Autonomous Database: How Oracle is Seeding its Customer Base

Oracle claimed significant growth with its Autonomous Database on its Q4 earnings call.  Since Oracle no longer separately reports its cloud revenue, we will have to take them at their word, even though their overall revenue growth was only 4% in constant currency for the quarter which includes its annual 3% support fee uplift across its customer base.  However, Oracle did share some interesting information regarding Autonomous Database that is worth noting for customers.

Key Database Options Necessary to Run Autonomous Database Services Grew by 21%

As Larry Ellison explained, in order for a customer to receive the Autonomous Database service, they need to purchase a database license or bring their own prior database license to Oracle’s cloud, plus purchase the Multi-Tenancy and Real Application Clustering (RAC) options.

Active Data Guard is Required to Receive SLAs

This one’s a bit sneaky as customers naturally expect to receive SLAs with any cloud subscription.  But Oracle requires the purchase of another option in order to receive SLAs, making it difficult to determine if there is market demand for Active Data Guard or if it’s simply a sacrificial purchase customers are making to receive the SLA.

As you can see from these first two items, Oracle is requiring additional options to be purchased in order to receive the full value of the Autonomous Database service.  This, in turn, leads to higher sales figures, not necessarily due to market demand, but manufactured as a result of Oracle’s licensing rules.

40% of Autonomous Database Sales Resulted in Pull-through Analytics Sales

Mark Hurd talked about when they are able to win with Autonomous Database, not only are the two options above also being sold, but customers are also purchasing Oracle’s Analytics solution.  This is important for Oracle to demonstrate to the market that their focus in pushing the Autonomous Database is not just a one-off sale, but a driver for pull-through or add-on sales.

20% of Autonomous Database Wins Were Net New Customers

This is a very good sign for Oracle to demonstrate that the Autonomous Database is gaining market adoption.  What is unclear, however, is the workloads these net new customers are putting on the Autonomous Database.  These could be small workloads being used in more of a trial basis which may or may not lead to future adoption for other workloads, or they could be new customers looking to use the Autonomous Database for many of their critical applications.

40% of Prior Customers Purchasing Autonomous Database are Doing so for New Workloads

This one is very interesting.  We have seen customers being incentivized with greater discounting for purchasing their on-premise license requirements if they also agree to include a cloud purchase.  This can be very different than true Autonomous Database adoption, as evidenced by the fact that they are maintaining their previous Oracle database licenses for their current workloads, and only using the Autonomous Database for other workloads to either get the better discounting for their on-premise licenses, or using it on a trial basis to better make a value determination before making a full workload migration.  This is an area we just won’t have visibility into as there is no way of knowing the rationale behind each customer purchase nor what type of commitment a customer is actually making.

Two Ways of Forecasting Autonomous Database Growth

This ‘share’ from Oracle was very revealing.  The traditional method is with quarterly sales forecasts for new licenses or bookings tied to annual plans.  This is typically based on current sales pipeline, historical sales cycle duration, and win rates.  The newer method is looking at consumption rates.  Oracle now has real data on consumption rates for Autonomous Database because it runs in Oracle’s cloud and they need to forecast adding capacity which might require cash outlays.  So, Oracle tracks consumption rate data closely.  Mark Hurd stated how they are seeing signals of much faster Autonomous Database growth in the form of increased consumption from existing customers than they are from net new sales forecasts.

Seeding the Customer

Larry Ellison gave an example of what they are seeing from some customers, where they might be starting a small project for around $30K, but over the ensuing months this grows to $120K and to potentially $500K as the scope of the project grows and consumption increases over time.  What this means for customers is that you need to be careful before signing up for Autonomous Database or any Oracle cloud service.

Oracle has a long history of incentivizing customers with a small purchase to get them hooked, maybe even offering what appears to be an incredible initial purchase price.  But the challenge for customers is the downstream pricing risk and that is where Oracle more than recoups any initial discounting they had to provide to seed the customer.

Smart customers will not sign up for any Oracle cloud services without taking a holistic approach and negotiating a comprehensive cloud agreement that includes pricing and other material commercial terms that provide downstream cost visibility, protection, and predictability.  At a bare minimum, this should include discounting protections for increased capacity, additional cloud add-on services, and renewals.  Remember, Oracle needs to demonstrate cloud adoption and their Sales staff are incentivized to do so.   But once you sign up for Oracle’s cloud services, your future negotiation leverage is compromised and lessens over time as you expand your cloud footprint and reliance on Oracle.

Keep in mind that while you can purchase Universal Cloud Credits that can be used for any IaaS or PaaS services, they cannot be used for SaaS.  Further, Oracle’s SaaS is broken out into different pillars, with the discounting for each pillar having to be separately negotiated based on the committed spend levels within each pillar.  In other words, Oracle has migrated and expanded their byzantine licensing and discounting policies to its cloud offerings.  Pricing is not determined based on what customers need unless you want to pay full list price; rather, it is based on how much a customer is willing to spend and the duration of the commitment.  Come renewal time, pricing may be determined by how much leverage a customer has to switch to a competitor solution.  We are already seeing significant renewal price increases with cloud service providers once a customer has stopped expanding their cloud footprint with that provider.  Therefore, it is critical that customers take the time to negotiate a comprehensive agreement structure that enables them to migrate to Oracle’s cloud solutions over time without being unduly burdened with unanticipated downstream costs.

Oracle also noted that just in Q4 they added over 5,000 new Autonomous Database free trials in their Gen2 public cloud.  While this may be a great way for customers to evaluate Autonomous Database, it can lead to a loss in negotiation leverage and poor siloed decisions being made by individual business stakeholders.  Be wary of Oracle planting a small seed that can quickly grow out of control.

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