In a market place dominated by the big SI’s on the one side and the large analyst houses on the other, why would five individuals come together in the teeth of an economic recession to create ‘yet another’ grouping. It’s simple: the enterprise buyer community really hasn’t had that strong a voice and is often faced by powerful vendors whose market intelligence and knowledge is far deeper than any CXO’s team could hope (or wish) to amass. We’d like to change that, we believe the time is right and that 5×1 = 5>.
When companies like Oracle can throw 19% of their last quarter’s revenues at sales and marketing but only 13% at R&D, much of which you can be sure was related to patching and bug fixing rather than innovations and still earn 31% net you have to ask ‘What’s in it for me?’ A further analysis of Oracle’s numbers show that they earned 93% margin in support and maintenance while margins on new license sales were comparatively paltry at 21%. (see Oracle’s latest 10-Q.) That should tell you Oracle is in the business of acquiring maintenance income. For all practical purposes, it has pretty much abandoned the idea of delivering transformational functional value back to its customers. Instead, it is wedded to a witches brew of toxically high margins driven by Wall Street analysts who cannot see the writing on the wall.
Bob Evans at CIO.com undertook a well thought out analysis of this seemingly impossible magic act and noting the words of Peter Goldmacher of Cowens (PDF download) concluded:
Getting boiled in Wall Street oil would surely be no fun, but having customers abandon your most profitable business en masse would be an even more excruciating experience.
Some of us have been talking about this for a long time. But to imagine Bob’s analysis as a possible scenario would have been unthinkable by many commenters less than 12 months ago. We see it as a genuine possibility. There are a large number of SAP maintenance contracts coming up for renewal in the next quarter and 40% of Oracle’s in the same boat. Now is the time to be thinking about how you can start getting solid value from those investments and releasing money to sorely needed innovation.
CXO’s I’ve spoke with have often been reluctant to take issue with their vendor providers on the maintenance topic. They’re on the hook too and the vendors know it. But that doesn’t mean you have to tolerate an already grim situation. It will not get better until CXO’s learn to say ‘no’ from a position of understanding. Contrary to what I have heard in discussions with CXOs and at user group meetings, the large vendors are more than aware that they have a problem in keeping customers happy at the currently exorbitant maintenance cost levels. Now they seem to be resorting to overtly pressuring groups of customers. Again, we’ve known about related tactics for years but these were until recently something that was rarely aired in public and more often restricted to the sales cycle. The more CXO’s speak out, the more the vendors will have to listen.
Unlike the large SIs and analyst groups, we don’t depend on the vendor community to make a living. We work mostly with buyers. While we welcome the input of vendors and will help them work with buyers, it has to be on the basis of a new form of partnership where value is not just a one way street. Nothing worthwhile is ever easy and this is no different. If you like the sound of what we’re saying then feel free to chime in. Better still, check out upcoming events or if you plan to be at one of the many conferences we’ll be attending then please say hello. We welcome and value your stories.
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