Enterprise licensing & support maze fatigue may undermine the old guard's next generation products

Enterprise licensing & support maze fatigue may undermine the old guard's next generation products

Summary: Bitter licensing and support memories may be a bigger impediment to adoption of the enterprise old guard's next generation product offerings than they realize, especially given third party options for legacy support, which can provide savings that can be applied to future customer innovation initiatives

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While the big guns in the enterprise software world can typically afford to move last to roll up any innovative ideas from upstart competitors that appeals to their customers, the legacy of complex user licensing compliance is a serious threat to those same customers continued loyalty.

Arguably deliberately complex licensing and maintenance agreements have historically been where enterprise technology companies profits lie, and a large part of the appeal of new 'software as a service' flexibility to this mature market is clarity around cost and the ability to rapidly exit seat licenses if staffing needs shrink or change. Annual maintenance payments have been the lifeblood of what we think of as traditional enterprise software companies, providing a steady income flow even when new license sales are slow.

While there are still plenty of complex verticals which require massive up front investment in equipment, on premise installation and multi year licensing and support agreements, we are now well into the age of cloud and mobile flexibility options. A large part of the decision making momentum around moving to cloud models has been the appeal of licensing clarity offered by the new wave of vendors, and this may prove to be the achilles heel of the old guard as they move with the times.

Arcane enterprise software licensing has for years been notoriously difficult to understand, and the bigger vendors are also notorious for squeezing every last penny they can get out of clients. This is one of those topics that you don't hear that much about in public due to legal sensitivity issues and the reality that vendor contracts need to be renegotiated going forward....but customers have long memories. 

Rimini Street, who provide alternative third party enterprise support and maintenance for firms using Oracle EBS, SAP, Siebel, PeopleSoft and JD Edwards products continue to grow like gangbusters, currently claiming  nearly 500 clients, including 58 of the Fortune 500 and 14 of the Global 100. They posted very respectable Q2 numbers earlier this month…but have a big day in court with Oracle (probably early next year) who are suing them on the legality of their service. the outcome of this case will hopefully provide greater clarity on the legality of third party support for end users for the future. 

Rimini Street was founded in 2005 by CEO Seth A. Ravin, who had previously started TomorrowNow in 1998 to provide alternative upgrade and technical services to PeopleSoft licensees with large, complex environments.

Quoting wikipedia on TomorrowNow, who were purchased by SAP in '05:

In March 2002, the company changed its business to focus on providing third-party maintenance and support service to companies licensing enterprise software.
In January 2005, TomorrowNow was purchased by SAP AG, a competitor of PeopleSoft and of Oracle Corporation, which purchased PeopleSoft in 2005. In 2008 SAP closed the company because of a lawsuit by Oracle. [2] Andrew Nelson and most senior managers had already resigned in 2007. [3]
On November 23, 2010, TomorrowNow was found liable for copyright infringement and SAP AG was ordered to pay $1.3 billion to Oracle Corp. That sum was later slashed to $272m on appeal.[4]. A further fine of $20 million was revealed on the 14th September 2011[5].

The Oracle vs SAP civil case will kick off again later this month in the endlessly litigious world of enterprise software, and may have some bearing on the related Rimini Street case - who threaten all the big vendors cash flow and are therefore unpopular with all of them...

What does all this have to do with collaboration strategy you may well ask? Simply that firms like Rimini Street argue with some justification that enterprise software users are so over a barrel financially to the big vendors that they have little budget left over for innovation and experimentation. Many IT professionals are looking for ways to break out of this licensing straitjacket, particularly given their huge internal demands for more modern and flexible technologies, and the need to compete internally with 'shadow IT' departmental tools. According to Rimini Street's Sebastian Grady 65% of the problems they deal with are around branched code in outdated enterprise software systems; it's hard to imagine any sense of achievement in resolving this type of problem other than keeping the plumbing working. Shaving the costs down to pay for next generation tools is therefore an attractive proposition to customers.

Microsoft, the incumbent in the front office world, have a long and ugly track record of aggressively chasing down usage of their products and demanding additional licensing revenue based on their very hard to understand end user licensing agreements ('EULA's).

An excellent Wall street Journal article last week by Clint Boulton 'Microsoft Software Licensing, Audits Confound CIOs'  points out that while Microsoft is unveiling some of the biggest changes to its business technology since the launch of Windows 95, when it comes to the perpetual-license business model that governs the sale of their technologies... 

'Microsoft is hewing to tradition, enforcing the terms of its complex licensing plans to squeeze additional revenue out of its larger customers'…..

….Michael Harte, CIO and group executive of enterprise services at Microsoft customer Commonwealth Bank of Australia, said he had a hard time ascertaining how much Microsoft software his bank actually used. “I have looked at our consumption on an individual basis and we struggle to see how much of the services are used. And what is more, it is hard to see how true value is created,” Harte said.  ”If Google could provide true alternative enterprise apps in the cloud I would switch today.”

He compared Microsoft's 'true-up' self audit process to a hotel that charges people for products that aren’t used. “It’s like as if you bought the hotel for a year, then the hotel charges for the rooms and then charges for all the services on top in an additional bundle – the mini bar, soaps and cosmetics and extras even if you don’t use them,” said Harte. “And then turning around at the end of the year and charging you for having extra people in the rooms.”

The reality I've experienced first hand with clients is that Microsoft's aggressive auditing to find additional use revenues, coupled with baffling multiple ski's for products like Sharepoint are fresh in people's minds as we enter a new era of enterprise computing. This legacy of complexity and unanticipated expense is far more corrosive than I think most enterprise vendors realize; while the pace of innovation from inside 'MISO' has definitely picked up, their efforts to move with the times may yet be hamstrung by licensing and maintenance memories. Customer appetites are as much for less expensive, simpler, more transparent and agile agreements and support as they are for innovative more efficient new ways of working.

Topics: Collaboration, Legal, Microsoft, Oracle, SAP, Social Enterprise

About

Oliver Marks leads the Global Digital Enterprise Team at HP, having previously provided seasoned independent consulting guidance to companies on effective planning of business strategy, tactics, technology decisions, roll out and enduring use models that make best use of modern collaborative and social networking tools to achieve their business goals.

These are Oliver's views and not those of his employer HP.

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  • Old guard?

    I find the proposed consumer bundling for Office 365 Premium eerily similar to MSFT's Enterprise software: potentially unwanted features included (skydrive, SKYPE minutes, ... ACCESS and PUBLISHER).
    http://www.zdnet.com/can-office-365-convince-you-that-renting-software-is-a-good-deal-7000001487/
    My price is $2 per month a single user and $5 for the block of 5. I also want a year on year (inflation adjusted) price reduction guarantee (skydrive and SKYPE will become more efficeint as technology improves, right?) and a 'revert to old-school' option so that I can back out. I also want opt out clauses for major new features: like with TV where I choose when to go HD or 3D. We'll see soon I guess.

    I am deeply suspicious of the move to the public cloud. It seems to me consumers will be left with inflexible, low-powered devices (tablets), whilst their compute power and data is locked away in a MSFT, GOOGLE, AMAZON or APPLE datacentre silo. Talk about over a barrell!

    Given previous convictions, I liken this transition to allowing a convicted paedophile to look after all my children, instead of just walking them home.
    jacksonjohn