Thursday, April 26, 2012

Oracle Customers Rankled by Product Roadmap



This is why we created a company that partners with customers to reduce costs not ring them out! Benoit Legris

Oracle customers are frustrated with high maintenance fees they’re paying for support of software they’ve acquired, and which they feel aren’t justified by promised new product features. And frustration is building as the company is perceived to be investing more heavily in areas, like cloud, that are of strategic importance to Oracle, rather than on promised upgrades.

This isn’t exactly new; in 2010, a survey showed 42% of customers were dissatisfied with the quality of Oracle support and 58% were dissatisfied with the cost. And all grousing aside, its customers aren’t going anywhere, in part because they don’t feel like they have more appealing alternatives, and because the software is considered reliable.

   
But there appears to be a deepening resentment fueled by the sense that the company is leveraging its market strength and forcing customers to upgrade to products Oracle wants them to buy. A study commissioned by Oracle released in March itself reveals that 73% of customers cited “end of support” for existing products as their reason for upgrading to a new Oracle product. [You can download the PDF.] Customers and analysts also argue their maintenance fees aren’t going towards changes, such as improved user interfaces that would make the software easier for non-technical employees to use, they need.

Oracle declined to respond directly to questions about its maintenance-fee practices, product improvements and other issues raised in this article.

Oracle sells software suites with customer, financial and human resource management applications, including E-Business Suite. The company also offers software from PeopleSoft and Siebel, companies Oracle acquired in the last decade, that perform many of the same functions.

In addition to acquiring the software, customers pay an additional 22 cents per year for every dollar they spend on software licenses in fees for upgrades and bug fixes which can amount to hundreds of thousands of dollars to millions of dollars a year.

Oracle raises those the maintenance fees customers pay by three percent or four percent each year of their license contract, a sort of inflation the company charges for upgrades, said Forrester Research analyst Duncan Jones. So for an implementation costing $1 million – not an uncommonly high amount for this type of application – customers in the first year would pay $220,000 in fees, $226,600 the next, and so on, Jones said.

This fee is waived in some cases where customers get their maintenance put on hold for a year or two as part of an additional license purchase, he said. Oracle did not comment.

These software license updates and product support fees comprised over $4 billion, or 45% of Oracle’s $9 billion in third quarter sales through February this year. Oracle aggressively enforces its support revenue stream, customers said.

iRobot CIO Jay Leader, who pays in the “mid-six figures” annually for maintenance on a multi-million-dollar license forOracle’s E-Business Suite, said those fees aren’t translating into expected improvements to existing products. “I’m paying for them to build products to attract new customers for functionality that is of no value to me,” said Leader.

Oracle declined to respond specifically to this issue, instead providing CIO Journal with a list of features and functions [PDF] it added to E-Business Suite in 2010. These included performance, security, and stability upgrades, along with access to support engineer-moderated discussions.

Customers seem to be growing concerned that they’re not not getting their money’s worth. John Glowacki, the former CTO and corporate vice president at CSC who left his company in February, said customers don’t like feeling that they’ve paid for something several times over, and aren’t seeing significant improvements in the product, especially “when you’re getting into millions of dollars in fees.”

Another CIO, speaking anonymously because he feared his comments would aggravate Oracle as he negotiates with them, said if customers drop Oracle maintenance for any reason, and then want to upgrade their existing implementation, they have to repurchase the application at full price all over again.

To be sure, SAP, Oracle’s main competitor in business applications, also charges 22% for its maintenance fees. That’s higher than the 18% to 20% industry average other software vendors charge their customers. And Oracle customers agree the applications perform as well as expected. Oracle makes its software price lists public online, but it contractually forbids customers from revealing their actual contract costs, said Jones, the Forrester analyst.

Customers enter into contract terms with Oracle with open eyes, and many plan accordingly. Dave Corchado, CIO of media company iCrossing, says his company knew what they were getting into and put in place a timetable for transitioning to Amazon services before costs got higher than the company was willing to pay. “They’re clear on their expectations on dealing with them,” he says of Oracle.

Other Oracle customers believe the company isn’t augmenting its applications to keep up with the evolution of online software. James Szmak, CIO of the Juvenile Diabetes Research Foundation, said the stodgy screens on software for accessing time management and other business functions haven’t been upgraded in years. Szmak, who has been an IT executive at large technology companies like Hyperion and Cisco, also lamented the maintenance costs his organization pays.

“The annual charges for a small non-profit like us are embarrassing,” he said.

Joshua Greenbaum, principal analyst for Enterprise Applications Consulting, said Oracle “has just not met either the deadlines or the functional requirements customers hoped it would.”

For instance, he said, Oracle hasn’t created industry-specific applications for Fusion, the application suite to which it’s trying to get customers to migrate. Manufacturers using a version of PeopleSoft customized for their industry won’t have an equivalent in the new product, he said.

Oracle declined to comment.

“There’s a sense at the end of the day that Oracle is not in it for their customers, they’re in it for their shareholders, and this is reflected in a lot of the experiences customers are having around renewals and maintenance fees,” Greenbaum said.