JD Edwards And The Big Red Money Machine

January 20, 2014 Alex Woodie

The end of 2013 brought some significant milestones for Oracle‘s JD Edwards customers. Specifically, JDE World and EnterpriseOne shops that are running older releases can no longer get mainstream tech support from Oracle. If you’re one of those shops and you’re running your applications on IBM i, you’ve undoubtedly heard all about this from Oracle, in no uncertain terms.

Among ERP vendors, nobody is as active as Oracle in policing its users and enforcing licensing agreements. Whether it is signing a new enterprise software contract or negotiating a renewal, “aggressive” is a word that has been used to describe the Big Red money machine. Larry Ellison’s company has referred to the 22 percent maintenance fee that it extracts annually from ERP customers as its “birthright.” Trying to negotiate a better deal or threatening to go off maintenance will not get you very far. (To be fair, SAP is no less aggressive when it comes to software maintenance pricing.)

It is worth bringing up Oracle’s sales and support tactics because, on December 31, Oracle officially ended premiere support for JD Edwards World versions A7.3 and A8.1 and JD Edwards EnterpriseOne versions Xe and version 8. The vendor has committed to offering “sustaining support” indefinitely, but since Oracle does not make any commitment to actually fix anything under this plan, it’s not really technical support in the way that most people think about.

You can’t really blame Oracle for ending support on these products. After all, those World releases debuted in 1996 and 1997, respectively, while the EnterpriseOne releases debuted in 2000 and 2002, respectively. That is a very long time to be supporting any software product. The problem is extensive for Oracle–up to 60 percent of the JD Edwards World base of 1,500 or so customers is running those older versions, and about 35 percent of the EnterpriseOne customer base of around 4,000 (estimated) are on old versions of E1.

It’s unknown how successful Oracle was in retaining these customers. In many cases, the older releases were closely tied to (although not entirely dependent on) IBM‘s i5/OS V5R4, which IBM had originally planned to end support for in September 2013. IBM relented and pledged to continue supporting V5R4 for years under and extended support program that is more expensive than regular Software Maintenance. Oracle made no such compromise, and customers could be walking away.

Many of those customers were turned off by the way Oracle treated them, says Matt Stava, managing principal of Spinnaker Support, a provider of third-party maintenance and support for JD Edwards, Siebel CRM, and SAP software.

“Quite honestly, most of the people I talk to get pretty offended pretty quickly by the tactics that Oracle uses,” Stava tells IT Jungle in an interview. “It’s shocking to me that you can treat your customers so poorly, like a playground bully.”

Oracle’s behavior is the source of frustration and annoyance for customers and partners alike. “I’ve even talked to inside people at Oracle that agree with me,” Stava says. “They can’t believe they’re being that threatening to their own customers. It’s a game they play. Everybody has to tow that company line.”

Oracle representatives have used threats against their JD Edwards customers in an attempt to keep them from leaving maintenance. Oracle representatives tell customers that, once they leave maintenance, they cannot get back on maintenance without repaying all the maintenance, plus a penalty. Some CIOs take that threat pretty seriously, Stava says, while others simply walk away. (And remember: IBM charges a similar after-license maintenance fee for its IBM i software stack, too, for customers who lapse in their maintenance coverage.)

Stava has had about 10 customers leave Spinnaker and go back on Oracle maintenance over the years. Did Oracle follow through on the threats? “They have not experienced the back-maintenance, the penalties,” he says. “I have not heard of one customer experiencing that. Many times, it’s a sales rep getting new license revenue, and they’re able to raise the flag that there’s a new license, when it fact it’s really an upgrade… I think on the Oracle side, people are realizing it’s a lot of bluster.”

The prospect of hundreds of JD Edwards shops suddenly without technical support or maintenance is manna for folks like Spinnaker and Rimini Street, its larger competitor that is preparing to go public, possibly in 2014. While there were at least five outfits providing third-party support for JD Edwards ERP customers about five years ago, today the market is dominated by Spinnaker and Rimini, which has about 700 customers.

With so much JD Edwards maintenance work available, why are there only two vendors in the third-party market? Stava thinks it may have to do with the ongoing lawsuit between Oracle and Rimini, which reminds him of the ugly lawsuit between Oracle and SAP. SAP, you will remember, bought the pioneering third party support business TomorrowNow before abruptly shutting it down after Oracle accused it of “corporate theft on a grand scale.”

To break even in the third-party support biz, it takes about 20 to 40 customers, Stava says. That’s one hurdle. Another is the fact that you cannot be in the third party support business if you are a business partner with SAP or Oracle. “You can’t do it as a partner,” Stava says. “It may flesh out more if this lawsuit with Oracle and Rimini gets worked out. But for right now it has kept the competition at bay, which is perfectly fine for us, and Rimini I’m sure.”

Does Spinnaker worry about being sued by Oracle? “No, it’s not something I lose any sleep over,” Stava says. “We’ve spent some time with Oracle over the last several years. They’re certainly well aware of what we do and the people we’ve got. Many of the folks we have are from Oracle teams early on, in the JD Edwards day. We’re not doing anything that would violate their intellectual property.”

To keep on the legal side of the IP line and outside of the grey area, Spinnaker must operate in a less efficient manner than it could. That means crafting each piece of code specifically for each customer in a one-off manner. What the company cannot do is create a homegrown patch and use that with multiple customers. “Once you install a piece of code into JD Edwards, that becomes something called derivative code and it’s technically owned by the vendor, by Oracle,” Stava says. “So to take that back out and apply it to somebody else, that is a technical violation.”

But Spinnaker is OK with the inefficiency that dealing with 237 customers on a one-on-one basis entails. “We can live with that because our margins are a lot less than what Oracle is making on maintenance. Oracle’s gross margins are 90 to 92 percent,” Stava says. “I don’t have a plane and I only have one house.” And so far, he doesn’t own any of Hawaii.