone proceedings between Oracle and SAP, the court transcript shows that she offered this nugget to Oracle's lawyer, as to what the vendor should do to CedarCrestone if Oracle discovered support practices it didn't care for.

Judge Laporte quipped: "You may yank those awards back."

Do you Tweet? Follow me on Twitter @twailgum. Follow everything from CIO.com on Twitter @CIOonline.

Copyright © 2010 IDG Communications, Inc.

1 2 3 Page 3
Page 3 of 3
Get the best of CIO ... delivered. Sign up for our FREE email newsletters!