Tuesday, April 20, 2010

More evidence on the importance of service

On Monday, I belatedly read an article from Bob Evans of InformationWeek entitled "Global CIO: Oracle, SAP, And The End Of Enterprise Software Companies." Evans' main point is that companies such as Oracle and SAP are no longer purely software companies, but also include service as an ever-increasing component in their offering.

In its last four quarters, Oracle has reported total revenue of $24.18 billion. Yet less than one-third of that revenue comes from the sale of new software, or what Oracle calls "new software licenses": $7.143 billion, or 29.5%. The remaining $17 billion in Oracle revenue for the last four quarters came from two categories: "software-license updates and product support" (also known as 22% annual maintenance fees) brought in $12.71 billion, or 52.6% of total revenue; and Oracle's services/consulting business brought in $3.86 billion, or 16% of the total.

So that's about 30% from software, and about 70% from services. With that mix, shouldn't Oracle be called a services company?

Then there's SAP, whose numbers tell a very similar story. In SAP's last four quarters—which match up with calendar 2009--it posted total revenue of $14.481 billion, with "software revenues" contributing $3.5 billion, or 24.4%. Conversely, what SAP calls "software and software-related service revenues" more than tripled that software figure, coming in at about $11.1 billion.

And if you need any more evidence about the importance of service, check this BusinessWeek/Bloomberg post which notes why IBM's stock price just fell.

Services signings, which account for more than half of total sales, fell about 2 percent to $12.3 billion in the first quarter, IBM, the world’s largest computer-services provider, said yesterday. New contracts for application-management, which help clients maintain and develop software, slid 23 percent.

The stock declined as much as 3 percent -- the most since Jan. 20, the day after its fourth-quarter earnings report.

My question - if service is so important, then why did my wife and I have poor customer service results over the last two weeks? Ironically, we were contacting two different divisions of the same company - I won't reveal the company's name, but its initials are LG. My experience was just of the usual "meaningless customer support response" variety, but in my wife's case, the service "experience" was so bad that she will never buy that product from that company again.

P.S. This is not necessarily a case of outsourcing = bad. It is possible to provide excellent customer service via outsourcing, just as it is possible to provide crappy customer service via your own employees.

But if services are an important part of your revenue, shouldn't services support be an important part of your costs?
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