September 16th, 2005
High maintenance in the software industry
One source of potential pressure on enterprise software companies is their ability to hang onto maintenance contracts. Oracle, for instance, derives 45% of its revenues from maintenance agreements.
In fact, a recent piece in Forbes suggested that this is one area that might be attacked by competitors. It pointed to TomorrowNow, a company that offers Oracle service maintenance for Peoplesoft and JD Edwards products at as little as half the price. While the contracts on offer are not comparable on an apple-to-apples basis, it does potentially threaten a source of key vendor revenue. TomorrowNow (which was recently acquired by SAP) also commissioned some recent research stating that 80% of JDE’s customers "believe they’re paying too much for their maintenance and support and would consider a third-party."
Well, maybe so. But this isn’t likely to be the match that starts the fire — and the fire, be sure, is coming — in the software industry.
As Forbes notes, "The real test of one’s ability to hang onto customers will not come when maintenance contracts expire but when the major software companies, Oracle, SAP, Microsoft and to some extent IBM, transition to so-called ’service oriented architectures,’ a fundamental change in the way applications are deployed, integrated and accessed."
