Oracle and SAP Encircle
Their On-Premise Base
In moves seemingly aimed at Workday, Oracle and SAP have both in the last year changed the historically rigid rules for one of the great pains of owning on-premise software: yearly maintenance. For the very first time, maintenance charges can now be reduced by using them to pay for SaaS subscriptions. To use the analogy of a new car dealer, that's a trade-in Workday can't offer.
By Bill Kutik
Maintenance. Generally sounds like a good thing, right? Even if it's sometimes annoying or painful.
Visit the dentist every six months; change your car's oil every 5,000 to 25,000 miles, depending on the vehicle's cost and it's country of origin; have a mammogram; and run your home-heating furnace once a week during the summer.
In software - maintenance is sometimes more pain than gain. Even when vendors call it "support."
In the older, perpetual license world of on-premise software, maintenance is the large payment you make to your vendor every year: up to 22 percent of the cost of your original license. Sometimes, the yearly price goes up, pegged to inflation or cost-of-living increases such as Social Security benefits.
What do you get for maintenance?
In the HCM world, the first thing is always legs and regs, the latest legislation and regulations that change how your software allows you to schedule, promote, pay and generally treat your employees. Really important, of course, but table stakes in the end. They are available elsewhere, like where your vendor bought them from!
You also get bug patches and security fixes -- similar to what Microsoft is always sending you if your PC runs any version of Windows since XP, which is now no longer "supported."
Most importantly, you get new versions of your software, whenever they are issued and whatever they are called: Family Packs, dot releases or version upgrades.
Sounds like a lot, right? But many end-users and IT departments hate maintenance.
First, you are essentially paying a second license fee every five years, pushing up your total cost of ownership. And you know the payments are high-margin and very profitable for the vendors, because financial analysts vote the vendor's stock price down when maintenance revenues decline.
In fact, so-called software aggregators, such as Computer Associates, which owns the original mainframe HRIS called InSci or Information Science from 1972, largely live off maintenance, not investing a lot in products they own. (Though that may be changing with Taleo's last CEO Mike Gregoire,now CA's CEO, and with James Harvey from PeopleSoft and Taleo there..)
What end-users and IT really hate is paying maintenance for software they've never implemented and is sitting on the shelf, known appropriately as shelfware.
Shelfware happens more often than you'd think because, back in the client/server days (and probably more recently), salespeople would toss in extra modules for free into their last money offer on the perpetual license fee in order to close a deal. Some say PeopleSoft did a lot of that before the Oracle acquisition in 2004. News to me.
But you're still paying for those freebies because maintenance covers everything you own -- whether you use it or not -- and you cannot make that number any smaller or break it apart except by declining to re-sign your maintenance agreement and going to a third-party provider.
Don't you think Oracle and SAP know how you feel about maintenance? And you know how they feel about their on-premise HCM customers switching to Workday, rather than migrating to their own cloud solutions, either piece by piece (hybrid) or all at once.
So their new maintenance deals announced eight months apart cover both bases: protecting their on-premise installed base by giving financial incentives only they can offer to move to their own cloud solutions.
It's simple to explain: For the very first time, maintenance can now be reduced by using pieces of it to pay for new SaaS subscriptions from the same vendor. Were Workday a new car dealer, that's the kind of trade-in offer it can't offer potential customers; it only can sell you a new car.
But as always, the devil will be in the details. Here's how Vice President Jeff Kristick of Oracle's HCM Business Unit (formerly a marketing exec at Plateau and SuccessFactors) explained it on my recent Silicon Valley tour. SAP's details do vary.
Jeff reiterated that current contracts do not allow re-pricing of support or breaking it into pieces. The new offer is to trade in the part of maintenance covering shelfware, any unused licenses, or the maintenance for modules being abandoned in favor of any new cloud module. Doesn't have to be like-for-like. You can ditch recruiting and subscribe to performance management. And that money will be applied to the subscription cost of new modules.
Both companies also offer swaps of like-for-like on the actual software, but that tends to get into the definition of what is is, and I'm not touching it here.
Oracle's 1,700 PeopleSoft customers in North America (a definition that never includes Mexico) were offered it in March, and now it's being rolled out to others around the world. Over the next three quarters, it will be offered to other HCM customers paying maintenance for Oracle EBS and JD Edwards -- but with an asterisk that "certain restrictions apply." You'll have to ask Oracle yourself what those restrictions are.
How it's being marketed is almost as interesting as what it is. With its acquisition of a marketing- automation system, Eloqua, Oracle marketers can now do some amazing things to spread the word about this maintenance offer and promote customer migration to Oracle HCM Cloud (nee Fusion). At least they are amazing to me, but to be fair, users of Eloqua's major competitor, Marketo, can probably do the same things.
When Oracle marketers send out content to customers -- a series of surveys, white papers and analyst research reports, for instance -- they know who has opened it (pretty standard), whether they've clicked on a content link and if if it's been forwarded to someone else.
The next email push can be automatically timed according to how people reacted to the first! And the aggregate reactions to the emails will track the customers as being interested in Core HR or Talent Management.
As people like George LaRocque have long been saying, modern marketers learn how people are engaging with a vendor by what content they are consuming. Long before a salesperson shows up.
Let's face it, when you're doing email now, someone is watching every keystroke you make. I'm not so bothered by companies doing it, just governments. But also, frankly, I'm bothered by Google, which maintains the right to read every g-mail you send, not to mention your Google Calendar and Docs and anything else stored in its cloud.
But in the end, none of it is as bad as visiting the dentist or getting a mammogram.
HR Technology Columnist Bill Kutik is co-chair emeritus of the 17th Annual HR Technology ® Conference & Exposition, returning to Las Vegas, Oct. 7-10, 2014. Listen to The Bill Kutik Radio Show ® and get a code for a large discount. You can comment on this column at the Conference LinkedIn Group, which doesn't require prior or future conference attendance to join. He can be reached at email@example.com.