The deal: Customers pay a high price

Some companies that buy corporate software say their products do not work as billed, leaving them in a perpetual state of emergency. With scant time and resources to fight back, these customers keep paying out of fear that reversing course would be even more costly.

CNET News staff
8 min read
The Deal: Customers pay the price

The project deadline was considered ambitious even for the frenetically paced high-tech world.

At the height of the dot-com mania last year, Oracle promised a small business-to-business start-up that it would install 60 percent of the software it needed in two months. When that deadline slipped, Oracle said it could finish 30 percent in that time frame. Even that proved unrealistic.

"I'm like a fireman. I'm like 911 to the rescue," said one Oracle software consultant who worked on the project, adding that eight months was the minimum time needed for the job. "We are totally in reactive mode and can't anticipate the next move."

At issue in this case was its customer-relationship management software, a key part of Oracle's strategy to expand beyond its core database business. The so-called CRM initiative reflects Oracle's need to generate more business at a time when the slumping technology economy has slowed growth and driven down its stock price.

Oracle advertisements, which use the motto "Winning the war on complexity," portray a well-oiled technology that can bring even the smallest company into the wired world in short order, regardless of system disparities and particular needs. Yet those familiar with the inner workings of any large technology contract offer a very different picture, one fraught with miscommunication, software glitches, customization problems, and inadequately informed personnel on both the buying and selling side of the deal.

"Once you are committed to Oracle's applications and you buy their order-management software, their financials, and their CRM package, they

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Ellison: 9i software more reliable
Larry Ellison, CEO, Oracle charge you maintenance fees and charge you for consulting labor for upgrades," Forrester Research's Laurie Orlov said. "The customer is not in a position of power."

Hyped-up software
Customer-relationship management software is supposed to help businesses keep track of customer information and maintain a record of their transactions. Companies can then use this information to predict buying patterns or to identify potential new customers. Because it is one of the more popular corporate applications on the market today, Oracle hopes to use it as a way to entice customers to buy the company's flagship databases to work with it--a particularly important strategy as it cuts prices to stay competitive.

In a pattern familiar throughout the software industry, Oracle's marketing department cranked up its engines while the technology was still in development to generate interest and build momentum leading up to the product's release. But Oracle has felt more pressure than usual in the customer-relationship management market because it was late to the game, following archrival Siebel Systems.

"Oracle tried to catch up with CRM and pushed it as fast as it could. They knew they had lost the first-mover advantage, so what they did was refocus and say, 'We're the first to market with the whole e-business suite,'" an Oracle consultant said. "Oracle is saying, 'We're the Kmart and Wal-Mart of the world--we have everything.'"

Everything, including bugs. Orlov estimates that Oracle's 11i e-business package, which includes its CRM software, had more than 5,000 glitches in previous versions. "The earlier releases are the buggiest software I've ever seen come out of Oracle," she said.

Ellison himself acknowledged that the software has had problems but said the company has resolved them, adding that "450 live customers" are using 11i today. Others working with the software agree that the latest version, released in the last month, has far fewer bugs than did previous releases.

"We took a lot of heat. We had our fair share of bugs. It's not been easy. It's a huge product," Ellison said Wednesday at a conference for financial analysts covering Oracle. Now, he added, "it's a proven technology with world-class references."

Oracle attributes many software problems to customers who want to tailor their products--a claim that others dismiss as absurd because corporate software always needs to be tailored to meet specific needs. The problem, critics say, is that Oracle wants to produce one off-the-shelf product to fit all sizes.

"Oracle tells us all the time that it would be great if people adapted automatically to their world. That's not possible--that's naive," said Steve Mills, general manager of IBM's software division, one of Oracle's archrivals. IBM, too, has had its share of problems in this field, having scuttled its own CRM division two years ago.

For every dollar spent on off-the-shelf software made by Oracle in the 1990s, a customer could pay as much as 10 times more in installation and customization costs, former company President Lane said. Although he said this ratio has improved in recent years, expensive service bills remain a fact of life today.

In an offer dubbed "CRM in 90 days," Oracle promises to pay for all consulting and support services if it fails to install its customer-relationship management software in that time period. "The catch is customers can't customize the software and have to install it as is. It's perfect if you are a small or midsized company, but if you're a giant company with lots of older software in your computer network, you need to customize," an Oracle consultant said.

"The whole technology stack has been so integrated, you have to know what you're doing, otherwise you're hosed," he added. "Normal users won't know how to turn on the 'purchasing' application if they want to. You will use consulting services to help you understand whatever you bought."

