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Wednesday, March 31, 2010

Lawson's cloud services: good start, but no SaaS

Lawson announced a new cloud computing program today, but it's only an incremental step in the right direction.

Extension of Lawson's existing managed services offering
For some time, Lawson has been providing managed services to customers of its traditional on-premise ERP and talent management on-premise software. Under that program, Lawson hosts its software in one of its partner's data centers and provides application management, patch management, and other service that are traditionally the responsibility of the customer. The customer buy a perpetual license to Lawson's software but lets Lawson operate it, for a fee.

The new program adds a few new twists.
  • First, instead of hosting in a partner's data center, Lawson will now deploy its software on Amazon's Web Services Infrastructure (a virtual data center, if you will). In addition, Lawson is now offering a subscription option, whereby the customer can lease the software and pay for it on a monthly basis, along with the costs for Amazon's infrastructure charges and Lawson's managed services.

  • At the end of the subscription period (somewhere between one to four years) the customer will now have an option to either continue the subscription or convert to a perpetual license, with an unspecified credit given for the period of subscription--sort of a "lease-to-buy" option.

  • Using Amazon's cloud, Lawson is now also offering a 14-day test-drive option at an (assumed-to-be) nominal charge, whereby the prospect can work with the software for 14 days using their own business processes and data.
Close but no cigar
After speaking with Jeff Comport, Lawson's senior VP of product management, however, I feel there is less here than meets the eye.
  1. Meeting the PR need. In my opinion, Lawson's cloud services, now give Lawson something to say when analysts, press, and prospects ask, "What are you doing about the cloud?" Beyond that, there's not much here beyond traditional software offered on a hosted basis--something that vendors have been doing since the ASP days of the late 1990s.

  2. Flexibility. Lawson's press release points out the advantages to customers in being able to automate the provisioning or setup of additional Lawson software instances (e.g. for testing changes or upgrades) or to meet spikes in business volume. But these are features of Amazon's cloud infrastructure, not of Lawson's software.

  3. Subscription pricing, no doubt, is something new, but that's just a contract option--it has nothing to do with how the software is designed, deployed, and maintained. And whether it actually saves money, or simply spreads it out over time--well, that will depend on the terms of the deal.

  4. The 14-day test drive is a bit too short for my taste. Jeff positioned the test drive as something more than a demo but less than a full blown conference room pilot. I can see why Lawson would want to cut its presales expenses by shortening the demo cycle, but I'd rather see an option to do a full-blow prototype. I prefer RightNow's approach--unlimited capacity to do a 90 day pilot test. But that's hard to do cost-effectively without a multi-tenant offering, which RightNow has but Lawson doesn't.

  5. No SaaS offering. As just mentioned, nothing in Lawson's announcement today has anything to do with software-as-a-service. It is simply the same Lawson software, deployed as a single instance, in Amazon's cloud. Every patch or regulatory update that's needed has to be applied to each customer separately--either by the customer or by Lawson. Customers still need to go through periodic version upgrades. The cost savings are only those reflected in the lower cost of the infrastructure (the smallest element of ERP TCO)--and even that will depend on how much of those savings Lawson keeps for itself, as opposed to passing on to the customer.
Lawson backpedals on "Collapse of SaaS"
So does this mean Lawson's CEO, Harry Debes, is retracting his 2008 proclamation that the the SaaS market would collapse in two years?
This "on demand", SaaS phenomenon is something I've lived through three times in my career now. The first time, it was called "service bureaus". The second time, it was "application service providers", and now it's called SaaS.
So, in Harry's mind, "SaaS" equals "application service providers." Well, what Lawson is now doing with Amazon looks an awful lot like an application service provider.

How does Lawson avoid calling its new program a retreat from Debes' earlier proclamation? The press release vaguely alludes SaaS competitors as offering "commodity software," while positioning Lawson's approach of offering "single-instance ownership and control" as superior.

I'm not convinced. The overhead and expense, even with Lawson's new offering on Amazon's cloud, will be far above what SaaS providers experience. True multi-tenant SaaS providers, such as Salesforce.com and NetSuite, make changes once, and the entire customer base experiences them instantly. This is especially a benefit to users of HRM and financial management systems (two of Lawson's horizontal sweet spots), where regulatory changes are not optional.

Don't get me wrong. Lawson's moving the infrastructure layer to Amazon's cloud services is a good move. In the absence of a strategy to offer true software as a service, prospects now will at least have the option of a low-cost and flexible cloud infrastructure. And for prospects that find Lawson meets their needs in terms of functionality--this may well be the best option for them.

Furthermore, Jeff is right--there are very few if any true SaaS alternatives for full-blown ERP functionality for larger companies. NetSuite, Plex, and others are focused on the SMB market. SAP's Business ByDesign is still not yet in general release, and when it is, it will also target the SMB space. Workday is targeting larger organizations, but it's stated desire to be a full ERP replacement is probably years away.

So Lawson still has time. But during this time, I just wish Lawson would establish a clear direction to at least offer some of its strong HRM and financial management systems, for example, as a true service. If it doesn't do so, it may find its lunch being eaten by the cloud-based providers such as Workday and Intacct. It may not happen tomorrow, but it will happen.

My fellow Enteprise Advocate Vinnie Mirchandani also weighs in: Lawson: I'm OK, you are not OK.

Fellow Advocate Dennis Howlete, has a similar view to mine and Vinnie's on ZDNet: Lawson teams with Amazon for cloud ERP--ahem.

Update: I pinged Naomi Bloom, who is an expert on HRM, and HRM SaaS providers in particular about this post, and she unleashed a string of Twitter messages on this subject, which I'll quote here:
  • When PeopleSoft made client server de riguer, suddenly every old mainframe product was recast as client server. Remember screen scraping?
  • As I'm reading all the posts on Lawson's hosting their ERP and TM apps "in the Amazon cloud," I'm having deja vu.
  • Anything can be hosted, anything can be surrounded with managed services. But don't be fooled. True Saas is the future.
  • Lawson had better rearchitect and quickly. Let's hope our old friend Jeff Comport knows this and is hustling big time to make it happen.
  • If you have a terrific, modern multi-tenant product, it's a business decision to run it single tenant, cloud or on-premise.
  • If all you have is older, single tenant software, best you can do is find lower cost hosting/managed services. I rest my case!
Related posts
Workday pushing high-end SaaS for the enterprise
A game-changing play in enterprise software
Insights from Lawson CUE 2009
Update on Lawson's strategy

by Frank Scavo, 3/31/2010 02:12:00 PM | permalink | e-mail this!

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Monday, March 29, 2010

Rimini Street sues Oracle for unfair competition and other abuses

This just in: Rimini Street is fighting back against Oracle's lawsuit by filing its own lawsuit against Oracle for copyright misuse, defamation, disparagement, trade libel, and unfair competition.

