On June 22, 2021, Oracle announced its new Oracle Support Rewards program, a savings program that allows customers to reduce their software license support cost while accelerating their migrations to the cloud. Under this program, all Oracle technology license support customers can earn at least a 25% reward for each Oracle Cloud Infrastructure (OCI) Universal Credit they purchase and consume. Oracle customers with an Unlimited License Agreement (ULA) can earn up to a 33% reward for each credit purchased and consumed. These rewards automatically get added to customer’s OCI console each month.
Oracle has been offering support credits unofficially to customers migrating from on-premise to cloud for a while now, but Oracle Support Rewards seems to make it an official program that Oracle can now market as an added incentive to move customers to the cloud. However, with Support Rewards as an official program, it is crucial for customers to read between the lines in order to ensure they get the most out of their accrued rewards. There are some key facets to consider in order to take full advantage of the program.
Key Aspects to Consider with Oracle Support Rewards
1. Reward Limitations
Oracle Support Rewards can only be applied to on-premise Oracle technology license support fees. This means customers cannot take advantage of the Support Rewards program for on-premise applications support fees. For example, if your organization is consuming $1M on OCI, the support reward earned cannot be applied to reduce your Peoplesoft support fees by $250K. Instead, you could apply the support reward to your database and other Oracle technology product support fees.
2. Support Rewards Accrual Model
Under the program, Support Rewards accrue on a monthly basis as OCI credits are consumed, not when those credits are purchased. Oracle’s greatest growth in OCI has come from the expanded demand driven by their customers once they begin using OCI. Therefore, Oracle has an incentive to ensure customers begin using OCI before rewards accrue so that Oracle can continue to benefit from this growth.
Mark Hurd highlighted this growth phenomena a few years back regarding Universal Credits. He explained that Oracle would start by signing a customer to a small deal where they would move a small workload over to OCI. Once the customer saw the performance, they would decide to move more workloads over, increasing a nominal spend into the hundreds of thousands of dollars range.
Therefore, it greatly benefits Oracle to not just sell OCI credits, but to have customers consume them, thereby generating demand for the purchase of more credits while still incentivizing the customer with Support Rewards as a bonus.
3. Reward Validity
Oracle Support Rewards is a ‘use it or lose it’ program. Support Rewards can only be applied to pay for any “open invoice” for technology support fees. Additionally, the rewards are only valid for 12 months from the date they accrue. The burden is on the customer to track their rewards and apply them to their technology support open invoices. Otherwise, they risk losing rewards that remain idle in their OCI console.
4. What Workloads Can Accrue Rewards
Any workload that runs on OCI, Oracle or otherwise, can accrue rewards. This means you can run third-party applications on OCI and still accrue rewards to be applied to your on-premise Oracle technology support fees. By allowing any workload to accrue rewards, this enables Oracle to have a greater share of a customer’s applications and workloads running on OCI, thereby generating more fees for Oracle.
Additionally, over time, Oracle can try to offer incentives for a customer to migrate some of those third-party applications to Oracle cloud applications. All Oracle cloud applications already run on OCI and there is no other option for customers when it comes to Oracle’s SaaS offerings. The challenge for Oracle will be to displace third-party applications by getting customers to migrate to Oracle’s SaaS solutions that only run on OCI. That way, the OCI fees are already baked into the SaaS fees, and Oracle is essentially paying itself for the use of OCI.
In essence, there are the fees for the business software applications and the fees for the infrastructure and platforms that the software applications run on. Since Oracle has software, infrastructure, and platform services, Oracle gets it all when customers run Oracle SaaS.
The Potential Catch
The discount percentage applied to purchasing OCI credits can be negotiated. With this type of program though, many customers may not think to negotiate and will just pay the rack rates since they are already getting a corresponding support fee reward. Therefore, Customers run the risk of overpaying for OCI credits.
Your initial deal sets a precedent that becomes more challenging to negotiate in the future. Since many customers start off with a small purchase to see how well OCI works, they run the risk of getting hooked on OCI at rates that may not be competitive as their consumption grows. Additionally, as their consumption grows, their negotiation leverage is significantly reduced because the level of effort and fees involved in switching to another provider is often cost prohibitive. This creates vendor lock-in, which Oracle is well aware of, and it enables their margins to greatly improve over time.
Oracle Support Rewards is another incentive Oracle is offering to push customers towards their cloud services. While this program can provide meaningful technology support fee savings, it is not without its caveats and conditions. Our recommendation is for customers to independently evaluate the benefits and value of OCI and negotiate your OCI deal separately, without factoring in the Support Rewards program. If the value and deal still make sense, then the Support Rewards program will be a nice added bonus.