Third Party Support – Oracle’s Ongoing Attack

Oracle initiated its unrelenting charge against the third party support business model and the providers that make up the market with its case against SAP/TomorrowNow. Oracle has since deepened its stance by adding Rimini Street to the list of companies it would set its sights on… and earlier this month it filed suit against its one time partner Cedar Crestone.

During its attack on third party support providers, Oracle has even found ways to extend the duration of these cases, giving it more time to try and flex its muscle on the third party support industry as well as those organizations that have chosen particular third party support providers as an alternative to the support offered by Oracle.  Oracle has actually used pre-trial discovery tools such as subpoenas on such organizations.

After already spending over five years in court and in settlement negotiations with SAP/TomorrowNow, Oracle has now appealed its most recent $306M settlement and demanded a new trial (which Oracle reserved the right to do so as part of its settlement). Oracle’s appeal came roughly a month after it reached settlement (the settlement actually came right before the trial was to begin).  Oracle said it reached settlement in order to save time and expense on a new trial, and to expedite the resolution of an appeal.  By appealing the settlement a month later, one can wonder just how genuine Oracle was when it made this statement and decision to settle.

Why does Oracle care enough to spend a virtually unlimited amount of time and money going after the various third party support providers?

Software support (sometimes referred to as “maintenance” – at least in SAP’s world) is a very lucrative and valuable revenue stream for Oracle. When third party support providers like TomorrowNow, Rimini Street and CedarCrestone offer organizations alternative support services at a much smaller price point (half the price and sometimes even less), Oracle’s support revenue stream comes under direct attack. This is why Oracle has pulled out all the stops to ensure that, from its perspective, the thievery is put to an end… and ultimately that competition for support revenue is prevented. This would keep its current support revenue safe and leave the organizations that fled to third party support providers (taking away the valuable revenue stream from Oracle) the choice of either returning to Oracle or doing it themselves. If the organizations need to go back, Oracle will be waiting with the ability to force organizations to pay back support fees and in most cases (unless negotiated out of the contract), a penalty (reinstatement fee) that can go as high as 150% of the last annual support fee paid.

Over the years, while protecting the support revenue stream; Oracle has broadened its focus from larger competitors such as SAP, whom Oracle also aggressively competes for ERP market share; to organizations such as Rimini Street that only threaten the support revenue and do not compete on larger playing fields.

Even though Rimini Street may not be a long standing competitor like SAP, the he Oracle v Rimini Street case could reshape the larger third party support/maintenance industry. Rimini Street has vowed to fight Oracle’s allegations at all costs, stating that it did not violate any of Oracle’s intellectual property rights (nor those of SAP for which Rimini Street also provides support). The outcome of this case (yet to go to trial) could make it impossible for organizations to move away from Oracle and over to less expensive third party support providers (they could always decide to bring in-house), if third party support is found to be an illegal business practice.

Even with the trial looming and the ongoing Oracle case against SAP/TomorrowNow; Rimini Street has achieved record growth in recent quarters and its customer base includes hundreds of Fortune 500 and mid-market companies and government agencies. Organizations, by signing up with third party support providers like Rimini Street, Spinnaker Management and netCustomer, are showing confidence not only in the support services provided by the respective provider, but also that Oracle will  ultimately lose its larger battle against the third party support business model and those providers that make up the industry

Oracle has even focused its attention on partner organizations.  Just the other week Oracle filed suit against CedarCrestone, a former Oracle partner (CedarCrestone has been operating under its Oracle PartnerNetwork agreement since 2005). Although CedarCrestone was formerly a partner, Oracle is casting the net much wider to capture and dispose of any threat to their revenue stream tied to support including partners. Oracle also knows that each lawsuit brings with it the opportunity to further impose its will on the market and further demonstrate its larger case against the third party support industry and business model.

We will continue to keep a close eye on developments here at UpperEdge as this is something that comes up frequently in discussions with our clients.