Note: this post has been updated with further information gathered today along with extended excerpts of the Rimini Street court filings.

Background: Rimini Street offers third-party maintenance services in competition with Oracle's own applications maintenance and support services. Oracle sued Rimini Street in January for copyright infringement in a case similar to its suit against SAP's now discontinued TomorrowNow unit.

Rimini Street's press release
I am waiting for a copy of the actual filing and a briefing by Rimini Street. In the meantime, here is the text of the press release on this matter from Rimini Street (lightly edited)
Rimini Street Sues Oracle
Rimini Street, Inc., ... today announced that it filed suit against Oracle in U.S. District Court for the District of Nevada by presenting counterclaims alleging copyright misuse, defamation, disparagement, trade libel, and unfair competition under the California Business and Professions Code. With its filing, Rimini Street aims to end Oracle’s five year campaign of anticompetitive tactics against Rimini Street that most recently includes a baseless lawsuit. Additionally, Rimini Street announced today that it filed its response to Oracle’s complaint, showing Rimini Street’s business processes and procedures are entirely legal and vehemently denying Oracle’s false and malicious allegations.

Rimini Street is Oracle’s Primary Competition for Annual Support Services
Rimini Street is Oracle’s fastest-growing and leading competitor for the annual support of Oracle’s Siebel, PeopleSoft, and JD Edwards software products. In 2009, Rimini Street saw growth of more than 270 percent in year-over-year revenue, doubled its global workforce to 160 professionals, and accumulated nearly $150 million in sales backlog serving hundreds of Global, Fortune 500, mid-market, and public sector organizations around the world.

Oracle has a Long History of Trying to Stifle Rimini Street Competition
Oracle and its predecessors began a systematic campaign to disrupt and halt Rimini Street’s business since the inception of the company in 2005. As Rimini Street’s success grew, so did Oracle’s apparent determination and efforts to disrupt Rimini Street’s growth. Rimini Street’s response to Oracle’s complaint details examples of Oracle’s business interference over many years including:
  • Initially, beginning in September 2005, Oracle’s efforts consisted of numerous hostile letters. Over the years, Rimini Street responded to each letter, explained the appropriateness of Rimini Street’s practices and procedures, and repeatedly offered to meet and discuss any questions or concerns Oracle might have about Rimini Street processes and procedures.

  • In June 2007, Oracle interfered with authorized work on behalf of Rimini Street clients by changing its website usage terms. Rimini Street wrote Oracle about the anticompetitive tactic against Rimini Street and informed Oracle that the change was likely a breach of Oracle’s client license agreements, which expressly prevent service rights degradation. As such, the changes were not enforceable.

  • In December 2008, Oracle escalated its tactics by intentionally blocking Rimini Street’s IP addresses and interfering with Rimini Street’s authorized work on behalf of a large client switching from Oracle to Rimini Street support. After correspondence from both the client and Rimini Street demanding Oracle cease and desist, Oracle stopped the interference.

  • Most recently, in January 2010, Oracle once again escalated its anticompetitive tactics, this time through litigation. Oracle filed a baseless lawsuit against Rimini Street, choosing to ignore Rimini Street’s numerous invitations for dialogue, offer to view internal Rimini Street information, and even the opportunity to engage a third party auditor.
Oracle Chooses Competition in the Courtroom Rather than the Marketplace

In February 2009, Rimini Street sought to stop Oracle’s campaign of anticompetitive actions once and for all by again requesting and finally being granted a call with Oracle representatives. On the call, Rimini Street offered to share Rimini Street internal information and/or work out an agreement that would utilize an independent third party auditor reporting back to both parties to confirm Rimini Street’s compliance with its standard processes and procedures. Oracle never responded to any of Rimini Street’s proposals.

Instead, Oracle filed a baseless lawsuit against Rimini Street in an apparent effort to try and protect its 95% dominant market share and monopoly-like 92% gross margins on the annual support of its products.

Rimini Street Vehemently Denies Oracle’s False Accusations

Rimini Street’s business processes and procedures are entirely legal, and Rimini Street vehemently denies Oracle’s accusations. Rimini Street has implemented extraordinary processes and procedures to assure the proper use of Oracle’s intellectual property as detailed more fully in Rimini Street’s response to Oracle’s complaint. For example:
  • Each client authorizes Rimini Street to perform work on its behalf

  • Rimini Street only delivers Oracle software and support materials to each client who is entitled to receive such materials

  • Rimini Street uses separate data “silos” for each client and has policies against co-mingling data

  • Rimini Street is authorized by its clients to possess and use copies of their Oracle licensed products to provide services to them, just like IBM, AT&T, Accenture, CedarCrestone and virtually every other hosting service provider working with copies of their client’s licensed products
Rimini Street's answer and counter-claims against Oracle
In their motion to dismiss Oracle's suit, Rimini Street lawyers argue, generally, that Oracle has not been specific in detailing how Oracle has been harmed by Rimini Street's, or what specific actions Rimini Street committed that caused harm to Oracle.
Again and again, the response argues that "Oracle’s allegations do not even attempt to identify which facts might support Oracle’s otherwise conclusory regurgitation of statutory language."

In addition, Rimini Street filed a motion to dismiss claims against Seth Ravin,
CEO and founder of Rimini Street, claiming that Oracle had failed to point to any specific acts that Ravin committed that would hold him personally liable.

But the real punch comes in Rimini Street's counterclaims against Oracle. I have reproduced most of Rimini Street's "Answer and Counter-Claims" at the end of this post. Please read through this, as it outlines the Rimini Street's case much more clearly than I can summarize.

My Take

Many of us have been hoping for a vigorous response by Rimini Street and it appears this is what Rimini Street is doing. As I've pointed out in the past, this case is going to bring increased legal scrutiny of Oracle and other major software providers in terms of how they lock in customers to their maintenance and support programs. Oracle runs a risk in filing this lawsuit. If Oracle does not prevail against Rimini Street, the case will strongly establish the legal basis for the third-party support industry.

Update: Dennis Howlett weighs in, and includes a terse statement he received in response to his request for comment from Oracle. Though the response is minimal, it does appear to go beyond Oracle's policy of not commenting on litigation.

Update, 3:00 p.m.: In a call with Seth Ravin this afternoon, he expressed confidence in his firm's prospects both in refuting Oracle's allegations and odds for prevailing against Oracle in Rimini Street's counter-claims. If Oracle had been betting on a response from Rimini Street along the lines of the mea culpa response it got from SAP/TomorrowNow, it bet wrong.

Update, 3:30 p.m.: I have no idea if this is related to Rimini's counter-claim against Oracle, but the U.S. stock markets are up today about one-half percent, while Oracle's stock price is down about one-half percent.

