Oracle Support Fee Increases: Win Your Next Oracle Renewal Negotiation

Since Oracle’s Q4 is their largest revenue quarter, most of you probably have the majority of your Oracle support renewals sometime in May. Oracle consistently raises support fees 3% annually unless you have support price protections in place.  With the economic impact from COVID-19 this year, you were probably tasked with finding a way to not only avoid the annual support fee increase, but to negotiate support fee reductions.

Perhaps you were also concerned about paying support for licenses that you never deployed or are no longer in use due to downsizing. Your negotiations with Oracle left you frustrated, as they informed you that while you could terminate unused licenses, the support fees for your remaining licenses would have to be re-priced based on current list prices less Oracle’s standard discounting.  Oracle’s proposal showed a slight decrease in your overall support fees, but that was only a fraction of the amount compared to the number of licenses being terminated.

Additionally, you were told that if you experience growth in the future and need to reinstate those licenses, you would be required to pay 150% of the support fees that would have accrued from the date support lapsed through the reinstatement date, which is a hefty penalty.  After careful consideration, you probably decided to pass on this option and ended up grudgingly accepting the 3% support fee increase.

If this negotiation has left you with a sour taste, the good news is that there is a path to gain leverage for your next large support renewal negotiation if you are seriously committed to doing so.  The challenge is you need to begin the process about 9 months prior to your renewal date and it needs to be a priority with your key stakeholders.

Reduce Your Oracle Support Spend

Manufacturing negotiation leverage is all about creating viable options, which in the case of Oracle support means considering third-party support. You are probably aware that third-party support providers will cut your support fees in half for signing up with them.  However, you must first address the challenges associated with third-party support by conducting a thorough evaluation.

• Determine if third-party support providers have the capabilities to provide the level of Oracle support to meet your organization’s requirements.
• Evaluate the cultural fit within your organization: “Will the third-party support provider be able to work well with my company to deliver the service?”
• Request a detailed pricing and commercial term proposal.

Addressing these items requires conducting a full evaluation of the third-party support providers specific to your requirements. You may find that they can provide far superior service compared to your current Oracle support, or perhaps the support services are different but of equal value.  You may also find that third-party support is not a viable option.  But you must conduct an honest and thorough evaluation to make that determination.

The evaluation includes identifying and communicating any areas of concern where you believe third-party support will not meet your requirements and allowing the provider to identify how they can address these concerns. Too many organizations make sweeping generalizations about the quality of support provided, or the need to maintain continuous access to updates from Oracle, or get discouraged by the internal hoops you need to jump through to get executive level buy-in.

Conducting a thorough evaluation allows you to obtain facts on capabilities, cultural fit, and commercial terms. If the facts are compelling enough to demonstrate greater value at substantial cost savings, then executive support should be easily attainable.  But the evaluation process takes time, which is why it is critical to begin about 9 months in advance of your renewal date.

6 Considerations Before Moving to Third-party Support

Every organization has their own unique challenges and concerns, but here are 6 key considerations in evaluating third-party support:

1. Current Oracle Support Utilization – What exactly do you receive today for your support fees? Are you actually deploying all of the Oracle product updates?  Are the product updates providing tangible value, and if so, could there be other ways to obtain the same value?
2. Oracle Support Maturity – Are your Oracle applications and technology products mature and stable? Is Oracle still investing heavily in functionality or technical improvements, or has this investment shifted to Oracle’s cloud offerings?  Is your company a mature Oracle user that knows how to run and manage your system, or do you heavily rely on Oracle for training and handholding?
3. Anticipated Support Requirements – Are you relying on upcoming upgrades to solve critical issues? Does your company have a history of typically deploying upgrades as they are released, or are you running older versions?  Do you have customizations that are unsupported by Oracle?
4. Third-party Support Capabilities – Do they have the expertise and experience to meet your support requirements, including support of any customizations that are unsupported by Oracle?
5. Oracle Relationship – Does your company have strong ties with Oracle executives that your executives are fearful of straining? Are there any near-term license purchases on the horizon that could be negatively impacted by switching support providers?  Are there concerns that an audit may reveal non-compliance scenarios resulting in substantial fees? Are you considering migrating to Oracle’s cloud offerings within the next 3 years?
6. Cost/Value Equation – What is the delta between the cost/value of third-party support compared to what you are currently receiving from Oracle today?

As a bonus, there are scenarios where moving to third-party support can cut your support fees by greater than 50%; if you employ the right negotiation strategy.

If third-party support is a viable option for your organization, you have now created an opportunity that provides you with leverage in negotiating with Oracle – assuming your organization would still be open to remaining on Oracle support at a lower cost better aligned with actual value realization.

Allocating a couple of months to complete a full and comprehensive evaluation enables you to prepare for Oracle negotiations 3-6 months prior to your renewal date.  Ideally, you want some time to ramp up third-party support prior to Oracle support expiring to ensure a smooth transition.  In most cases, the third-party support provider will provide this overlap period at no charge.

Pivoting Back to Oracle

With so much time prior to your renewal date, you now have the ability to dictate the negotiation narrative by approaching Oracle early, where you have all the leverage and can apply pressure to Oracle for a change.  Oracle does not like being on the receiving end of pressure, but they do like using high pressure sales tactics to drive you to make purchases according to their desired timeline to meet their goals.  Now you have the ability to reverse the roles and drive the negotiations to meet your objectives by presenting a time pressure offer on Oracle to either agree to lower their support fees or risk losing your support fees altogether.

Obviously, there are many scenarios that can be played out.  But the biggest mistake we continually see is waiting until 30-60 days before renewal with no viable alternatives identified and simply complaining to Oracle about the high cost of their support fees.  This is never a successful strategy and will leave you in the same position and with the same result as prior years.  So consider adding the third-party support option as a potential lever in your negotiation quiver, as Oracle has a history of responding much more favorably to the stick than the carrot.

Post a comment below, follow me on Twitter @jeffrey_lazarto, find my other UpperEdge blogs, and follow UpperEdge on Twitter and LinkedIn.  Contact me at jlazarto@upperedge.com or learn more about our Oracle Commercial Advisory Services.