Putting out fires
Complicating matters further is a breakdown in communication between Oracle's salespeople and its engineering staff, sources say.

"I read the white papers and what it was designed to do, and when I tested it out I realized it doesn't do that," the Oracle consultant recalled of another customer-relationship software project last year. "It's supposed to do this, but it's not doing it."

As a result, Oracle's consulting services have been on a war footing ever since its customer-relationship software hit the market. A crisis can trigger a "Severity 1" problem, which means that engineers must work around the clock to resolve it.

While that designation remains the exception, "we now have Severity 2's up the yin-yang," the consultant said. "We're constantly seeing new bugs. We're saying, 'Oh, this didn't happen before.' We're like guinea pigs."

That is what happened after PurchasePro, a business-to-business e-commerce exchange, purchased Oracle's customer-management software package last August, according to those involved with the project.

The package was supposed to provide new systems for customer service, marketing and sales operations. Today, just one of these modules is functioning, and only at 15 percent of capacity, said one employee at PurchasePro, which declined to comment on the contract.

The issue came to a head late last year, when PurchasePro terminated the software project and fired the two executives in charge of it. The company has since gone with Siebel, the PurchasePro source said, but only after paying more than $700,000 to Oracle consultants in the futile attempt to get the software to work.

Adding to their frustration, PurchasePro executives were stunned to find language in the fine print of the contract that apparently sought blanket protection for Oracle if certain products didn't work. "The asterisks loosely said that Oracle is under no obligation to deliver a functioning product," the PurchasePro source said.

Similar disclaimers were included in documents for a project with another customer, corporate housing company Oakwood Worldwide. A footnote accompanying Oracle software listed as "scripting and bill presentation and payment products" read: "This program is not currently available in production release. If and when such program is made available in production release, we shall deliver the program to you pursuant to the Miscellaneous section. You have not relied on the potential availability of this program in entering into the payment obligations in this Ordering Document. We are under no obligation to change current availability."

Former executives familiar with the Oracle clause say it is designed to ensure that the database giant will be able to book revenue from a contract even if one portion of the software never operates or is never delivered, rather than void the entire agreement and all the revenue that comes with it.

Oakwood spokesman Robert Philips said the company is "happy with our relationship with Oracle" and would not comment further.

More headaches
Problems with Oracle products have not been confined to CRM software. The Tri Valley Growers agricultural cooperative sued Oracle for breach of contract and expects to go to trial in November over allegations that its ERP software didn't work, the company misrepresented its functionality, and it failed to provide support.

Tri Valley Growers purchased half a dozen software products from Oracle in September 1996. Oracle received these modules from partner companies and

see Newsmaker: Plotting Oracle's demise
see story: Oracle takes on foes with price plan
was planning to integrate them on the co-op's system, said Peter Sipkins, an attorney with Dorsey & Whitney, which is representing Tri Valley Growers.

But the organization terminated the contract and halted further payments after spending $20 million on software, support and new hardware when Oracle said it would take much longer to integrate the software on Tri Valley's existing computers.

Tri Valley is seeking $20 million and damages in its lawsuit, Sipkins said, and Oracle has countersued for lack of payments and is seeking $400,000. He noted that Oracle in 1998 announced it would no longer rely on partners to supply its ERP products, which is now bundled with its CRM software in the 11i package.

Arvindh Balakrishnan, CEO of MetricStream and a former Oracle manager, sympathizes with customers who encounter problems with corporate software because they often look to these systems as a core part of their businesses. To that end, when they are shopping around, they are really looking for a partner that has their best interests in mind.

"It's not like buying a car," he said. "It's like part of the family."


Veterans of corporate software sales say service contracts have evolved in three stages in recent years as customers try to keep costs from spiraling out of control.

Until about 1996: Consultants say it was not uncommon to give a customer a relatively loose labor estimate such as 10 engineers for six months at $10,000 a day. Those estimates were invariably exceeded as unanticipated problems cropped up.

What happened next: Customers then began asking for lump-sum estimates based on specific requirements. Because large software projects are difficult to estimate with any certainty, consulting companies have been accused of inflating projected costs to give themselves cushion.

Companies request a detailed estimate that includes a cap, with such contract provisions as "time and material not to exceed" a given amount. Although those estimates could still be inflated, one source said customers "are a lot wiser" about scrutinizing bills.

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