Update, Apr. 5: Fellow Enterprise Advocate Ray Wang weighs in, with his analysis and encouragement for ERP customers to seek anti-trust class action with the US Department of Justice and the European Union against software vendors who hinder third-party maintenance providers from providing services.

Related posts
Oracle slams Rimini Street with lawsuit over third-party maintenance
No recession for Rimini Street third-party maintenance business
Rimini Street, SAP, and the future of third-party maintenance
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry


Extended Excerpts of Rimini Street's Answer and Counter-Claims to Oracle
The full PDF may be downloaded, from ZDnet.
....
I. FACTUAL BACKGROUND
1. “We believe we should be the ones to support our customers, . . . . If you’re a third party support provider offering multivendor support, we’re coming, we’re coming.” (Juergen Rottler, Oracle’s Executive Vice President of Global Customer Services, threatening third-party support vendors that compete with Oracle).1 Oracle made this public threat just one day after filing its Complaint against Rimini Street.

A. Rimini Street Vehemently Denies Oracle’s Knowingly False Accusations.
2. Oracle maliciously alleges that Rimini Street’s business is an “illegal business model,” an “illegal scheme,” and that there has been “massive theft of Oracle’s software and related support materials by Rimini Street.” These accusations are false, and Rimini Street vehemently denies them.

3. Rimini Street’s business processes and procedures are entirely legal, and Rimini Street has not committed “massive theft,” or any theft at all. Rimini Street is authorized by every one of its clients to perform work on their behalf, and, as a matter of process and procedure, has delivered Oracle Software and Support Materials2 only to clients who were entitled to them and only within the scope of that client’s entitlement.

4. Far from Oracle’s “massive theft” allegation, Rimini Street has implemented extraordinary processes and procedures to assure the proper use of Oracle’s intellectual property. For example, Rimini Street performs a unique download of Oracle Software and Support Materials on behalf of each client that authorizes and requests such service. Rimini Street maintains downloaded material only on behalf of the client for whom the download was performed. And, as a matter of process and procedure, each client is assigned a separate data “silo” where Oracle Software and Support Materials for only that client are maintained. Rimini Street does not co-mingle the independent downloads of clients.

5. With respect to Oracle’s complaint about Rimini Street possessing copies of Oracle customer licensed software, Oracle customers authorize Rimini Street to possess and use such copies. Not only is possessing and using the copies legal, it is an industry standard for third party vendors like IBM, AT&T, Accenture, CedarCrestone, and countless others who work with the same Oracle customer licensed software. Oracle is well aware of Rimini Street’s authorized possession and usage of customer licensed software because Oracle itself delivered the software to Rimini Street for hundreds of its customers.

6. Oracle is fully aware of Rimini Street’s processes and procedures. If Oracle had genuine concerns about Rimini Street’s use of its intellectual property, Oracle could have accepted Rimini Street’s numerous offers since September 2005 to openly and transparently review and discuss Rimini Street processes and procedures, or Oracle could have even accepted Rimini Street’s invitation to review internal materials and Rimini Street’s invitation to have a third-party independent auditor review Rimini Street’s compliance with its processes and procedures.

7. Instead, Oracle chose to ignore the fact that Rimini Street’s processes and procedures are legal and supported by industry-leading practices. Oracle initiated this baseless litigation as another anticompetitive tactic to try and slow Rimini Street’s fast-paced growth and protect Oracle’s dominant 95% market share and monopoly-like 92% gross profit margins on the after-market support of its products.

8. Rimini Street will aggressively defend against this baseless litigation and has counterclaimed herein so as to end Oracle’s five year campaign of illegal anticompetitive tactics against Rimini Street and to hold Oracle accountable for its actions, related costs and damages.

B. Oracle Prefers Competition in the Courtroom Rather than the Marketplace.
9. Oracle is the world’s largest enterprise software company. Rimini Street provides after-market support services for enterprise software applications—including software applications licensed by Oracle.

10. Rimini Street is Oracle’s fastest-growing competitor for the after-market support business of Oracle’s Siebel, PeopleSoft and JD Edwards enterprise software products. Hundreds of Fortune 500, mid market, small and public sector organizations around the world have already made the switch to Rimini Street’s innovative, award-winning and highly-praised support model. Rimini Street has been forecasting significant continued year-over-year growth based on sales pipeline data.

11. Rimini Street’s success and growing industry acceptance as a proven alternative to Oracle’s much more expensive after-market support offerings is now threatening Oracle’s market control and pricing power. In response, Oracle has now turned to the courtroom instead of choosing to compete in an open and fair market. Oracle’s strategy is to use this calculated litigation to protect its share of the after-market support business for Oracle software products and preserve or increase its profit margin on those services.

12. With a staggering $800 million in quarterly losses in its core businesses, Oracle’s power, profits and financial strength can only be maintained if it can continue coercing its customers into paying exorbitant annual fees for after-market support of its products.

C. Rimini Street is Oracle’s Primary Competition for After-Market Support.
13. In 2009, Rimini Street saw growth of more than 270% in year-over-year revenue, more than doubled its global client base to nearly 300, added substantial new international clients, accumulated nearly $150 million in sales backlog, and more than doubled its global workforce to 160 professionals. Rimini Street achieved a 95% annual client renewal rate and more than a 99% client satisfaction rating.

14. One reason Oracle’s support customers switch to Rimini Street support is a 50% annual fee savings. Rimini Street is able to spend more money on each support client and offer lower fees by simply eliminating the excessive profits Oracle demands from its support customers. Also, due to Rimini Street’s dramatically different support model that includes no required upgrades or updates for a minimum of ten years, Rimini Street clients can achieve a total operating cost savings up to 90% over a decade compared to Oracle’s support model.

15. In addition to significant savings, Rimini Street’s different support model provides clients with “concierge” level, ultra-responsive service. Unlike Oracle’s generic call center approach, Rimini Street assigns each client a named, highly experienced Primary Support Engineer. Support services are available 24x7x365 with guaranteed 30 minute response time anywhere in the world and 90% guaranteed live call answering during the day. Rimini Street’s track-record of meeting these service level commitments and providing excellent service is well documented by leading industry analysts who work with Rimini Street clients, media interviews with Rimini Street clients, client side-by-side live service comparisons, client satisfaction surveys, and hundreds of client reference calls made by Rimini Street prospects.

16. Rimini Street’s different support model also includes many innovative services at no additional charge that go beyond the features of Oracle’s standard support. The additional Rimini Street services include performance support, interoperability support, and support for application customizations. The inclusion of these services represents significant cost savings for Rimini Street clients compared to the additional consulting fees Oracle would generally charge its customers for similar services.

