Oracle’s Cloud Incentive Programs: Sweet Nothings?

The pressure on Oracle to raise its cloud revenue is intensifying.  Heightened competition in the market, with providers like AWS in the lead, is making it more difficult to attract cloud customers.  Oracle appears to be struggling and analysts believe its change in financial reporting is an attempt to mask poor cloud performance and low customer adoption rates.

Customers who haven’t yet migrated to the cloud are Oracle’s biggest opportunity for increasing cloud adoption.  There are many tactics Oracle uses to motivate its customers to make the move but they haven’t been as effective as Oracle needs them to be.  In late 2017, Larry Ellison announced Oracle’s Universal Cloud Credit program and a Bring Your Own License (BYOL) program to PaaS.

Oracle is hoping these programs, combined with its new Oracle Cloud Infrastructure and Autonomous Database, will help course-correct the direction of their cloud business and help them directly compete with AWS’s offering.  Both programs introduce increased flexibility for cloud customers with the promise of reduced overall costs and improved performance.

Here we will highlight the key benefits of both programs, some of the necessary requirements to access them, and some potential downsides you should keep in mind.

Universal Cloud Credits 

Universal Cloud Credits is a flexible buying and consumption program for IaaS and PaaS cloud services only, not SaaS. This program provides customers with higher discounting as their cloud usage increases.  Discounts vary but can reach as high as 60% off Oracle’s Cloud Services rate card.

There are two purchase models in this program to choose from:

1. Pay As You Go (PAYG)

With this option, customers are billed in arrears based on actual monthly consumption.  Oracle recommends this for organizations who can’t predict their monthly cloud consumption because they are trying new services or expect to scale in the future.

This is the pricier option of the two, but it does offer greater flexibility since you don’t have to commit to a minimum monthly spend amount.  However, it isn’t meant to be a long-term solution. This option is ideal for prototyping and initial adoption, but once you can accurately forecast a minimum monthly consumption amount, it becomes more cost-effective to move to the next plan.

Since this model provides little pricing predictability, we recommend that you obtain full transparency into the pricing and consumption thresholds for the different pricing tiers.

2. Monthly Flex

This is the model that Oracle is pushing the hardest as it provides them with greater revenue predictability due to the minimum monthly spend commitment for at least one year.  Under this model, customers need to forecast the types of services and associated volumes they expect to use each month, price this out based on the discounting tiers, and commit to this minimum monthly spend amount for at least one year. It also provides more flexibility by allowing customers to use the cloud credits on any IaaS or PaaS services.  Those cloud credits can be purchased based on an hourly rate card.  If you don’t use your credits within the month, you lose them.  However, if you believe you may not use the full value of your credits, you can use those credits for any other IaaS or PaaS service that month.  There is no commitment to use the credit amount on specific services or volumes for a particular service, just a commitment to the monthly spend level.

There is a $1,000/month minimum commitment for this model, and discounting does not begin until you reach the $5,000/month commitment level.  It goes up from there based on higher monthly commitments and term duration.  The discount level achieved will apply to the entire cloud services rate card for the duration of your term, so you can use your cloud credits across any and all of the IaaS and PaaS services, hence making them universal.

Though this model is less expensive than the PAYG model, it is really intended for organizations with predictable monthly consumption rates.  If you buy too much, you may have gotten a better discount but you’re still losing out on those credits you didn’t use.  Though if you’re nearing the end of the month and realize you’ll have leftover credits, you could always use them towards another solution for a different project.

There are two areas of caution for this model.  First, if you exceed your usage level in a given month, you will have to pay for the overages, which will be priced in accordance with your discounted rate card.  Second, if you think you’ll have unused credits and decide to use them on an additional service or a new workstream or project, it becomes very easy to increase your spend as you increase your cloud footprint.  This is Oracle’s goal, to have customers try their cloud services, hopefully realize value, and then have a model in place that makes it very easy to seamlessly expand their solution footprint and increase spend levels.  We recommend customers adopt a disciplined approach when using Universal Cloud Credits.

Bring Your Own License (BYOL)

This program allows customers with existing on-premise licenses to use those licenses for Oracle IaaS and PaaS.  Originally, PaaS included compute and compute support, automation, and license entitlement and license support.  Under BYOL PaaS, you can bring your current license entitlement and license support and only have to pay additionally for the compute and compute support, and automation.  In other words, you don’t have to waste your previous license purchase to move to the cloud.  This program applies to both Oracle’s Public Cloud and Cloud at Customer.  However, keep in mind that you’ll still need to continue to pay your annual support fees for on-premise licenses that you bring to PaaS or IaaS.  This program does not apply to SaaS.

Both Universal Cloud Credits and BYOL programs are meant to incentivize customers to speed up their timeline for willingly moving to the cloud on their own by providing options for reducing costs and increasing flexibility.  But what if you don’t want to take advantage of these programs and are reluctant to adopt these cloud solutions in a timeframe acceptable to Oracle?  In this scenario, we are seeing Oracle incentivize, or perhaps coerce, customer cloud adoption via audit threats and other aggressive sales tactics.

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