Other than Catz going a little Zen-y with the 'maintenance is who our customers are' riff, her answers were consistent with what she's said the past couple of quarters: that Oracle customers are renewing at record rates (would love to see Oracle's data on that) because satisfaction's high and Oracle is cranking out lots of new stuff that customers are eager to have.
Again, the numbers don't lie: even in a quarter when Oracle was able to stop the decline in new software licenses and in fact grew that number 2% from the year-earlier quarter, maintenance continued to claim an increasingly large slice of Oracle's overall revenue as it doubled the revenue of new licenses and more than tripled the revenue from services.
So it's unmistakably clear that Oracle has become increasingly dependent on maintenance fees for its financial health and its long-term survival. Even with the imminent acquisition of Sun and the expansion into new product lines that will immediately provide, it's essential to bear in mind that without its massive profits from your 22% maintenance fees, Oracle loses a ton of money. And it therefore needs to take its maintenance business incredibly seriously, which is a point i made three months ago in a column called Global CIO: Where Do Oracle's Profits Come From? after Oracle released its first-quarter numbers:
Catz didn't offer any detail on those renewal rates or satisfaction levels, but as I've said before, Oracle should charge what the market will bear—and if the market bears 22% and Oracle customers feel that's a fair price for the value Oracle is delivering, then bully for Oracle and for its customers. Most people are smart and will not put their money where it is not delivering a good return.
But—it is also possible that Oracle customers feel that at this time they don't have viable options to switch away from Oracle, and that while they are frustrated by the 22% fees and do not feel they're getting good value in return, the lack of options is forcing them to bide their time.
From many many conversations with CIOs, I believe this latter scenario is the real story. If that is indeed the case, then Oracle's playing a dangerous game of "Chicken," hoping that no viable alternatives emerge in the near term while dawdling its way along with its own leisurely cloud initiatives, which are most unlikely to provide the fantastic financial returns that the on-premise model currently does.
So kudos to Oracle but also a word of caution: any company that can build a business with a 92% publicly disclosed operating margin deserves a great deal of credit. And at the same time, any company with 92% operating margins will also draw a great deal of competition—so Oracle better not take that runaway customer satisfaction for granted.
Bob Evans is senior VP and director of
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