17. Another benefit for Oracle clients who switch to Rimini Street support is a more robust and timely tax, legal and regulatory service spanning up to 190 countries for PeopleSoft and JD Edwards products. Rimini Street’s tax, legal and regulatory update design and development operation is led by veteran tax specialists, attorneys, executives, and engineers who bring a blend of international tax, legal and regulatory expertise. As part of Rimini Street’s commitment to the highest quality deliverables, Rimini Street’s tax, legal and regulatory development process has been audited from scoping to delivery for Sarbanes Oxley 404 process compliance by a Big Four accounting firm.

18. Rimini Street has already delivered more than 5,000 high-quality tax, legal and regulatory updates to its clients over the years, and is currently responsible for the accurate processing of billions of dollars in transactions a month. Further, Rimini Street has delivered every one of its tax, legal and regulatory updates to clients ahead of Oracle’s planned delivery date for its equivalent updates since the inception of the company. Rimini Street clients praise the quality, comprehensiveness and timely delivery of Rimini Street’s tax, legal and regulatory updates in media interviews, client references for prospects, and press materials.

19. Rimini Street respects the intellectual property rights of Oracle. As detailed herein, Rimini Street takes extraordinary efforts, in both process and procedure, to ensure that Oracle’s intellectual property rights are respected by Rimini Street employees working with Oracle Software and Support Materials.

D. Oracle has a Long History of Trying to Stifle Rimini Street Competition.
20. The present lawsuit is only Oracle’s latest effort to stifle the competitive threat posed by Rimini Street.

21. Rimini Street began operations in September 2005, offering a competitive aftermarket support offering for Siebel Systems software products.

22. At about the same time Rimini Street began operations, Oracle Corporation announced that it intended to acquire Siebel Systems. Oracle completed the acquisition of Siebel Systems shortly thereafter.

23. Rimini Street added support offerings for Oracle’s PeopleSoft products in April 2006 and Oracle’s JD Edwards products in September 2006.

24. Since shortly after Rimini Street’s inception, Oracle began a systematic campaign to disrupt and halt Rimini Street’s business. Initially, Oracle’s efforts consisted of numerous hostile letters, some of which were published in the media as early as 2005 as examples of how Oracle was trying to forestall after-market competition from a just-launched Rimini Street.

25. Over the years, Rimini Street responded to each Oracle letter, explained the appropriateness of Rimini Street’s practices and procedures, and repeatedly offered to meet and discuss any questions or concerns Oracle might have about Rimini Street’s processes and procedures.

26. As Rimini Street’s success grew, so did Oracle’s determination and efforts to disrupt Rimini Street’s growth. Since the inception of the company, Rimini Street used automated download tools to help its clients identify and take delivery of the large volume of Oracle Software and Support Materials they paid for and were entitled to possess and use (potentially tens of thousand of files for a single customer). Using such automated tools was necessary because Oracle refused to help its customers identify and take delivery of such large volumes of materials.

27. In June 2007, Oracle attempted to intentionally interfere with Rimini Street’s authorized client downloads by changing its website terms and conditions to no longer allow use of such automated download tools. Rimini Street wrote Oracle when it became aware of the change, warning that Rimini Street believed Oracle’s actions were not only anti-competitive against Rimini Street, but also constituted a breach of its license agreements with Oracle clients that have protections against reductions in service rights resulting from changes by Oracle in support terms and conditions. As such, the reductions in service rights were not enforceable.
28. Oracle’s efforts escalated in December 2008 when Oracle began interfering with Rimini Street’s performance of an authorized download for a large client switching from Oracle to Rimini Street support by blocking Rimini Street access to the Oracle support websites. After correspondence from both the client and Rimini Street demanding Oracle cease and desist its accessblocking tactics, Oracle stopped the interference.

29. At this point, as a good-faith attempt at conflict reduction with Oracle, Rimini Street unilaterally agreed to cease using automated download tools in January 2009 and notified Oracle’s representatives of this decision in early February 2009.

30. Further, to prevent Oracle’s anti-competitive actions from occurring in the future, Rimini Street asked for and was finally granted a call with Oracle representatives in early February 2009. On the call, Rimini Street offered to share Rimini Street internal information with Oracle and/or to work out an agreement that would utilize an independent third party auditor reporting back to both parties to confirm Rimini Street’s compliance with its standard processes and procedures. Oracle never responded to any of Rimini Street’s proposals.

E. Oracle Ignores Truth, Turns to False Allegations
31. Ignoring Rimini Street’s open invitation to view internal information, engage a third party auditor, or even hold additional dialogue, Oracle filed this baseless lawsuit in an attempt to disrupt Rimini Street’s growth and damage Rimini Street’s business through false statements and disparagement.

32. For example, Oracle maliciously casts Rimini Street as a “sham” company that steals Oracle Software and Support Materials and resells them at half the price Oracle charges. Oracle further disparages Rimini Street’s business by branding it an “illegal business model” and “illegal scheme.” Similarly, Oracle falsely states that there has been “massive theft of Oracle’s software and related support materials by Rimini Street.” As Oracle is well aware, these characterizations of Rimini Street’s business are not only completely false, but they could not be further from the truth.

33. Rimini Street has informed Oracle that, as a matter of process and procedure, Rimini Street’s clients are only delivered the Oracle Software and Support Materials to which they are legally entitled. In fact, Rimini Street performs a unique download of Oracle Software and Support Materials from Oracle’s web sites on behalf of each of its clients who: (a) requests and authorizes Rimini Street to download from Oracle on their behalf a unique set of Oracle Software and Support Materials the customer is entitled to use based on their licensed products and Oracle Annual Support product coverage; and (b) represents they are presently an Oracle Annual Support customer whose Oracle Annual Support period has not expired.

34. Oracle is further aware that each of Rimini Street’s clients has a unique data “silo” for storing clients’ Oracle Software and Support Materials. Therefore, the clients’ Oracle Software and Support Materials are not physically co-mingled together. Despite its awareness of Rimini Street’s processes and procedures, Oracle states that Rimini Street has “stockpile[d] a library” of Oracle’s intellectual property “to support its present and prospective customers.” Such a “library” has never existed at Rimini Street, and Oracle is aware of that fact and could easily have confirmed it by simply accepting Rimini Street’s offer of third party verification.

35. If Oracle really had genuine concerns about the use of its intellectual property and its aims were to simply find the truth and to protect its intellectual property, Oracle has had unlimited opportunities over nearly five years to dialogue and work directly with Rimini Street per the numerous open invitations extended in Rimini Street letters to Oracle. But, as the facts demonstrate, that is not Oracle’s objective. Instead, Oracle’s goal is to forestall after-market product support competition from Rimini Street. Litigation is Oracle’s strategy.

