What’s Bigger News than the Oracle v. SAP Verdict?
By Sam Sliman, President, Optimal Solutions Integration

 

The big news in SAP circles is the $1.3B verdict handed down by a jury last week in the Oracle v. SAP infringement case. The dramatic run-up to the trial, the courtroom theatrics, and the sheer scale of the cash at stake created a made-for-media feeding frenzy. In the world of enterprise software, this is as exciting as it gets. But even with the off-the-charts hype, the reality for SAP customers is that this trial and its verdict (if it stands) will have little-to-no impact on their relationship with the vendor they bet the farm on. In fact, in terms of sheer industry impact, the outcome of the Oracle v. Rimini Street trial will dwarf that of Oracle v. SAP. The ramifications of the Oracle v. Rimini Street verdict will be broader, deeper, and will impact the entire enterprise software industry.

 

A quick refresher on Oracle v. SAP…

 

In 2005 SAP paid $10M for TomorrowNow, a third-party support provider for customers running PeopleSoft and J.D. Edwards software. SAP’s plan was to leverage TomorrowNow in its effort to win over Oracle customers. The plan went terribly awry. TomorrowNow improperly downloaded Oracle code, got caught, was shut down by SAP, and in 2007 Oracle sued SAP for TomorrowNow’s illegal activity.

 

SAP manned up, admitted that it "materially contributed" to the wrongful downloading of Oracle's software, and agreed to pay Oracle damages. The Oracle v. SAP trial, which began in November, is to determine how much SAP must pony up. Oracle claimed damages as high as $4B. SAP pegged damages at $40M (and agreed to kick in an additional $120M for legal costs). The judge set high-end limit to damages at $1.6B. The jury awarded Oracle $1.3B. The judge has the option to lower damages if she deems the amount excessive. SAP released a statement thanking the judge and jury, expressing disappointment in the verdict, and stating that it “will pursue all available options, including post-trial motions and appeal if necessary.”

Pundits are split on what SAP should/will do next. Some think SAP should cut Oracle a check now for $1.3B and be done with this mess. Others say SAP should utilize all available means [read: prolonged litigation] to get the damages reduced.

Bottom line for SAP customers…

There’s really no telling how things will play out, but with a cash stockpile of about $4.1 B, SAP can easily write the $1.3B check, get Oracle egg off its face, and get on with business. In short, the worse case scenario yields little long-term impact. Customers need not worry about their SAP investment. SAP will most assuredly remain comfortably in business while attorneys continue to duke out the merits of the $1.3B award.

Why Oracle v. Rimini Street is bigger news…

TomorrowNow and Rimini Street have a few things in common -- both companies provide 3rd-party software maintenance support for about half the cost of what vendors charge; both companies were founded by Seth Ravin (who sold TomorrowNow to SAP and is currently president and CEO of Rimini Street); and both are companies that Oracle is determined to quash -- whatever it takes.

In effect, the now defunct TomorrowNow made things easy for Oracle by foolishly engaging in illegal activity. That leaves Rimini Street -- a relatively small (approx $25M) company that Oracle intends to litigate into oblivion as quickly and brutally as possible.

Unlike the Oracle v. SAP trial, which is over damages resulting from admittedly illegal activity, the Oracle v. Rimini Street trial focuses sharply on the legality of the 3rd-party support business model itself, which makes the outcome of this trial dramatically more significant.

Oracle’s assault on 3rd-party maintenance providers is straightforward enough. Oracle charges its customers a mandatory maintenance fee of 22%-of-licence cost. Oracle rakes in about $16B annually from its maintenance and support business, a business line, Oracle has publicly boasted, that enjoys a 90% profit margin. Yes, you read that right.

3rd-party maintenance support providers like Rimini Street charge about half of what Oracle charges. Theoretically, that translates into Oracle risking a potential $8B loss in annual revenue if it should lose its case against Rimini Street and the 3rd-party maintenance business model is deemed legal.

More realistically, at approximately $100M, the 3rd-party maintenance support market is only a tiny fraction of the $20B spent on software maintenance overall, according to Forrester Research, which pegs the overall application maintenance market growing at roughly 8% a year.

Regardless of the exact numbers, the reality is that enterprise software is changing at a far less dramatic pace than a decade ago, and customers will question the value of mandatory maintenance fees with increasing ferocity.

If 3rd-party maintenance providers are eliminated from the market -- which in essence will be the case if Oracle wins its trial against Rimini Street -- then customers will lose considerable leverage in questioning mandatory, vendor-imposed maintenance fees. Without options, the question is moot.

So pull up a seat and watch the Oracle v. Rimini Street drama unfold.