Earlier this month, Oracle held its first so-called "town hall" meeting for the benefit of PeopleSoft’s current customers who are quite understandably concerned about what will happen to their software investment if Oracle wins in its take over bid.
Of course, unlike real town hall meetings, there was no live give and take. Jim Finn, vice president of worldwide communications, read to Chuck Phillips, Oracle executive vice president, each question from e-mails sent to Oracle.
Nevertheless, I was at times amazed that Phillips’ responses were -- how shall I best put it? -- devoid of artifice.
Phillips, for the most part, was quite direct about what Oracle sees as the true benefit of buying PeopleSoft, and in doing so, he probably speaks for most of the other vendors who are not quite as open about where their profits comes from.
The following was taken directly from the transcript: "That’s always been the kind of funny thing about the software industry that perhaps is not so broadly understood. Many software companies in the enterprise software business actually lose money selling the new license, and where they actually make the money down the road is on the support and maintenance," Phillips said.
Servicing customers is where the profits are, Phillips added.
How does that tie in to the bid for PeopleSoft? "The very fact that we aren’t [going to be] actively marketing the PeopleSoft products is actually what makes the acquisition so profitable," Phillips said.
My guess is, the goal is to keep current customers on a maintenance IV drip, so to speak, adding just enough new blood -- for example, features -- to keep the customers alive.
Granted, if that’s all Oracle did, it wouldn’t attract new customers and over time it wouldn’t have any, if no other reason than losing them to attrition.
So Phillips talked about continuing to upgrade PeopleSoft products. But Phillips also said, "If you look at Oracle’s business over the last five years, we’ve been transitioning to emphasize recurring revenue support agreements."
And pay attention to his wording as he went on to say, "We want to get out of being so dependent on the license business because the better business is the maintenance business longer term."
I think Phillips is saying what the other enterprise application vendors are afraid to say but dearly believe. Vendors, just like their customers, are looking to cut costs and squeeze more out of less, so why would any company spend more than it has to to capture new business if its first priority is service and support of its current customer base?
As far as Oracle’s acquisition of PeopleSoft goes, this philosophy also speaks directly to how Oracle will approach merging its e-business suite with PeopleSoft applications and in fact may bring some solace to PeopleSoft customers who don’t want to convert to the e-business suite.
"(We are going to) keep it in a separate code steam, not try to merge the products. Keep the development organization and support and have a separate organization to continue to maintain that product," Phillips said.
As I said, maintenance rules.