36. While Oracle attempts to disparage Rimini Street and falsely cast this case as being about a “massive theft” that does not exist, the truth is this case is only about Oracle’s attempt to protect its 95% dominant market share and monopoly-like 92% gross margins on after-market support of its products.

RIMINI STREET’S COUNTERCLAIMS
For its Counterclaims against Plaintiffs, Rimini Street states as follows:
….
COUNT ONE—DEFAMATION, BUSINESS DISPARAGEMENT AND TRADE LIBEL
42. Rimini Street repeats and incorporates by reference the averments set forth in Paragraphs 1–41 as though fully set forth herein.

43. Oracle has responded to Rimini Street’s success, not through fair marketplace competition, but with incendiary and unfounded allegations that Rimini Street and its employees are thieves carrying out a “corrupt” and “illegal business model.”

44. On information and belief, defamatory statements have been published and republished by Oracle and its agents to members of the media and analyst community, Rimini Street’s customers and potential customers, as well as to the public at large. For example, an Oracle representative contacted a senior analyst for an influential analyst firm and made statements insinuating that Rimini Street’s practices were illegal. Similar allegations of illegality were made to other analysts, analyst firms and members of the media, reflecting an attempt by Oracle to severely tarnish Rimini Street’s standing in the industry. On information and belief, Rimini Street expects discovery will illuminate a pattern of similar defamatory communications by Oracle representatives.

45. Oracle’s false and disparaging statements were intended to harm Rimini Street’s standing in the business community and, ultimately, to hinder Rimini Street’s ability to conduct and grow its business.

46. Oracle published its disparaging statements about Rimini Street’s business maliciously, knowing such statements are false or with reckless disregard to their falsity.

47. Dating back to the launch of Rimini Street in 2005, Oracle and Rimini Street have had a long history of communications. Given these interactions, Oracle is well aware that Rimini Street’s business practices are not illegal as Oracle has alleged and published.

48. And, Oracle has had no basis to believe in this stated illegality of Rimini Street’s business practices. Oracle attempts to equate Rimini Street’s business with that of TomorrowNow, an unrelated and different third-party support vendor owned by SAP AG, another vendor of enterprise software. Oracle filed suit against TomorrowNow and SAP AG in 2007. Although Oracle’s present Complaint against Rimini Street is highly similar to Oracle’s Complaint against SAP AG, et al., in Case No. 07-CV-1658 in the Northern District of California, Oracle is well aware of the significant differences between Rimini Street’s practices and procedures and those of SAP’s TomorrowNow. For instance, Rimini Street does not have or make available a “single repository” of downloaded Oracle Software and Support Materials as Oracle states. Nor does Rimini Street mixed or consolidated Oracle Software and Support Materials such that unique downloads for one client are co-mingled with unique downloads from other clients, and support materials are not indiscriminately downloaded and stored for general use.

49. Oracle is further aware that Rimini Street performs a unique download of Oracle Software and Support Materials on behalf of each client that requests such service. Each client (authorizing Rimini Street to act on client’s behalf) warrants to Rimini Street that it has the rights to access Oracle’s support web sites and take possession of the requested Oracle Software and Support Materials. Rimini Street then maintains downloaded material only on behalf of the client for whom the download was performed. To safeguard against improper use of downloaded materials, as a matter of process and procedure, each client is assigned a separate data “silo” where Oracle Software and Support Materials for that client are maintained, and Rimini Street does not co-mingle the independent downloads of clients.

50. Rimini Street delivers to each client only the software and support material that each client is entitled to receive, which often are quite voluminous and can consist of thousands or even tens of thousands of materials.

51. Oracle is further aware that Rimini Street has consistently released its own independently-created regulatory and tax updates before the release date of Oracle’s equivalent update, forestalling any arguments that Rimini Street copied Oracle’s updates.

52. Finally, Oracle cannot truthfully claim that Rimini Street is not authorized to possess copies of Oracle’s software. First, every Rimini Street client contract authorizes Rimini Street to possess or access copies of the client’s licensed software. Second, as Oracle is well aware, it is common industry practice by other third party consulting venders such as IBM, AT&T, Accenture, Navisite, WTS, CedarCrestone, and virtually every other hosting service provider to possess and work with copies of their client’s licensed software products. Third, until recently Oracle itself directly mailed or made available to Rimini Street through authorized downloads, as an authorized agent of Oracle’s licensees, copies of the clients’ licensed Oracle software. Oracle and Rimini Street personnel worked closely together over the years in the software order-to-ship process for hundreds of clients. Here again, Oracle had full knowledge that Rimini Street’s actions were authorized by Oracle’s customers. Far from acting as “fraudulent thieves,” Rimini Street has acted legally, openly (and often with Oracle’s full cooperation), and in accordance with the agreements held by Rimini Street’s clients.

53. Oracle is aware of the falsity of its statements because it was directly informed by Rimini Street of the true facts. Further, Rimini Street offered to allow Oracle to employ a neutral third party to audit Rimini Street’s compliance with its processes and procedures. Instead of undertaking this reasonable confirmatory exercise, Oracle purposely and recklessly made the above identified false and disparaging statements regarding Rimini Street.

54. Rimini Street has been damaged by Oracle’s conduct as complained of herein, in an amount to be determined at trial. On information and belief, Oracle’s false and disparaging statements regarding Rimini Street’s business have directly led to economic loss on the part of Rimini Street through specific loss of sales.

COUNT TWO—DECLARATION OF UNENFORCEABILITY FOR COPYRIGHT MISUSE
55. Rimini Street repeats and incorporates by reference the averments set forth in Paragraphs 1–54 as though fully set forth herein.

56. Oracle claims to own a valid and enforceable copyright in, or have exclusive license to, all of their software applications and software and support materials.

57. Oracle disseminates Oracle Software and Support Materials via electronic transmissions over a computer network. Oracle’s Software and Support Materials websites contain “browser-wrap” or “click-wrap” agreements.

58. Oracle has admitted that its software licensees have every right to use third-party maintenance and support vendors (such as Rimini Street). However, Oracle has attempted to use the design of its support website and terms of its “browser-wrap” or “click-wrap” agreements on various Oracle web sites to forestall such legal competition from Rimini Street and to interfere with a customer’s ability to select a support vendor other than Oracle. This attempt to influence competition in an area beyond the scope of Oracle’s copyrights constitutes copyrights misuse.

59. Instead of simply providing its customers each of the support files they are entitled to possess under their respective licenses and unexpired Oracle annual support, Oracle requires customers to self-identify and individually download each such file from Oracle’s support material web portal. This portal contains millions of files to sort through and all are accessible to every client, regardless of which products a customer has licensed or whether or not a product is covered by an unexpired Oracle support agreement. Oracle provides no assistance to its support customers in the identification of all Oracle Software and Support Materials such customer is entitled to possess and use.

