Oracle publicly launched its Autonomous Database over a year ago, with Larry Ellison trumpeting the huge technological advantage Oracle has in the database market and how this is the only autonomous database in the world. On Oracle’s recent Q2 earnings call, Mr. Ellison elaborated on the Autonomous Database’s benefits and their go-to-market land and expand approach.
Technological Advantage and Growth
Oracle has stated that their database business is growing rapidly due to their technological advantage and that they expect to double or triple their current database business at some unspecified point in the future. The benefits for customers are that the Autonomous Database configures itself without any downtime, thereby eliminating the need to schedule it for releasing updates and patches, as well as any human configuration errors since bots do all the configurations.
The Autonomous Database is self-correcting and has bots always looking for security vulnerabilities and then patching them, thereby removing human labor and errors. This provides customers with peace-of-mind knowing that their data is secure since the Autonomous Database is continuously monitoring and repairing any detected security flaws.
Additionally, Oracle offers the Autonomous Database Gen 2 Cloud at Customer, which allows customers to be on Oracle’s public cloud but behind the customer’s own firewall in their own datacenters. With the Gen 2, Mr. Ellison claims it only took four days to install for a recent customer and that they expect to get the install time down to just one day.
Ellison claims that Oracle has thousands of customers running the Autonomous Database and that they just added 2,000 more customers in Q2 which ended on November 30, 2019.
Oracle’s Fusion Cloud ERP also runs on the Autonomous Database, so as their cloud ERP applications gain adoption, it will also result in database growth. Oracle claims to have an enormous pipeline of opportunities with an ever-improving conversion rate. While the product is only a year old, Ellison has stated that the Autonomous Database adoption rates could make this the most successful new product launch in Oracle’s history – that’s a bold statement in setting expectations with Wall Street!
Market Approach – Land and Expand
One of the more interesting comments Ellison made was the way he explained preferring to sell a $30,000 deal over a $100,000 deal, because they can close the smaller deal in roughly a month, presumably because they are able to avoid the more lengthy negotiation and approval process posed by a much larger deal. These smaller deals provide an initial landing point that allows a customer to start using the Autonomous Database and seeing firsthand all the wonderful benefits. This would typically be for some relatively small project, but then the customer would want to use the Autonomous Database for other projects and workloads, thereby expanding their usage metrics over time.
Ellison claims they are just starting to see customers going from a $30,000 monthly spend to a $600,000 monthly spend. This would align with previous claims made by Oracle, citing that their biggest growth was not in landing new customers (although clearly very important and they claim to be adding net new customers), but by the rapid increase in usage metrics from current Autonomous Database customers.
If you ever worked with Oracle, you are very familiar with their transactional approach to business. This means they try to base pricing and commercial terms in accordance with the size of a customer’s committed spend amount on a deal by deal basis. Spend amounts are influenced by the number of products in the bill of materials, the associated volume usage metrics, and the duration of the contractual term.
The challenge for customers is that these small deals are not being negotiated holistically from the perspective of a long-term strategic relationship. Customers will view them as a one-off deal when the likelihood is that if the Autonomous Database meets or exceeds a customer’s expectations, this initial deal really represents the very beginning of a long-term investment that will continue to expand over time.
Since these initial deals are relatively small and not subject to much oversight or scrutiny, they are not properly negotiated to secure competitive pricing and commercial term protections reflective of the much larger opportunity. Therefore, as usage metrics increase and the customer expands their footprint into other Oracle technology products (such as the Autonomous Data Warehouse or Autonomous Transaction Processing), they end up paying higher prices based off the precedent set by the smaller $30,000 deal.
Customers can certainly negotiate better pricing at the time of their expansion, but they have already lost a ton of leverage as Oracle is well aware of the demand from business stakeholders who are seeing the many benefits of the Autonomous Database technology. Oracle is very disciplined in its selling approach and maintaining leverage on downstream opportunities. Once Oracle sees they have the customer wanting to buy more with no real alternative since they offer the only autonomous database product in existence, they are unwilling to offer much in the way of additional discounting or improved pricing. Oracle may also not have provided transparency into volume discount pricing on the initial deal, so that now a customer has no idea what this expanded volume discounted pricing should look like or if it’s competitive.
Additionally, you have renewal term pricing, which if not properly negotiated, could subject customers to significantly higher prices on subsequent renewal terms where their negotiation leverage is even further compromised.
Recommendations for Customers
- First, understand the dynamic explained above and realize that you need to ensure your initial Autonomous Database deal includes pricing and commercial terms that align with the overall potential future opportunity, not just the initial transaction. Pricing transparency is the key here.
- Second, understand what a highly competitive pricing and commercial deal construct looks like, which you can get your arms around by doing your own research or by hiring a third-party advisor for benchmarking information.
- Third, utilize the negotiation leverage that exists during your initial deal to secure a highly competitive deal construct. This calls for a well-defined and proven negotiation strategy and communication approach designed to maximize your leverage prior to making any purchase commitment. This will enable you to obtain not only initial competitive pricing but future pricing protection that aligns with any future growth and footprint expansion you may have.