Oracle Support Revenues and Margins
Oracle’s support revenues for their on-premises products (Database, WebLogic, E-Business Suite, Siebel, Peoplesoft etc.) make up approximately 50% of total revenues.
- A conservative view puts it at over US $22 Billion.
- And the margins of this support business is 90%+
How much do customers spend on Oracle support, and what is the value they get?
Let’s do a back-of-the envelope calculation:
Customer Spend on Support:
- Suppose a customer of Oracle purchased licenses for US$100 in the year 2010
- At 22% in the initial year, their support cost would US$22
- There is a nominal increase of 2-3% per year. Let us take this increase for half the period from 2010 to 2023. (i.e., for 6 of the 13 years).
- The total money spent on Oracle Support by the customer in 13 years is US$240
Customer Return on Investment
- Assuming a 90% margin on support, the customer has got a value of $24 on spending US$240.
- The customer is not getting the returns on this expense.
Customer Spend as Insurance
- Customers of Oracle (and SAP) are paying the premiums for insurance.
- Support is seen as insurance. And this is important.
Can you change the insurance provider?
- Oracle products have a 5-year life-cycle during which bugs are fixed. This is the time of Premier Support.
- Our view is that any client using older versions of Oracle products does not need to get insured from Oracle. They can move onto other providers who provide Third Party support.
What is Third Party Support for Oracle?
- Third-party support for Oracle is an alternative to Oracle’s own support, provided by independent companies.
- Third party support for Oracle is cheaper, more responsive and extends support for older software versions.
What are the Third-Party support offerings for Oracle?
- Break / Fix Services
- Data Fixes
- Security protection
- Performance Tuning
- Functional Enhancements
Which firms should evaluate Third Party Support?
Firms that are:
- Using Oracle products that are either on Extended support or Sustaining Support
- Migrating out of Oracle E-Business Suite to any other ERP (SAP, Infor etc)
- Migrating out of Oracle E-Business Suite to a cloud-based solution (Oracle Fusion SaaS, SAP on the cloud etc.)
- Not having any plans to upgrade to the latest version each time it is announced by Oracle.
Financial considerations for moving to Third Party Support?
Annual Support Costs
- Oracle Support Costs:
Oracle support costs are at least 22% of the license fees paid over multiple license purchases. There is also a 2-8% increase annually on past support fees paid. Typically the support costs for a company that has procured Oracle products multiple times in a period of 10 years is 26% of the license fees paid.
- Third Party Support Costs
Third Party support costs will be a minimum of 50% of the Oracle support costs.
Increasing / Decreasing Support Costs
- Oracle support costs will continue to increase by 2 -8% annually.
- Third Party support costs will, typically, decrease each year depending on the usage of the products licensed from Oracle.
Replacement cost of licenses
- Customers might want to upgrade their infrastructure after a period of 3 -5 years. In such cases, re-engaging with the vendor for fresh licenses with new support prices is a far less expensive proposition than paying annual support continuously.
- Customers at such times have the option of moving to a more modern product from the same or different vendor.
Is Third-Party Support legal?
A research paper published by Gartner affirm that there is no legal reason why a third-party cannot provide vendor replacement support for Oracle customers. Executives from Oracle have publicly acknowledged that third-party support is legally viable, as long as the intellectual property (IP) rights of the software publisher are respected and observed.
Third-Party Support for Oracle is legal if Oracle’s IP is not violated.
Third-Party Support is legal if:
- All customer-specific work product and supporting documents are stored in the customer’s-controlled infrastructure.
- Work product is not shared among customers.
- Application support is provided to all customers remotely on customer infrastructure.
We provide Third Party Support the following Oracle products:
- Oracle Database
- Oracle WebLogic Server
- Oracle Internet Application Server
- Oracle E – Business Suite
- Oracle Hyperion
- Oracle Business Intelligence Suite (OBI EE)
How do we provide Third-Party Support?
- We evaluate if you are suitable for Third-Party support.
- We have partnered with the global leaders for Oracle Third Party Support
- Upon our evaluation, we will guide you through the process of executing the contracts and getting onto the third-party support engagement.