60. Though Oracle’s support material web portal does not provide a method for customers to easily identify and download all the files they are entitled to possess and use, Oracle has changed its web site terms to prohibit the use of automated tools that can help an Oracle customer identify and download a significant volume of Oracle Software and Support Materials to which an Oracle licensee and support customer is entitled. Further, Oracle’s “click-wrap” agreement has once again been changed, and now includes a provision that prohibits access to and download of support materials unless such access or download “is in furtherance of the relationship between customer and Oracle.” This provision is another clear example of Oracle’s systematic use of anticompetitive tactics to try and maintain a stranglehold over its customers by effectively requiring them to either continue purchasing after-market support only from Oracle or forego critical support materials to which they are entitled and for which they have already paid.

61. Through its various license agreements and changing web site access and use terms and conditions, Oracle is attempting to use its copyright in a manner adverse to the public policy embodied in copyright law.

62. The requirements Oracle places on the ability of customers (or their agents) to obtain licensed software and support materials gives Oracle a substantial and unfair advantage over its support and maintenance competitors, and these requirements constitute a misuse of copyright by Oracle.

63. Rimini Street has been directly harmed by Oracle’s anticompetitive misuse of its copyrights and license agreements.

64. Rimini Street is therefore entitled to a declaratory judgment finding Oracle’s copyrights to be unenforceable until that time that Oracle discontinues use of the terms that led to misuse of its copyrights.

COUNT THREE—UNFAIR COMPETITION—CAL. BUS. & PROF. CODE § 17200
65. Rimini Street repeats and incorporates by reference the averments set forth in Paragraphs 1–64 as though fully set forth herein.

66. Oracle has engaged in fraudulent business acts or practices by false and misleading statements, deceptive business practices, ever-changing contract terms and policies, processes, and procedures.

67. As evidence of Oracle’s fraudulent business practices, on information and belief, Oracle caused false and disparaging allegations to be published and republished by Oracle and its agents to members of the media and analyst community, Rimini Street’s customers and potential customers, as well as to the public at large. These allegations were made with Plaintiffs’ intent to, and are likely to, deceive members of the public.

68. Oracle has also employed unlawful and/or fraudulent business practices in its dealings with industry analysts, reporters and Rimini Street’s customers and potential customers. For example, Oracle has provided false and misleading information about Rimini Street to customers with which Rimini Street had established a potential business relationship.

69. The acts and conduct of Oracle constitute fraudulent conduct as defined by California Bus. & Prof. Code §§ 17200, et seq.

70. As a result of Oracle’s actions, Rimini Street has suffered irreparable injury, and Rimini Street’s standing in the business community has been harmed. Unless Oracle is enjoined, Rimini Street will continue to suffer irreparable harm and Oracle’s conduct will continue to harm Rimini Street’s standing in the business community, and ultimately hinder Rimini Street’s ability to conduct and grow its business.

71. Oracle should be compelled to disgorge and/or restore any and all revenues, earnings, profits, compensation, and benefits they may have obtained in violation of California Business & Professions Code § 17200 et seq., including, but not limited to, returning any revenue earned as a proximate result of the unlawful publication of the deceptive statements made to the public.

by Frank Scavo, 3/29/2010 08:24:00 AM | permalink | e-mail this!

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Thursday, March 25, 2010

Update on Infor's Flex program: customers win

Infor's Dennis Michalis stopped by my office for coffee and a chat this morning, and it gave me a good opportunity to see what sort of progress Infor has made in rolling out its Infor Flex program to customers.

By way of background, Infor Flex was introduced in June 2009, to allow customers to upgrade to the latest, SOA-enabled versions of their Infor products or to exchange those products for other, newer products in Infor's portfolio--at little or no license costs.

I was bullish on the program when it was announced, as I saw it as a win-win for Infor and its customers: customers get to move to a newer platform with newer expanded capabilities and Infor keeps customers, or gets them back on maintenance, and has a chance to sell them new stuff in the future.

But what have the results been in practice in the nine months since Infor Flex was announced? As it turns out, Dennis is the right person to ask, as he is now the General Manager for Infor Flex (in addition to his work in charge of all Infor partners worldwide).

Driven by customer needs
Dennis explained that the program originated from needs of Infor's customers running on IBM's Series i (formerly, AS/400) platform, to whom Infor's sales folks were trying to sell Infor's SOA-enabled products for asset management, business intelligence, performance management, and the like. The problem, of course, is that many of these Series i customers were on older versions of Infor's LX (BPCS) or XA (Mapics) or other legacy products and SOA-enablement of these products is only available on newer versions.

The challenge, then, was to encourage these customers to upgrade to newer versions. But customers were resisting that path, as there would be additional license fees for migrating to newer platforms in many cases, and cumbersome migration projects would be required to figure out and migrate the many custom modifications that these customers had made to the legacy code. (Side note: I did such an evaluation years ago for a BPCS customer and found they had made well over 1,000 modifications, making an upgrade nearly impossible to justify).

In other words, customers wanted the new stuff, but balked at the cost and effort required to upgrade to the latest version of their legacy systems that would work with the new stuff.

No new license fees, expedited migration path
So, Infor Flex was introduced to make the license cost a non-issue. Infor is letting customers upgrade to newer versions or convert to a different Infor product (like-for-like) with no additional license fees. Infor also promises to keep the customer at whatever maintenance fee level the customer is paying today.

In addition, Infor put together "service kits" to make migrations to the new versions less tedious. Having done these migrations in the past, Infor's professional services group was in a good position to package up conversion programs and use offshore resources where appropriate to handle some of the routine tasks of migration. It could then offer upgrade support on a fixed fee basis.

Results to date
Dennis was high on the results of the program. There have been something like 260 customers so far that have signed up for Infor Flex, and another 60 or so that are technically not within the revenue recognition rules for Infor Flex but nevertheless have similar deals. This would all be since last June, about 9 months ago.

In addition, Infor Flex deals are moving quicker through the sales pipeline, indicating that much of the "friction" in customer decision making has been eliminated by the favorable cost and risk attributes of Flex.

All of which means, of course, that Infor's sales force is making money.

Dennis was also positive on the impact for customers: in upgrading an old customer from ERP Lx (BPCS) for example, he estimates that 80% of customer modifications can be eliminated. And Infor's Open SOA capabilities add value in facilitating integration -- customers are seeing how easy it is to integrate with Infor's newer SOA-enabled products and with third-party systems. Many of these customers don't even realize they are using SOA, but they are realizing the benefits.

