New Delhi: Top tech managers at large Indian enterprises including retailer Shoppers Stop Ltd, auto maker Maruti Suzuki India Ltd and phone firm Tata Teleservices Ltd say their budgets will be strained this year after business software has become more expensive.
Business software maker Oracle Corp. increased prices by up to 20% recently although it is yet to communicate the new prices to Indian firms. Earlier this year, SAP AG increased prices of its products by a little more than 4%.
RISING COSTS (Graphic)
Some companies say they may even consider relooking at their relationship with the vendors once the new pricing takes effect, and shift to competing wares of Microsoft Corp.
On Tuesday, Oracle’s India office declined comment on the price increases, which Citigroup Inc. analyst Brent Thill said Oracle could effect because it ranks first or second in each of its markets. The California company’s website sports a new price list dated 16 June and tech blogs have been buzzing since, though Indian chief information officers, or CIOs, Mint interviewed said they were yet to receive any official communication from Oracle about the price hike. Customers that buy Oracle software mostly get a discount of between 10% and 80% on the prices listed on the website.
According to research firm Forrester Inc., applications previously priced at $3,995 (Rs1.73 lakh) per user rose 15% to $4,595 per user, and database pricing increased 18.75% from $40,000 per central processing unit or CPU to $47,500 per CPU. Other prices increased by approximately 15%. “We believe that recouping for dollar devaluation is the main rationale behind the recent price shifts,” said R. “Ray” Wang, principal analyst at Forrester Research in a report.
“If Oracle increases its software product costs or even the support licences costs, we will be badly impacted, and we will have to look at the current value proposition from Oracle to determine whether we will want to continue with this strategic relationship or look at another strategy with other vendors,” said Mahesh Kumar, head of information technology infrastructure at Maruti.
The last time Maruti Suzuki bought Oracle licences was three years back. Its annual operations budget that includes licences and networks is around Rs15 crore.
Competitor SAP that was earlier charging a maintenance fee at 17% of licence fees, globally had increased it to 22% in February for all new customers. “Existing customers, with the basic support package that costs 17% of license fees can stay on that same plan, but new customers will have the new support offering only,” saidChristoph Liedtke, vice-president, global media relations, global communications at SAP in an email.
Cigarette maker ITC Ltd, which has used Oracle products for nearly two decades according to Ajoy Basu, technology officer, is examining “multiple ways and strategies”. These measures include “pressurizing” Oracle by moving (or threatening to move) to competitors such as Microsoft, bundling more services with third party applications, getting into an enterprise agreement with Oracle, where the value of the product is fixed irrespective of the number of users, and also discontinuing renewing licences. “We have a largely user-based business with Oracle and are in talks with them to move to an enterprise agreement and that will bring down our costs substantially,” said Basu. ITC has around 7,000 Oracle users, while its SAP users are around 4,000.
At Shoppers Stop, chief technology officer Arun O. Gupta said he would discuss the issue with Oracle. “Sometimes, they do come back with options,” he added. The retailer has a tech operations budget of less than Rs10 crore, 20% of which is spent on licences. The firm not only uses Oracle database and financial software but is in the process of implementing People Soft, a human resources software owned by the company.
Tata Teleservices, which spends some Rs250 crore on tech operations annually, “will look at ways to combine requirements for various programmes to optimize our overall spend on products like Oracle and SAP”, its CIO Naveen Chadha said. “The best way to deal with this is to negotiate volume deals with the two companies...,” he added.
Alok Shende, principal analyst at research firm Accendia Consulting said, posturing apart, most Indian CIOs who have invested in Oracle would “continue to bite the price bullet” but rival vendors such as Microsoft and International Business Machines Corp. would likely launch campaigns to win over some Oracle customers. Open source business software firms may also gain marginally, he added.
Rochelle Garner of Bloomberg contributed to this story.