- Jeff Lazarto
- Reading Time: 5 minutes
We recently reported on Oracle’s change in financial reporting. Many analysts are speculating that the timing of this change, and the fact that Oracle is being evaluated based on its cloud growth, suggests that it may have something to hide. Based on what we have seen and heard from Oracle customers over the past 12-24 months, we believe this indicates that Oracle is trying to mask poor cloud performance and low customer adoption rates.
Relationships
There is really no other way to say this — Oracle is not very good at them. Oracle has never seemed to care much at investing in customer relationships other than when it wants to sell something. This pattern of behavior is very transparent to customers over the years as they rarely, if ever, hear from Oracle except when Oracle wants more money. They have shown very little concern for their customer’s business requirements, budget and timing constraints, and have adopted a very ‘me first’ attitude.
Oracle’s approach to audits, its annual 3% support fee increases, and its inflexibility to terminate licenses that are no longer in use along with the associated support, further demonstrates this. It has adopted an air of entitlement to the support fee revenue stream irrespective of customer value. When taken as a whole, customers rightfully feel that Oracle does not care about them. This is also demonstrated in the very transactional approach Oracle takes with respect to sales negotiations and their internally created pillars.
Over the past 13 years, when I speak with a client for the first time about a particular vendor, I ask them about their relationship with that vendor — if they like the vendor and feel they are receiving the expected level of value. I am yet to find one client who has said they liked Oracle. They might appreciate the technology or the value the solution has provided, but when it comes to the people they interact with at Oracle and the overall relationship with the organization, the most positive answer I have heard is, “We don’t like working with them, but we have to, so we make the best of it.” And many times, their response is much worse than that.
Customers feel as though they have been treated poorly by Oracle over the years, so why would they want to migrate their solutions to Oracle’s cloud services and provide Oracle with even more negotiation leverage and opportunity to take advantage of them? Relationships matter — and Oracle’s poor customer relationships are hurting their cloud migration sales goals.
No Application Innovation – No Compelling Business Case
Oracle is not really an application company — they are a technology company that acquired their way into the application space for profits. Think about it. When was the last time Oracle announced something truly innovative with one of the many application companies they have acquired over the years? I can’t think of one either.
Oracle is a database technology company and their success was created by having the best database in the world. But all of their applications have come through acquisition in an effort to buy market share and capitalize on the recurring support revenue stream. Most of the innovative talent that built those applications eventually left Oracle and moved on to new challenges at other start-ups, like Workday. Application innovation is just not part of Oracle’s core culture.
Oracle claims to be the only complete cloud ERP provider. They achieved this by rewriting all of their on-premise applications to work in the cloud allowing customers to do the same things they do today but now in the cloud. Where is the innovation in that? If a customer is going to take on the cost, time, and business disruption to migrate their on-premise applications to the cloud, they expect new features and functionality that will provide greater value to their business to justify the move. In speaking with many Oracle customers, other than the fact that the cloud has the potential to cost less to operate and maintain, Oracle has been unable to provide a compelling business case for migrating.
Poor Cloud Application Performance
Customers who have adopted Oracle’s application cloud solutions (SaaS) have had many challenges realizing the performance that was promised. Some customers have said that their deployed solutions were not stable or did not work as advertised. In other cases, customers who were still in the evaluation stage found Oracle’s product demos to be unconvincing. We have worked with customers that have deployed Oracle’s SaaS applications for a number of years and we have yet to hear a success story that did not require much more work than anticipated just to get the system running in production and stable, let alone delivering the expected business value.
Cloud Deals Manufactured by Duress
This does not apply to every Oracle cloud deal for sure, but Oracle’s policy of providing sales quota relief only on cloud deals has led to the deployment of very aggressive sales tactics. Over the past 12-24 months we have seen the following scenarios:
Audit or Threat of an Audit
Oracle claims there is a potential compliance issue that will cost the customer millions of dollars. This can be done either after an audit has been completed, even though the compliance claim may be in dispute, or prior to initiating an audit based on some sort of claim that Oracle believes there is a compliance issue. Oracle creates a big fuss and may even threaten to terminate licenses or launch into a full-scale audit unless the fees are paid immediately. Then the Oracle sales rep steps in and says they can significantly reduce the compliance fees owed or eliminate the audit if the customer makes a purchase that includes some sort of cloud service.
Incremental Growth Purchase
A customer has experienced organizational growth and needs to purchase additional licenses to account for an increase in users or in business metrics. Since Oracle deploys a very transactional approach, the initial offer for on-prem licenses is not very competitive. Since the purchase is due to account for growth, the customer risks an audit if they do not make the purchase. Similar to the above, the Oracle sales rep steps in and says they can significantly improve the pricing if the deal includes a cloud services purchase. We have seen a number of customers sign up for cloud services with no intention of ever using them simply because the overall cost was lower when compared to buying just the additional on-prem licenses they required. This is very similar to the cable companies providing a lower overall price if you bundle cable, internet, and phone, even if you have no desire for the phone line.
The issue with these two scenarios is that these deals do not represent customer demand for Oracle’s cloud solutions. Much the way Safra Catz has cited during earnings calls that the increase in support revenue demonstrates customers commitment and value realization from Oracle’s support services (which everyone knows is not an accurate statement), Oracle is looking to use the sales revenue increases as proof that customers are adopting Oracle’s cloud solutions.
These scenarios are what Oracle means when they refer to cloud sales to existing on-prem customers as new workstreams. It is code for an existing customer buying a cloud solution they did not require and that is not replacing a current Oracle on-premise licensing product set. Oracle’s hope is that the customer will use the solution since they have the right to do so and will hopefully find value and renew and expand the service in the future. This is a key distinction between true customer-driven demand vs. a coerced trial period that may lead to demand.
To be fair, we have worked with a number of customers who are replacing legacy systems and have selected Oracle’s cloud services as their replacement solution. But these have largely been net new customers primarily in the small- to mid-size market, as opposed to Oracle’s large installed base or displacement of competitor solutions.
Overall, we are not hearing many positives in listening to Oracle customers and those that have evaluated Oracle’s cloud solutions. In fact, we are hearing the opposite — Oracle customers are looking to either maintain or reduce their Oracle footprint over the next few years. They are also concerned with how Oracle will treat them come cloud renewal time, when their negotiation leverage is significantly compromised. Oracle’s approach to on-prem license support has unveiled who Oracle really is, and customers are leery of doubling down by becoming tethered to Oracle’s cloud solutions.
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