Infor is a privately-held firm, so financial results are not publicly reported. But Dennis indicated that Infor is very pleased with the results to date: not just in the license revenue for the new stuff they are able to sell to existing customers, but especially in what Infor Flex is doing to improve customer retention on maintenance contracts and even in winning old customers to come back onto maintenance. For a firm like Infor, which has a huge installed base of legacy customers, moving the needle just a little on these metrics has a huge payback.

My take
As I wrote in the past, Infor has a chance to be one of the "good guys" when it comes to maintenance and support programs. Infor customers running older versions often think they have no choice but to shop for a completely new vendor if they want newer capabilities. Info Flex should give such customers reason to take a second look at Infor.

Update, Mar. 26: In follow up correspondence with Dennis, I'm hearing about some interesting deals Infor is currently working to bring former customers back on maintenance, in at least one case for a company that has "not paid Infor a nickel" in 15 years.

Related posts
Infor juices up its maintenance program value with Infor Flex
Infor's opportunity: value in maintenance and support

by Frank Scavo, 3/25/2010 10:37:00 AM | permalink | e-mail this!

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Tuesday, March 16, 2010

Workday pushing high-end SaaS for the enterprise

Software as a service (SaaS) has made great strides in recent years, especially in small and midsize businesses (e.g. NetSuite) and for departmental applications, such as salesforce automation (e.g. Salesforce.com) and customer service (e.g. RightNow.com).

Now Workday is showing that SaaS also has a place in core applications of large organizations. I first noted this trend about two years ago, when Workday announced its wins at Flextronics and Chiquita, both of which are still named accounts for Workday today.

So, I jumped at the chance to get a briefing on Workday's latest release, Workday 10. This post will document a few of the key points I found of interest.

By way of background, Workday was co-founded in 2005 by Dave Duffield, founder of PeopleSoft, after Oracle acquired PeopleSoft. The firm's original focus was on Human Capital Management (HCM), though it is now expanding its footprint. More on that at the end of this post.
  • Scalability. Workday now claims 133 customers live on its system, up from the 40 I noted in May, 2008. It's not a large number, but it includes several mega-customers, as noted earlier. Flextronics, for example, has already implemented for 16,000 users in the US and Canada and is now rolling it out to another 30,000 in Mexico, on the way to its eventual goal of 200,000 users live on the system. This shows the ability of SaaS and Workday in particular to scale to vary large numbers of users in a multi-tenant environment. Workday does run multiple instances of its system, but only for purposes of load-balancing--which makes sense in light of some massive customer counts. The back-end of the system is Workday's own proprietary object management server, which uses MySQL as a persistent data store, which would seem to be a very large implementation of that open source database management system.

  • User-Friendliness. Workday's user-interface is really, really slick. At one point, I had to stop the demo to verify that this is indeed a browser-based system. It is, based on Adobe Flex, with many features of its UI not seen often in on-premise systems.

  • Protection of Customer Data. I noted that much of the information managed by Workday is extremely confidential, such as succession plans--especially for publicly held companies. Does Workday still get push-back on security and privacy concerns? The team indicated that those issues still need to be addressed in the sales cycle, although buyers are often coming to the table with a higher level of comfort with SaaS than they did in the past. Nevertheless, from a due diligence perspective, buyers still look for evidence that their information will be secure.

  • Extensibility. I know from experience that large-scale HCM implementations can often required extensive customizations to accommodate customer-specific work rules, such as those resulting from union contract negotiations. Can Workday accommodate such changes in a multi-tenant system? The team assured me that it can. They claim the system has been designed with a rules framework, with predefined business processes that can be configured--not just at the customer level, but at the organization level within customer. This is another sign that Workday has large enterprises in its sights. They contrasted Workday's approach to customizations with that used by PeopleSoft, which did not ensure that changes would carry forward to future versions of the software.
Lowering Total Cost of Ownership
Can Workday keep up with demand? It would appear so. Implementation is currently handled by a combination of Workday's own professional services group along with major partners.

Workday watches implementation costs and schedules closely, shooting for implementation services not to exceed 50% of the three-year subscription costs of the system. This is a significant savings over traditional on-premise implementation costs, which can run multiples of the initial software license cost. I know it's not apples-and-apples--but do the arithmetic and tell me this is not a major advantage for Workday.

I mentioned earlier that Workday thus far has been focused on HCM, with intentions of an expanded footprint. Consistent with this strategy, it is rolling out Financial Management this year with the goal of becoming a complete ERP suite alternative in 2011 and beyond. I noted that this was the same development path taken by Duffield at PeopleSoft. The Workday team agreed, indicating that -- like PeopleSoft -- it is starting with people at the center of the system, then rolling out to the other entities of the enterprise. Like PeopleSoft, its first foray beyond financials will be in procurement.

Gunning for SAP and Oracle?
Ultimately, Workday intends to offer full-ERP capabilities, though most likely for service-based businesses. This is a bit of a disappointment, as I would love to see a player with Workday's resources tackle the manufacturing sector as well.

Nevertheless, Workday would appear to be a nascent threat to the traditional on-premise Tier I vendors, Oracle and SAP. They are no doubt already seeing Workday in some deals for HCM and will probably begin to see Workday encroaching on their turf in financials. Another SaaS player, NetSuite, already has been campaigning for a slice of SAP's business for smaller units. In contrast, Workday has a real shot at displacing SAP and Oracle in larger units or even for corporate applications of HCM. How much longer will it be before Workday is competing head to head with SAP and Oracle for complete ERP replacement in large organizations with legacy versions of these Tier I systems?

Hopefully, not too long.

Update, Mar. 26: Ray Wang has a good summary of Workday 10 features and how they move Workday one step closer to being a full ERP replacement.

Update, Mar. 29: Read Naomi Bloom's writeup on Workday 10. Naomi is a top HRM consultant and knows her stuff.

Related posts
Workday: evidence of SaaS adoption by large firms
Dave Duffield debuts new on-demand ERP
NetSuite a viable alternative for SAP customers?

by Frank Scavo, 3/16/2010 12:22:00 PM | permalink | e-mail this!

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Wednesday, March 03, 2010

A game-changing play in enterprise software

Finally, someone is showing some innovation in how enterprise software is sold and contracted. No, it's not the two big guys of traditional on-premise software, SAP or Oracle. And it's not the market leader in cloud-based systems, Salesforce.com. Rather it's a smaller player, farther down the list: RightNow.com, a SaaS provider of customer service applications.

According to RightNow's press release, the firm is introducing something called the RightNow "Cloud Services Agreement (CSA)." If this catches on, it is very good news for software buyers.

What it is
RightNow points out that although cloud computing promised to fundamentally change how software was purchased and delivered, the benefits have not yet been fully delivered on the "business engagement side of the promise." RightNow’s CSA addresses this problem by providing the "guaranteed-pricing benefits of a traditional Master Services Agreement (MSA) without the pain – hidden costs, escalating maintenance bills, lock-in, and shelfware."

