Fighting over Services: License Fees Faltering, Consulting Fees the Future?
January 30, 2010
I read the UK newspaper Independent’s “Oracle Claims Firm Stole Its Intellectual Property.” The byline says “Reuters”, which is okay with me. The point of the story is that Oracle is taking an outfit in the consulting and services business to the legal wrecking yard. The key passage in the write up in my opinion was:
Corp has filed a suit against a little known rival that provides low-cost software maintenance services, in a case similar to one that Oracle is fighting against rival SAP AG. The lawsuit, filed in US district court in Nevada on Monday, alleges that privately held Rimini Street stole copyrighted material using the online access codes of Oracle customers.
Oracle, a firm whose pricing model when I was a wee lad, hinged on pegging software license fees to hardware. The more hardware one threw at an Oracle implementation, the more the licensee had to pay. There were options, which have increased the service choices, but the main game was license fees.
The shift that is evident in the big enterprise software world is what I watched IBM do when Microsoft figured out how to catapult a clunky PC opportunity into a $70 billion empire. IBM has been forced to become a consulting firm. Now I know that IBM sells mainframes and mounts hearty public relations campaigns to convince me that mainframes are exactly what I need to run my business. But the main event is services and consulting or what I call “soft work”.
Oracle is facing the same problem even though the cause of Oracle’s woes is deeper than a bad deal with a teenager which changed IBM decades ago. This dust up strikes me as interesting for three reasons:
First, I think this Oracle battle over companies providing “soft work” related to Oracle products and software is motivated by Oracle’s desire to get high margin business. Upstarts and interlopers are in a space of interest to Oracle.
Second, the intellectual property angle is quite important in my opinion. What constitutes know how about a complex enterprise software system? Are the scripts that people post on a forum hosted by a vendor something that a third party could use?
Third, as Oracle chops staff from Sun Microsystems, I wonder if this adds more brainpower to the third party consulting firms. For example, I think I have heard talks by Sun engineers who suggested that open source software and commodity machines were cheap and fast enough. The expertise in Sun hardware’s limitations might be ideal for some service and consulting firms to exploit. How will these bits and pieces of expertise be managed?
In a broader sense, the Oracle actions are harbingers of what other enterprise software vendors will be forced to to. With disruption of traditional enterprise software business models continuing, companies will have to ramp up their services business. Growth via acquisition only works under certain conditions. Services is a vital component of revenue growth if a firm is to survive or avoid takeover.
In the search business, I expect to see more content processing vendors chasing services as well.
Stephen E Arnold, January 30, 2010
A freebie. I shall report this sad state of affairs to the Prospect, Kentucky mayor, a person who has not been able to build a bridge for two years. A consulting firm is assisting I believe. This is why services are a big business in the post crash America.
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