Oracle's (ORCL) enterprise-software subscription maintenance revenue stream is the constant target of a group of bloggers that either just don't understand the concept of subscription maintenance or that have a pro-Software-as-a-Service (SaaS) agenda or both. But Fitch, the least maligned post Great Recession ratings agency, gives Oracle an A on an upcoming debt offering, particularly because of its subscription maintenance revenue stream.
Apparently Fitch is not worried that the bloggers' campaign to get users to drop maintenance contracts or to get Oracle to drop its one-(high)-price-fits-all maintenance-pricing policy will have any effect. Oracle historically gets 50% of its revenue from this source and, in terms of how Oracle reports to the SEC, considers subscription maintenance -- not database, middleware, applications or Sun servers -- its primary business segment.
I am just beginning to look at Oracle's July 2 10-K (I refuse to read it on the beach) but it looks like Oracle's view of the Sun server maintenance stream is software centric as well. Oracle describes the new Hardware Systems Support segment of its business as follows:
"Our hardware systems support offerings provide customers with software updates for the software components that are essential to the functionality of our systems and storage products, such as Solaris, and can include product repairs, maintenance services, and technical support services (italics added by Byron)."
That would put subscription maintenance well north of 50% of total revenue in the new Oracle and Fitch is taking note. The use of the words "essential" versus "can include" are quite revealing for someone like me that started in the business 40 years ago writing field-service operations manuals.
Oracle's view illustrates the reason that users continue to pony up for "maintenance" despite the constant blogging and harping by industry pundits. Maintenance contracts in enterprise software are not about fixing things--they are about ever changing business requirements and related software content.
From the users perspective it's simply pay me now a la most Microsoft software (MSFT) or pay me later the way Oracle does it.
-- Dennis Byron
(no financial interest in companies mentioned)
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