Here's how it works (as paraphrased from the press release):
  • Annual Usage Alignment Up or Down. Traditional software contracts force clients to anticipate their future needs, in terms of the number of seats. RightNow's CSA allows clients to re-balance usage up or down based on what they actually need from year to year.

  • Three Year Price Commitment Plus Three Year Renewal Price Cap. Traditional agreements are often written with hidden fees and escalation clauses, which are difficult to understand from the customer's perspective. For example, SAP now says it is going to start enforcing cost-of-living escalation clauses, which many SAP customers are not even aware of. RightNow's CSA, in contrast, essentially gives customers a simple fixed price for six years while only requiring them to commit to the first year.

  • Annual Termination for Convenience. With traditional software agreements, once the contract is signed, the client is locked in, putting the client in a position of weakness relative to the vendor. Allowing customers to walk away each year restores the balance of power in the relationship, motivating RightNow to continually deliver on client expectations.

  • Annual Pools of Capacity. Traditional agreements force clients to buy enough seats or capacity to cover their peak usage, even if most of that capacity is unused most of the time. RightNow's CSA provides clients with an annual "pool of usage" over a 12-month period. This allows clients to accommodate seasonality and fluctuations in their businesses without having to pay extra for spikes.

  • Cash Service Level Credits. I especially like this point. Many Saas provider contracts are weak in terms of penalties for failing to meet service level agreements. With many providers, SLAs are weakly written or only offer token concessions to customers. But RightNow’s CSA looks like it has real teeth. If RightNow falls short of the service levels guaranteed in the client’s customer care package, it will refund a percentage of the client’s subscription fees.

  • Unlimited Capacity for 90-Day Pilots. Here's another good point relative to other SaaS providers. RightNow is allowing clients, under its standard engagement process, to try out the product for up to 90 days before they have to commit to a contract. This is far better than signing a long-term contract, then getting into the implementation and finding out that, for whatever reason, there is not a fit. This is far more than allowing the customer to do a pre-sales "proof-of-concept." This means the customer could essentially attempt implementation and then back out if it doesn't go well.
As a bonus, it appears that the CSA is not just for new customers. RightNow will allow existing customers to convert to the CSA when their existing contracts are up for renewal.

In summary, as the press release points out, the CSA simplifies the contracting process. This reduces the amount of negotiation that is typical of enterprise software deals. Bottom line: "the company and its clients can spend less time negotiating contracts and more time achieving faster results."

What it means
Enterprise system initiatives for customers are notoriously risky. Our most recent Computer Economics study on technology trends, for example, shows that over half (51%) experience ERP TCO that is greater than budget. Even worse, 20% of organizations experience negative ROI--i.e. from a financial perspective, they would have been better off not doing the project. The results for CRM are somewhat better but still poor. RightNow's move addresses the risk problem in two ways: increased flexibility and lowering costs for customers.

It's good to finally see a vendor stepping up to the plate to compete on cost, and not just the up-front costs. On-premise vendors have been discounting their up-front license fees for years to win specific deals. RightNow is moving price competition to long-term costs, where the real money is. We’ve already started to see it some on-premise vendors, such as Infor and Microsoft Dynamics, emphasizing their maintenance and support programs as a way of differentiating themselves from SAP and Oracle. Now we’re starting to see it in the cloud.

RightNow's announcement not only differentiates itself from SAP and Oracle but also from some of the cloud providers. Cloud-based vendors, such as Salesforce.com and NetSuite may be up-to-date in terms of technology (SaaS, PaaS, muli-tenant, etc.) but in many respects the way they sell, negotiate, and contract with customers is not much different from how SAP and Oracle deal with customers. Perhaps it's because most of their executives grew up in the traditional on-premise world, where customer lock-in is considered a positive thing.

If you have a minute, check out this video, where RightNow ridicules Oracle, SAP, and even Salesforce.com for their approach to software agreements. I'm usually not fond of these sorts of PR efforts, but I think this one could touch a genuine nerve with software customers these days.

Moving to a true form of utility computing
Rightnow's move brings it closer to a model of pure utility computing, where the customer pays only for what he uses, as is the case with electrical utilities. Sure, your electrical utility levies some base charge to cover the cost of provisioning and maintaining the customer's connection. But most of the cost of electrical service to the customer is usage-based. You use more, you pay more. You use less, you pay less.

If software is truly being delivered as a service, then, it is logical that the industry would move in the direction of usage-based pricing. In the case of SaaS providers, the only reason they haven't moved in this direction is their desire to lock in customers to maximize revenue--a legacy from the on-premise world.

Pushback from the usual suspects
Is RightNow risking some loss of revenue short-run with this? Yes, but it's such a game-changer that I don't think that matters in the long run.

Some of my associates are asking whether Wall Street analysts will push back on RightNow.com. After all, if customers can flex their usage up or down, won't that introduce revenue uncertainty into RightNow's business model and thus lower the firm's valuation?

My take is that this question is extremely short-sighted. These are the same financial analysts that cheer for Oracle's 90+% margins on its maintenance business, all the while Oracle customers are plotting to set up "Oracle-free zones" within their organizations. If RightNow is successful--as I hope it will be--any uncertainty in future revenues from existing customers will be more than made up for by increased revenues from new customers. The new contracting model is simply that much more attractive.

In the meantime, the next time my firm does a consulting project for a customer to select a customer service system, guess who's moving to the top of the list?

Other voices
Two of my fellow Enterprise Advocates have already weighed in on the significance of RightNow's new deal for software buyers. Dennis Howlett agrees that RightNow is shifting the needle on enterprise value, while Vinnie Mirchandani says it as a step in the right direction. Read both posts as they provide additional perspectives on this important development.

There is also good analysis in Phil Wainewright's post, RightNow promises and end to SaaS shelfware.

Update: Two more very good posts: Barney Beal's Software buyers are the big winners in RightNow’s cloud services pact and Paul Greenberg's RightNow's New Customer Service Agreement Genuinely Important.

Update: Fellow Advocate Dennis Howlett has a longish piece including a narrated slide presentation of his analysis on RightNow's CSA. Worth listening too.

Disclosure: In case you're wondering, I do not have and have never had any relationship whatsoever with RightNow.com, they haven't paid me a penny, and in fact, I've never even spoken or corresponded with them. I just like what they're doing this week.

Related posts
Oracle confirms: maintenance fees are virtually all profit
Oracle profits strong, thanks to your maintenance payments
Flash: SAP backs down on 22% maintenance fees
Mad as hell: backlash brewing against SAP maintenance fee hike
SaaS contingency plans need more than software escrow

by Frank Scavo, 3/03/2010 02:01:00 PM | permalink | e-mail this!

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Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.

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