Wanna cheap Oracle service guv? Wednesday, March 28, 2007
Dennis Howlett has an interesting post on an attempt by TomorrowNow, a SAP subsidiary, to cut into Oracle's $2bn annual maintenance revenues by offering the same service for less.
The real threat to Oracle is the $1 billion of those maintenance revenues it potentially loses (Check TN's 50% offer to Hyundai UK) as increasing numbers of marquee customers realise they can get adequate software maintenance at affordable prices. Oracle claims it cannot understand how TN can make a profit at TN's prices. It uses that as an argument to imply that software developers need north of 50 percent to cover maintenance costs.
Software maintenance benefits from juicy margins As Dennis observes, according to Oracle's latest results, support services yield 90% margins.
In many ways, this will be just the beginning of an interesting initial price war, which may of course result in counter-offers and retaliation against SAP's own maintenance charges - customer may query how it is they can charge less to service Oracle products than SAPs.
Of course, price is one thing but it would be great if they went head to head on the real thing - service.
In many ways, this battle is reminiscent of the car service market. Warranties are considered "impaired" if anyone other than one of the over-priced annointed dealerships touches the car in the first few years. Worried about their second-hand value, customers glumly stump up for an indifferent service at inflated price.
I suspect that this will be the next phase of the Oracle play - i.e. following "Must be a lousy service if they are doing it so cheap", may be the "we can't be held responsible for your business critical applications if other companies mess with the application", with an immediate "Only we have access to the creators!". At that point, I bet a number of CIO will have second thoughts.
posted by John Wilson @ 3:42 PM Permanent Link
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