Feeds

Oracle, SAP under attack: How cloud upstarts steal their lunch

Biz bosses can't wait to offload gear to rivals, or so we're told

Next gen security for virtualised datacentres

The truth behind those late starts, mixed strategies and patchy results

One reason is the ingrained culture at Oracle and SAP of selling big pieces of software tied to site licences and maintenance contracts for upgrades and fixes. You can’t change that overnight. Another is the reliance on a chain of partners and resellers who customise, tout and support Oracle and SAP products.

However, the biggest reason Oracle and SAP haven’t fully embraced software-as-a-service is the fear that cloud revenue, under pressure from low-cost rivals, cannot match the whopping maintenance fees that have traditionally accompanied on-premises software. And, to protect the maintenance business, Oracle and SAP need to ensure customers buy the on-premises software rather than rent hosted services.

Just how big and important is the maintenance business? In short: extremely big.

In 2011 26 per cent of Oracle’s money came from licensing new software compared to 42 per cent from support and upgrades. And according to Forrester vice-president and principle analyst Duncan Jones, SAP's maintenance contract fees bring in “a very healthy profit”.

SAP uses maintenance contracts as a moneymaker: in February the company announced it will increase the price of its standard support package from 18 per cent to 19 per cent - an effective price hike of 5.5 per cent - for new customers on 15 July, 2013. The move will take support costs to about a fifth of the price of the software licence. While this isn’t the first time SAP has used support contracts to squeeze extra money from firms, it will surely drive people towards cloud providers.

Look what happened when Leo was in charge

SAP customers are making their voice heard. Short-lived CEO Leo Apotheker also tried to hike the standard support and maintenance fees from 17 per cent to 22 percent of net licensing, but the plan was dropped following an outcry from customers.

Now SAP customers also want more flexibility on licensing as a whole. A UK and Ireland SAP User Group poll last year found near unanimous demand for the ability to park unused licences, and pressure for more web-friendly licensing with concurrent user pricing rather than fixed seat count pricing. More than nine in ten customers thought the rules on SAP's licensing are out of control, with 67 per cent blaming the confusion and complexity of SAP’s ever-expanding product line.

User group chairman Philip Adams told The Reg the challenges on licensing have existed for some time - but now there’s a squeeze on IT budgets, people are paying greater attention to spending and investment.

“Customers don’t expect to get something for free, they just want to get value for money,” Adams told The Reg. “We threw the gauntlet down last year at a local level [with the survey], but licensing is a global challenge for them – we have been dealing with SAP locally and in Waldorf [SAP’s home city].”

Over at Oracle, customers are not quite so up in arms. That’s because they are already charged 22 per cent for support and are, arguably, already acclimatised to high support fees.

Still, the vice-president of software licensing specialist Flexera, Steve Schmidt, who works with corporate client customers on Oracle and SAP spending, echoes Adams' comments.

“Oracle and SAP are two of the key vendors companies are looking at to use what they are licensing and buy what they need," he said. "I think this is a need that’s existed for quite some time. And yet it’s an area that more and more companies are looking at because economic conditions mean we have to look at all spend but also because software license optimisation is being realised as an area that’s important.”

5 things you didn’t know about cloud backup

More from The Register

next story
The Return of BSOD: Does ANYONE trust Microsoft patches?
Sysadmins, you're either fighting fires or seen as incompetents now
Oracle reveals 32-core, 10 BEEELLION-transistor SPARC M7
New chip scales to 1024 cores, 8192 threads 64 TB RAM, at speeds over 3.6GHz
Docker kicks KVM's butt in IBM tests
Big Blue finds containers are speedy, but may not have much room to improve
US regulators OK sale of IBM's x86 server biz to Lenovo
Now all that remains is for gov't offices to ban the boxes
Gartner's Special Report: Should you believe the hype?
Enough hot air to carry a balloon to the Moon
Flash could be CHEAPER than SAS DISK? Come off it, NetApp
Stats analysis reckons we'll hit that point in just three years
Dell The Man shrieks: 'We've got a Bitcoin order, we've got a Bitcoin order'
$50k of PowerEdge servers? That'll be 85 coins in digi-dosh
prev story

Whitepapers

Endpoint data privacy in the cloud is easier than you think
Innovations in encryption and storage resolve issues of data privacy and key requirements for companies to look for in a solution.
Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Top 8 considerations to enable and simplify mobility
In this whitepaper learn how to successfully add mobile capabilities simply and cost effectively.
Solving today's distributed Big Data backup challenges
Enable IT efficiency and allow a firm to access and reuse corporate information for competitive advantage, ultimately changing business outcomes.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.