By Marc Parry

A million dollars a year is a lot of money, yet colleges can hand over that much or more every year to software companies that supply and maintain essential systems for accounting, human resources, and student enrollment. Now, fed up with the fees, some colleges are ditching giant vendors for a small company that promises to support this software at half the price.

But a deal that sounds too good to be true may turn out to be just that.

Cost-conscious colleges are caught in the cross-fire of a legal battle between Rimini Street, the low-cost maintenance provider, and Oracle, a software powerhouse that serves hundreds of higher-education customers. In January, Oracle sued Rimini Street for running what Oracle calls an "illegal" and "corrupt" business model.

The fight opens a window onto a billing structure that pads the profits of Big Software while frustrating customers—and a small but growing group of companies trying to undermine that system. Rimini has quietly signed up a wide-ranging roster of about 300 clients since it started in 2005, including big universities such as Cornell and Vanderbilt.

But Oracle's legal attack means those clients face an uncertain and potentially expensive future. Most software companies, including Oracle, tell customers that if they drop their maintenance contracts but later decide to return—after, say, their smaller provider loses a court battle—they will be charged for all fees they would have paid had they remained on board.

The software is key to running a college. If you think of a college as a small city, the software from Oracle and other companies is the digital infrastructure that keeps its bureaucracy humming: systems for accounting, personnel, payroll, enrollment, student records, billing. As unsexy as this stuff sounds, the sums that make it go can be enormous.

Say your university has 50,000 students and 10,000 employees. You might spend $5-million to license financial, human-resources, and student systems from Oracle's PeopleSoft line, says Paul D. Hamerman, who tracks the enterprise-applications industry for the consulting company Forrester Research. As part of the contract, you'll sign up for a maintenance agreement that costs 22 percent of the license fee, which in this example adds up to $1.1-million each year, says Mr. Hamerman, a Forrester vice president. That buys you a bundle of services that includes upgrades to the software, bug fixes, and technical support.

Expensive Contracts

These contracts are an extremely profitable business for software vendors, Mr. Hamerman says, bringing in 50 percent or more of their revenue.

Customers, on the other hand, "don't really need all of these services," Mr. Hamerman says. "They feel that they're paying an inordinate amount of money for this bundle of services of which they don't really take full advantage." This realization has become sharper during the recession, which has squeezed budgets and driven managers to re-examine vendor maintenance agreements that, according to Mr. Hamerman, make up about one-third of IT software budgets.

Rimini Street, based in Las Vegas, is the most prominent player among the half-dozen or so companies trying to lure those customers into third-party support. Others in the nascent industry, pioneered in 2002 by a company called TomorrowNow, include CedarCrestone, Abtech Support, and netCustomer.

Rimini Street has been aggressively courting colleges with a straightforward pitch. The actual language is steeped in software and business jargon, but it boils down to this:

"Hey, Mr. CIO. You're jammed for cash, right? Well, we can cut your annual support bills in half. Yes, half. You leave Oracle, keep the trusty old software you've licensed from them, and we'll make sure it continues to run for years by giving you the fixes and tax, legal, and regulatory updates you need. You won't be forced to upgrade to new versions. You can save millions!"

The pitch also resonates with colleges seeking support while making a switch from commercial software to programs from the Kuali Foundation, a nonprofit group that produces free financial software through a collaborative, open-source process, says David Rowe, senior vice president of global marketing and alliances at Rimini.

Mr. Rowe claims that Rimini has about 45 customers in the higher-education and public sectors, with the college number expected to at least double in 2010. But he declines to list Rimini's current college roster. Aside from Cornell and Vanderbilt, those that have been publicly named in Rimini's promotional materials are Moraine Park Technical College, in Wisconsin; Heald College, which has 11 campuses in the West; and Yavapai College, in Arizona. Officials from all but one of them declined interview requests.

The exception was Yavapai, and its Rimini contract ends in March. Patrick Burns, chief information officer of the 9,000-student community college, says Yavapai hired Rimini for support as it switched from PeopleSoft's human-resources and payroll systems, but not to open-source software. Instead, the college is moving to SunGard's Banner software, another large commercial product. The point was to "freeze" its version of the Oracle software, he says, avoiding the expensive upgrade Oracle would have required if Yavapai wanted to continue getting the company's support. Upgrading can be a complex process involving outside consultants and lots of IT resources.

Mr. Burns calls the maintenance fees his college used to pay "exorbitant," considering it was not a heavy support user. Going with Rimini Street ended up saving the community college $75,000 over two years.

A Risky Switch?

But switching to a company like Rimini Street is a "major decision" that universities should undertake only with caution, says Stan Jakubik, assistant vice chancellor of the University System of Maryland and departing president of an independent association of colleges that use Oracle software.

"What a lot of people don't understand—and I think where Rimini Street is not being very clear to people—is that if you go their direction, what you forgo is the possibility of any upgrades, through Oracle, of the product," says Mr. Jakubik, whose group has about 700 U.S. members. "The only reason you go to a vendor and pay all that money is the vendor keeps you current in terms of both functionality and technology."

The question is whether colleges will be able to go to Rimini Street at all. In court papers, Oracle accuses the company of "massive theft." It claims that Rimini developed a business—the ability to support Oracle products—through "the illegal downloading of Oracle's software and support materials," accomplished by logging on to Oracle's password-protected technical-support sites using customer credentials and taking materials "in excess of the customer's authorization under its license agreement."

Rimini promises to "vigorously respond" to the lawsuit. In a written statement, its president, Seth Ravin, calls the move "an attempt to forestall competition and limit market choices."

Deborah Hellinger, an Oracle spokeswoman, says her company is committed to defending its intellectual-property rights.

This is familiar territory for Mr. Ravin. He co-founded TomorrowNow, another provider of cheaper support to Oracle customers that was shut down after the larger company sued. "The corrupt business model Ravin helped to create continues in full force at Rimini Street," Oracle says in court papers.

Given the TomorrowNow history, Mr. Burns, of Yavapai College, viewed signing with Rimini as a risk. But he was banking that the company would survive long enough for Yavapai's needs.

"If I was going to be a continuing customer with Rimini Street," he says, "I'd be a little worried."