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An Oracle Audit is a Sales Exercise in Disguise

Let’s be honest regarding the purpose of Oracle audits – they are sales endeavors.  Oracle wants customers to migrate to its cloud, whether to their Fusion SaaS or their Autonomous Database and Oracle Cloud Infrastructure (OCI) IaaS and PaaS solutions.

Over the last few years, Larry Ellison has been consistent in his messaging that Oracle’s future will be determined by its success in selling its Fusion ERP and Autonomous Database.  You can even add OCI to this list now.  All of Oracle’s other cloud applications tie back to Fusion ERP and all of their technology stack solutions tie back to Autonomous Database.

Fusion ERP runs on Oracle’s OCI and Autonomous Database, so Oracle gets the whole package when customers subscribe to Fusion ERP.  But customers can also subscribe to Autonomous Database and OCI separately to run other workloads and non-Oracle applications.  Oracle’s pitch is that no matter what applications you are running, you can run them on Oracle faster, more securely, and less costly.  You can also transform your business by subscribing to Fusion ERP, which Oracle claims is the only full suite ERP cloud solution in the market today.

Oracle’s Challenges

The first challenge facing Oracle is getting customers and non-customers alike to see this vision and its value and to migrate to Oracle’s cloud solutions.  A critical point to note is that to further incentivize or accelerate this cloud migration, Oracle has restructured its sales compensation packages over the past few years so that only cloud sales count towards their sales team’s quotas.

Another challenge facing Oracle is their Applications Unlimited Policy.  You may recall, about 15 years ago, Oracle had completed a number of large acquisitions such as JD Edwards, Siebel, Peoplesoft, etc., and announced the future development of Fusion (the on-premise, perpetual license model).  This caused a large majority of customers to halt any future Oracle application purchases because they did not know if and when Oracle would force them to migrate to Fusion.

To offset this concern, Oracle announced Applications Unlimited, which was a policy basically stating that for many of its core ERP applications, Oracle would continue to provide support and not force any customer migration, at least through 2030 or so.  This policy means that Oracle cannot now sunset support on these applications and force customers to migrate to Fusion ERP, the way SAP is forcing its customers to migrate to S/4HANA.

The Oracle Sales Conundrum

These challenges have created a scenario whereby Oracle’s sales team must find creative methods to persuade customers to migrate to Oracle’s cloud solutions on both the application and technology stacks.  Audits are one of these methods that have been used for years to generate sales cycles and now they are being used to incentivize cloud migrations.

Now that you know audits are really sales cycles disguised as an audit, the next thing to realize is that Oracle’s licensing rules and policies are not designed for customers to easily be compliant.  The licensing rules are actually designed to create out-of-compliance situations.  This fact has caused some employees to lose their jobs when an audit reveals a very expensive compliance situation.  Customer executives are upset at paying millions or tens of millions in unexpected compliance fees and need to allocate blame, which unfortunately leads to people potentially losing their jobs, as the executives blame them for not knowing Oracle’s licensing rules and hence, not ensuring compliance.

From the time we are young, we are taught to obey rules and the creators of those rules, our parents and teachers, made the rules simple to understand and follow because it was in their own best interest for their children to obey the rules.  This becomes our bias or default position on how we perceive rules.

But easy to follow licensing rules do not benefit Oracle.  Having overly complex and confusing licensing rules benefit Oracle because they generate sales cycles, either because a customer is concerned about a compliance issue and proactively contacts Oracle for clarification, or a customer is audited and found to be non-compliant.  Audits are like little timebombs waiting to go off and can be very scary for customers.

The Result?

It is helpful to understand Oracle’s end game when faced with an audit, which is to have you execute a cloud subscription agreement.  The type of cloud services and volume will depend on your unique situation, but understand it largely has little to do with your on-premise license compliance.  With this understanding, Oracle customers can develop an action plan and better focus their attention on execution to that plan, rather than being fearful of an audit and then getting caught up in the ‘blame game’.

UpperEdge Recommendations

Your action plan should start with looking at your contract.  If you are currently under an unlimited agreement-type, then Oracle is not going to audit you for those products because there can be no compliance situation or sales opportunity.  If you are already a cloud customer, the likelihood of being audited is greatly reduced because you are already following Oracle’s desired path.  You could still be audited as a cloud customer for non-cloud products you may be running or if you experienced a growth event that would suggest you are exceeding your subscription quantities.  Otherwise, the likelihood of an audit is minimal.

Next you should conduct a self-assessment audit to identify each Oracle product you are running, and your exact utilization of each product based on its license metric.  Be sure to apply Oracle’s policies such as virtualization, multiplexing, and minimum license requirements so that you can accurately identify your license requirements.  You can then compare your license requirements to your license entitlements to identify areas of non-compliance and optimization opportunities.

Be sure to get your license entitlements from your signed contracts and not some internal spreadsheet so that you can prove your entitlements.  You do not want to be thinking or guessing here — your job is to know.  Once this exercise is completed, you will have a clear understanding of what an audit may reveal, thereby removing the fear of an audit, as well as the ability to internally address any areas of non-compliance to remedy the situation before an actual Oracle audit.

In conjunction with the self-assessment, you should revisit your cloud migration strategy and desired timing.  Over the past year, many organizations have had to recalibrate their strategy due to the demand for more flexible and scalable cloud solutions as a result of COVID-19 work restrictions.  This is an important exercise regardless of an Oracle audit.  But if you are facing an audit, it is helpful to pre-identify areas where there is more immediate cloud interest, as these would be potential cloud solutions to consider purchasing in the event of a compliance settlement.

Keep in mind that any type of audit settlement will involve some form of cloud purchase, so you might as well know what will be of most value to your organization, rather than buying random solutions or cloud services credits that sit on a shelf as a sunk cost.  Additionally, for any on-premise licenses that need to be purchased, Oracle will provide far better discounting and commercial terms if accompanied by a cloud purchase.

If there is simply no way your organization will consider an Oracle cloud purchase, then be prepared for a much higher audit settlement fee.  In practically every situation, you will most likely pay less by including a cloud purchase as part of your compliance settlement even if you never use it.  Socializing this scenario internally will help prepare your organization in the event of an Oracle audit and compliance settlement.

Post a comment below, follow me on Twitter @jeffrey_lazarto, find my other UpperEdge blogs, and follow UpperEdge on Twitter and LinkedIn.  Learn more about our Oracle Commercial Advisory Services.

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