May 8, 2017Doug Hadden
It’s rare for me mention software vendors who, from time-to-time, compete against FreeBalance, in a negative fashion. For example, I don’t mention the names in the growing catalog of ERP failures in government. Sometimes vendors like Oracle and SAP go too far and cross ethical boundaries. That deserves a rant.
Treating Customers Like Criminals
ERP giant SAP sued brewing giant Anheuser-Busch InBev last week for $600 Million on the heals of winning a case against distillery giant Diageo after claiming £54,503,578 in damages. SAP is not alone. Oracle also leverages so-called “license audits” to uncover ways to extract more revenue from existing customers.
“Indirect access” has become an important shakedown tool in this complex, opaque and murky world of ERP vendor license audits. The essence of “indirect access” is that every person who has access to any data within the ERP system should be a “named user” even though they may not have any access to the system. In other words, the ability to place an order from a CRM system like Salesforce directly in SAP means that every Salesforce user must also be an SAP user. Any user who receives a data from SAP to put in a spreadsheet must be an SAP user. Dennis Howlett of Diginomica calls it “predatory auditing.”
It doesn’t matter that those with “indirect access” may have very little value from the ERP system relative to standard ERP users. What seems to matter is that license agreements enable ERP vendors to treat customers like criminals. It is true that many ERP customers are out of compliance with software license agreements. The moral question is whether ERP customers have any intent to defraud vendors. My sense is that license complexity makes it very difficult for ERP customers to understand whether they are in compliance or not. In addition, the license audit can become a fishing expedition for non compliance, such as Mars Inc. requiring to turn over 233,000 pages of information to Oracle.
The disturbing part of the SAP vs. Diageo case is that Diageo had purchased the SAP PI integration tool. Integration tools are a common practice in the ERP world. ERP vendors tout the ease of enterprise integration, even though the integration is usually much more difficult than the marketing literature claims.
At any rate, if CRM users are charged as ERP users, why not charge ERP users as CRM users?
Legacy is what Legacy Does
The enterprise software market is in new stage of uncertainty. There is a lack of organic growth among top ERP vendors. Legacy ERP software like SAP, Oracle Financials, PeopleSoft, that require heavy customization are seen as providing too much technical debt and restricting agility and change. The move to cloud computing has been very challenging for creaky aging enterprise software. That’s why we’ve seen so many acquisitions of cloud companies by major vendors like NetSuite acquired by Oracle and SuccessFactors acquired by SAP.
Acquisitions is what legacy software companies do. It’s an admission that internal “innovation” and huge product budgets cannot keep up with the market.
Suing customers is another tactic of legacy thinking. The Oracle vs. State of Oregon lawsuits, for example, shows the extent to which legal action, and the threat of legal action, can extract money from customers. It’s no wonder that the State accused Oracle of racketeering.
Let’s face it, suing customers is not a sustainable business model. ERP vendors have leveraged acquisitions in order to “own customers” across the entire software stack. This “lock-in” makes it very difficult for customers to switch to other solutions when the application software, middleware and databases come from one enterprise software vendor. It might not be “racketeering”, but it is monopolistic. The threat of vendors coming after companies for millions of dollars could be the strategic inflection point to encourage ERP customers to migrate more rapidly to cloud and non-proprietary solutions.
Large companies should also wonder how much custom software can be developed with a $600 million budget.
License audits are the latest in unethical behaviour among leading enterprise software vendors. We have seen recent examples of “cloudwashing” where vendors manipulate sales figures to show more cloud users than they have. There are many times that I’ve witnessed large vendor “FUD” tricks and outright lying to prospects. The margins from annual maintenance contracts seems almost criminal given support quality. (And, it was only 5 years ago that SAP attempted to increase maintenance costs for all customers to 22.5% of license costs annually.)
The technology business is changing. It’s moving to customer centricity with long-term customer partnerships. It’s becoming more and more socially responsible. It’s difficult to reconcile the Corporate Social Responsibility (CSR) publicity by large ERP vendors with the reality of suing customers. SAP CEO Bill McDermott is talking a lot about empathy. The company has been leveraging “design thinking” as a customer-centric approach to software development.
It’s high time for Oracle and SAP to demonstrate social responsibility.
Will Oracle and SAP change “license audit” policies? Let’s see.
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