Information Week‘s Bob Evans penned on his blog a somewhat provocative open letter to Larry Ellison, CEO of Oracle.  In essence, the letter challenges Mr. Ellison to facilitate some fresh thinking concerning the 22% annual “maintenance” charge that customers are required to pay to continue utilizing their enterprise or technology software.  Mr. Evans suggests that name should be changed from maintenance fee to “innovation and development funds”.  In these rather challenging times, companies are desperate in finding ways to save money or preserve cash, and the perceived notion of paying an inflexible annual “fee” gathers lots of attention.

This letter has garnered some commentary within the blogsphere.  Brad Kenney, Contributing Editor of IndustryWeek, wrote on his Mfg 2.0 blog that Oracle is not the only guilty party in the enterprise software universe.  His other premise is that in Oracle’s case, the maintenance fee should be renamed to “M&A capital raising activities“.

I’d like to take a supply chain view of this discussion.  Irregardless of what the real name and purpose of this annual fee may be, it should address some specific goals, namely to:

  • Insure that technical support and knowledge is available when the software does not perform
  • Further insure that the software is updated and made available to the latest functionality release
  • Insure the fee is more equitable in terms of scope and usage.  If my supply chain application has a mere five users, vs. 500, it should be reflected in maintenance. Conversely, if my application plans hundreds of line items vs. millions of line items, there should be a difference.
  • Maintain a development schedule that supports a timely process of continuous innovation or enhanced functionality, whether through internal development or external acquisition. If the application is static, tahn why should customers need to pay continuous maintenance?

In the specific case of Oracle, one can argue that their suite of supply chain applications has continuously been updated, and that M&A activity has been targeted toward enhancing the supply chain family of applications.  Certain other supply chain applications providers may or may not have met the above listed criteria.

One other thought, least my readers believe that I’m taking the side of software companies.  The severity of this economic downturn has caused structural changes to occur across many industries, and many companies have had to change or revise their pricing strategies, whether they wanted to or not.  CIO’s and senior supply chain executives have been challenged to be bold in rethinking the way they operate their services and support. SAP made maintenance support concessions to specific customers in Austria and Germany after they rebelled against the new maintenance structure.

Every customer has to challenge service providers for enhanced value, including those that were once “accepted norms”.  Software providers should not be immune to this challenge, and should rise to the occasion. It should be no surprise therefore that certain software-as-a service and cloud computing application alternatives are gaining interest in the SCM space.

What’s your view?  Have supply chain software providers generally been flexible in their maintenance fees, or has your company chosen a strategy to push-back on such fees?

Bob Ferrari