Should Siebel customers expect a hike in CRM support costs?

By Barney Beal, News Editor 21 Feb 2006 | SearchCRM.com

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Oracle Corp. has said many of the right things in trying to reassure panicked Siebel users since it took over the company this month -- namely, that Siebel will be the centerpiece of Oracle CRM moving forward and that customers will continue to receive lifetime support.

But one question remains unanswered: How will Oracle structure its Siebel support and maintenance program moving forward? In a recent conference call with financial analysts outlining Oracle's plans to cut 2,000 employees and Siebel's Nexus project, Safra Catz, co-President and chief financial officer of the Redwood City, Calif.-based company, indicated change was afoot where maintenance is concerned.

"I think Siebel was raising its maintenance [costs] over time and I'll think you'll see some evening out of that," Catz said, indicating Siebel kept maintenance and support costs lower than Oracle's structure in order to win new licensing deals. "Siebel's history was to underprice maintenance."

For more information Get all the coverage of Oracle's Siebel acquisition See what advice PeopleSoft users have for Siebel customers

The reaction from those who are perhaps best positioned to offer perspective on switching to Oracle service and support -- former PeopleSoft and J.D. Edwards users -- has been mixed. According to a Satmetrix survey commissioned by Oracle and released at its OpenWorld conference last September, since integration with Oracle, customer satisfaction levels with technical and product response, resolution and overall solution effectiveness have risen 11%. Additionally, a survey of 55 CIOs by the financial firm UBS found that 75% of PeopleSoft and J.D. Edwards customers are not looking to switch vendors and will renew support with Oracle.

"That does give us a chance to go back to the [Siebel's] maintenance base and bring some of those people back," Oracle's CEO Larry Ellison told financial analysts of the prospects for renewing Siebel support contracts.

BMW Canada, which made a deep commitment to Siebel CRM two years ago, has so far been pleased with Oracle's support plans.

"We're pretty confident in what Oracle can provide," said Kelly Lam, CRM manager for the Toronto-based division. "As with Siebel, we see normal price increases annually. It's not a huge difference."

In fact, BMW Canada is planning to upgrade its Siebel Automotive Call Center 7.5.3 and Analytics 7.7 sometime next year. Yet not everyone is pleased with Oracle's approach to service and support.

"I've talked with a number of clients and a majority of them have been PeopleSoft customers," said Paul Hammerman, vice president of enterprise applications with Cambridge, Mass.-based Forrester Inc. "They're paying a lot of money for support. Oracle has been standardizing on its pricing model, which is a bit higher. Siebel customers are in the same boat as the PeopleSoft customers. As soon as support contracts come up they're going to see increases in maintenance fees."

Oracle's support pricing is roughly 22% of the net licensing fee, which can be significant, particularly for firms that do not use a great deal of tech support, Hammerman said. Dissatisfaction with maintenance costs has helped drive the market for on-demand applications like Salesforce.com but, given the revenue streams that maintenance brings to enterprise application vendors, they're unlikely to offer much flexibility in the next two to three years, Hammerman said. Instead, vendors like Siebel and SAP have added an on-demand option to their offerings, targeted primarily at existing customers.

New kid on the street

"We're starting to see the emergence of a third-party support market; Oracle is no longer the only name in town," Hammerman said.

The big consulting firms could be hesitant to jump into the maintenance and support market out of respect for the existing relationships they have with application vendors, but smaller firms are emerging. TomorrowNow, one of the third-party support vendors to have some early success, was purchased by SAP in January of 2005 and helped lure PeopleSoft and J.D. Edwards customers away from Oracle. A year later, Seth Ravin, TomorrowNow's former president, founded Rimini Street Inc., a Las Vegas-based support provider for Siebel software licensees to carve out a piece of Siebel's support market.

While these third-party providers don't offer the scale or the assurance of long-term viability that Oracle can provide, they can offer more intimacy with a customer and a better understanding of a customer's environment, Hammerman said.

"You look at the amount of money you're paying for support and you're re-buying the system every five years," Hammerman said. "Some customers have said why don't we go off support, do it for half the cost and we can think about re-licensing. If big IT consultancies or Indian offshoring firms get in on this, then it could get real interesting."

For BMW, however third-party maintenance and support is not a consideration.

"Definitely not; from BMW's global perspective that would be really difficult," Lam said. "We have some Oracle products in Europe."

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