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.
Dit is een vertaling van een eerder gepubliceerd artikel: De wurggreep van de softwarereuzen.
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.
Nederlandse versie
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.
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.
‘With 98 out of 100 customers they always find something they can bill for’
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.’
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.’
It seems no sector is immune from these aggressive tactics. Not only larger medium-sized businesses such as listed companies, but also financial institutions and the Dutch government have had similar experiences. According to multiple sources the three major Dutch banks, ING, ABN Amro and Rabobank, have been confronted with sky-high penalties that mount up to several billion euros.
An infamous case among CIOs is Oracle’s heavy-handed treatment of Philips. The Americans took their clients to court and even arranged a raid with a police escort on Philips’s Amsterdam headquarters, according to a court judgment that has gone unnoticed until now. Oracle also seized details of audits and ultimately forced Philips to pay tens of millions of euros in extra charges via a settlement. Philips’s bosses announced internally back in 2010 that they wanted to stop investing in the American company’s products, but they are so dependent on them that to date a complete decoupling has not been possible.
A few years ago the Radboud hospital in Nijmegen received a demand for several million euros. ‘Everyone knows that’s how it goes and every CIO will tell you the same story,’ says Arthur Govaert, Radboud’s CIO and chairman of CIO Platform. He previously held similar positions at companies including Heineken and Shell. ‘Most companies want to cut out these kinds of suppliers, but you get so dependent on them that in practice it’s impossible.’
Even clients who manage to shut the door on Oracle almost completely and switch to smaller competitors often end up stuck with them when the Americans take over these smaller software suppliers.
It costs a lot of time, money and manpower to negotiate the claims down to a reasonable level, or in many cases all the way down to zero. Almost every case ends with a settlement in which a confidentiality clause is signed as standard. Both parties promise each other not to disclose the amount of the settlement to anyone. As a result the extent of the claims is shrouded in secrecy.
‘The excesses don’t come to light because of confidentiality clauses and the CIOs are scared off by the aggressive way in which suppliers go about their business’
Johan West, CEO of Crayon, trains companies to handle software licences and audits and knows why the dysfunctional relationship between IT suppliers and their clients has stayed below the radar of the general public. Crayon is an internationally active company specialising in licence management (known in the IT world as software asset management) with around 80 large clients in the Netherlands alone. ‘It’s surprising, but at the same time quite simple: not enough people dare to speak out, the excesses don’t come to light because of confidentiality clauses and the CIOs are scared off by the aggressive way in which suppliers go about their business.’
West has strong opinions about the phenomenon of audits. ‘They were originally meant to protect intellectual property or technology against unauthorised use, but they’ve become a powerful tool for sales departments to pressurise clients into purchasing unwanted or unnecessary software.’
‘You’re responsible for the upkeep of your IT, but some of the levers you need to pull are out of your hands because the suppliers have them’
And the sky-high claims for unauthorised use? ‘My experience is that the suspicions are almost always unfounded and consistently end up being divided by at least 20.’ Former Oracle auditor Daniel Hesselink agrees: ‘They’re just trying it on. Most of the time I only have to spend an hour looking at the claim and it goes down by 50%.’
The CIOs appear to have reached the end of their tether. Their confidence that relations can be restored is so low that they are opting now for far-reaching transparency, says Ronald Verbeek, director of CIO Platform. ‘We have raised this question year in, year out with IT suppliers in group discussions, but we have seen little improvement. IT systems are becoming increasingly important to companies’ future development. It is high time the market matured and became fairer. That means a more balanced relationship between clients and suppliers of these crucial technologies, and also greater trust.’
‘Oracle is highly risk averse. They don’t let it come down to a difference of interpretation, because jurisprudence applies to 400,000 clients worldwide’
The stream of amendments to suppliers’ terms and conditions makes it almost impossible to do business properly, says Verbeek. ‘You’re responsible for the upkeep of your IT, but some of the levers you need to pull are out of your hands because the suppliers have them.’
The lack of clarity is increasingly prompting accountants to ask questions. The auditors of annual accounts have growing reservations about the current demands in the field of compliance, especially when a company is unable to explain exactly how it has arrived at the amount of a settlement.
CIO Platform, a member of the European CIO partnership euro.digital, has recently passed its complaints to the office of European commissioner for competition Margrethe Vestager.
The question is why companies don’t fight back harder, for example by challenging their contracts in court. So far only a handful of companies have dared to do so. The chocolate bar manufacturer Mars was furious when it was slapped in the face with threats from Oracle and started a court case in which Oracle’s licensing practices were laid before the judge. The case was settled within five weeks, with the result that no judgment was issued.
Carrefour, on the other hand, persisted. To Oracle’s shock, the court found in the French supermarket’s favour: Carrefour was not obliged to adhere to all the demands in the audit. A tremor ran through the IT world.
Former Oracle employee Richard Spithoven says: ‘Oracle is highly risk averse. They don’t let it come down to a difference of interpretation, because jurisprudence applies to 400,000 clients worldwide. So as soon as the writ arrives they say: let’s talk again. And their clients are obviously keen to do so. No fuss, no lawyers’ bills, no publicity and in most cases the claim goes down by 50% or even disappears altogether.’
In his view, companies need to make more use of this option. ‘If the dispute really can’t be solved, I increasingly advise clients to get a lawyer to serve a writ.’
But Spithoven and former Oracle auditor Daniel Hesselink have one other urgent plea. They say many clients don’t bother to read the brochures that often run to 100 pages full of complex amendments, even though it can lead to penalties. Spithoven says: ‘The buildings are in tiptop condition, the HR policy is well organised and yet there is a grand total of two people keeping tabs on the licences for the entire IT infrastructure. That’s where it sometimes goes wrong.’
