ITAMChannel is a hub of coverage for all the latest news and views within the IT Asset Management Industry

The stranglehold of the software giants

SHARE
,

The Dutch chief information officers of more than 100 big companies have raised the alarm about monopolistic practices by major software suppliers. Oracle in particular is said to have locked its customers into unfair contracts before demanding millions of euros a year in extra charges.

As the CIO of one large firm puts it, ‘it’s as if you think you’ve bought a chicken. While you’re cooking you get a message from the supermarket telling you that on closer inspection there are three chickens. And by the way, they’re turkeys, not chickens. And then they send you a bill.’

For the first time the Dutch chief information officers (CIOs) of more than 100 large companies have publicly raised the alarm about the monopolistic practices of major software suppliers. The focus of the CIOs’ ire is primarily the intermittent unilateral variations to the licence agreements. These include announcing new ways of measuring software use in so-called white papers, outside the regular contract, leading to sharp increases in costs.

The American company Oracle in particular is said to have been locking its clients for years into unfair contracts so that it can subsequently demand several million a year in extra charges. Microsoft, IBM and SAP are also said to have engaged in similar practices.

The dissatisfaction can be gauged from a survey by CIO Platform Nederland, which represents more than 125 companies, institutions and branches of government in the Netherlands, among them nine AEX-listed funds and five ministries. Members include AkzoNobel, ABN AMRO, Radboudumc, the Dutch Tax Administration, KLM and Philips. All of them are large-scale purchasers of software.

A clear majority of the CIOs would prefer to dispense with the products and services of Oracle, originally founded by the now multi-millionaire Larry Ellison. But they are unwilling to take that step for fear of their IT systems going down temporarily.

In a series of conversations with the FD, Dutch CIOs characterised the working methods of large listed European and American IT companies as ‘cowboy practices’, ‘aggressive’ and ‘extremely bad customer service’. Conflicts with suppliers appear to be the exception rather than the rule, and these conflicts regularly go all the way up to the boardroom. Oracle declined to respond in detail to questions from this newspaper.

Claims of up to a billion

Software products by Oracle and other providers run through the veins of Dutch society. Significant commercial and production processes depend on them. Tax returns, police fines, the baggage carousels at Schiphol, health insurance: millions of people come into contact with the various software packages and cloud services on a daily basis without realising it.

When a client buys upgraded PCs and servers, IT companies look to ride the coattails of the ensuing returns. From their perspective it makes their licences more valuable, so they increase the price of their licences accordingly. They also sign clients up for their data centres’ maximum theoretical computing power, even though they often generally only use a tiny percentage. That can lead to claims worth 10 times or even 100 times the actual cost.

Instead of warning clients in advance that the terms and conditions have changed, Oracle decides retrospectively that they are ‘non-compliant’. Claims vary from a few hundred thousand euros to one case of more than a billion, research by the FD has found.

Raimond Voermans, CIO of abattoir machine manufacturer Marel, says: ‘I want to pay a fair and predictable price. But it’s almost never predictable. I’ve signed a contract for several years and every year they find something that results in the price being driven up unilaterally. IT companies are abusing their position.’

Perverse system

Former staff at Oracle have confirmed these working practices to this newspaper. ‘It’s a revenue model,’ says Richard Spithoven. ‘In some countries earnings from audits (where a team from Oracle investigates whether a company is making more use of one or more of its software products than it has paid for – ed.) make up 50% to 70% of turnover. With 98 out of 100 customers they always find something they can bill for.’ Until 2014 Spithoven was Oracle’s director in charge of License Management Services for the Benelux and Southern Europe, the department that carries out the audits. Currently he works for B-Lay, a company with more than 70 employees that supports organisations in managing their software licences with Oracle, IBM, SAP and Microsoft.

Daniel Hesselink also spent several years on Oracle’s audit team. His company License Consulting similarly helps companies keep Oracle at bay. ‘Oracle aren’t interested in what’s in the contract, they refer to documents that they rewrite as they please. It’s all about rolling over their customers financially by opening with an unreasonably high tariff in order to start a dialogue. It’s a perverse system.’

Spithoven and Hesselink stress that the problem is endemic across the sector. Spithoven: ‘Oracle is known for it, but the others are really not much better.’