Over the past year, Oracle cloud customers have started to inquire on Oracle Fusion ERP. What’s Oracle’s Fusion ERP strategy? What do its pricing and commercial terms look like? How should my organization approach Fusion ERP negotiations?
Oracle’s performance and strategic goals are a critical element for customers to understand as they prepare for their Fusion ERP negotiations. Here, I will cover how Fusion ERP is priced and the key commercial terms to consider that may impact pricing and TCO to help you develop your Oracle negotiation strategy for Fusion ERP.
What is Oracle Fusion ERP and How is Fusion ERP Priced?
Oracle Fusion ERP is a modern cloud ERP suite that provides your organization with advanced capabilities, including AI to automate processes and boost productivity, analytics to react to market shifts promptly, and automatic updates that keep your organization updated on the market. As with any ERP system, it is used to manage daily business activities to ensure the highest level of performance.
Fusion ERP is valued so highly by Oracle because it provides them with predictable revenue growth, creates vendor lock-in with renewal negotiation leverage due to customers’ lack of alternatives, and downstream revenue opportunities. To understand how Fusion ERP is priced, it is important to understand the basics of Oracle’s pricing models:
Oracle Pricing Basics
Oracle’s most common product pricing metrics are the Hosted Employee and Hosted Named User. The Hosted Employee quantity is your enterprise metric – that is where you are going to count all your employees, contractors, and consultants and apply them to products that provide value across your entire organization. The Hosted Named User quantity is your authorized users that are deriving individual value, like self-service ERP or education resources.
Oracle does have their price book published publicly with minimum quantities for certain products. Generally, Oracle subscriptions are annual and payable in advance. Typically, your initial term is either for 3 or 5 years, though we have seen some exceptions. Discounting on your subscription term is dependent on your total list price per pillar. These pillars include:
Tiered volume discounting is not typical for Oracle because they are more aggressive on upfront discounting.
Subscription Schedule Options
Because Fusion ERP deals are made in terms of 3 to 5 years, Oracle often provides a standard schedule during which customers pay the same price each year over the length of their term. For example, if your Fusion ERP deal costs $8.5M over a 5-year term, you are paying $1.7M each year.
However, most organizations should be asking for a Ramped Fee Schedule. On this schedule, prices increase year-over-year as you deploy your solutions. The first year is the least expensive as you are just getting your program off the ground, and your last year is the most expensive as you should be up and running in the cloud.
As you can see in the below example, a Ramped Fee schedule can save you over $1M throughout your:
You end up paying for the value you receive each year as you build out your Fusion ERP environment. But this is not the standard – you must negotiate this with Oracle. Regardless of which schedule you are under all fees are non-cancellable and non-refundable.
4 Key Commercial Terms for Your Oracle Fusion ERP Agreement
The following commercial terms are critical to include in your Oracle SaaS agreements for Fusion ERP:
Product Price Protections
If your organization expects to add products or product volumes to your portfolio in term, having product price protections can provide predictable pricing when adding these quantities or new solution subscriptions.
With Oracle, you always have a price hold for the solutions purchased in your ordering document. If you want to add quantities to the products you already have, those are going to be price protected. What needs to be negotiated are the other solutions that you are not purchasing at the start of your term but you’re considering later in your term.
At the start of your term, you need to negotiate with Oracle to get price protections on additional solutions. Bear in mind that you can’t price lock all of Oracle’s solutions, but you can negotiate the solutions that are relevant to your business that you aren’t ready to commit to in Year 1.
Renewal Term Price Protections
Like product price protections, renewal term price protections provide long-term protection and pricing predictability after the initial term when negotiation leverage may be compromised. It is not like you can rip and replace Oracle for a different cloud vendor’s solution once you are established with Fusion ERP.
Oracle typically increases prices by 3.3% per year for a 3-year renewal term, but if you don’t have price protections in place, that could change. Negotiate what the increase will be for your renewal as well as the duration of those renewal terms.
Remember that you are going to have to renew your Annual Contract Value (ACV) as your exit year. If you decide you want to start reducing quantities or removing solutions during this year, this could invalidate your price protections.
Establishing the flexibility to exchange subscription quantities or solution subscriptions is key to maximizing your subscription value. A very common problem is that many organizations have concerns about being able to predict which solutions they will need over the length of their subscription term.
There are two ways to right size your Oracle portfolio: you can shift spend between solutions within the same ordering document (Rebalancing Rights), or you can terminate a solution within the ordering document and subscribe to a new solution within the same pillar (Termination in Favor).
Shelving allows organizations to “shelve” perpetual licenses and terminate the associated support in favor of replacement SaaS subscriptions. With Oracle, for every $3 spent in new SaaS subscriptions within the same product category you can reduce your annual support fees by $1 and then terminate those licenses.
Understanding the key terms that need to be included in your Fusion ERP deal is critical to achieving long-term value from your subscription term. At UpperEdge, we help customers identify key terms and develop strategic negotiation plans to ensure success. Contact us today to learn how our Oracle expert advisors can help.