As a follow-up to our article describing Oracle’s three on-premise licensing models, there is another significant factor that is impacting these deals lately, and that is Oracle’s aggressive push to increase its Cloud Subscription Agreements.
After watching companies like Salesforce, Workday, and other cloud providers experience tremendous growth and high business valuations, the large software providers have taken notice and are aggressively joining the party. Cloud revenue is a big buzzword these days for SAP, IBM, Oracle, Microsoft, and the Wall Street analysts covering the technology industry. As we have previously written, these vendors are salivating over the cloud.
So if you are a traditional on-premise Oracle license shop, how does Oracle’s cloud impact your license deal? Well for starters, Oracle has changed its sales compensation plans to highly incentivize its sales representatives with much larger bonuses tied to achieving cloud revenue quotas, as this translates into Oracle achieving higher revenues over the life of the deal. So your Oracle sales representatives have the support and incentive from Oracle corporate to find ways to sell you cloud solutions, even if you are not interested in the cloud.
Oracle’s approach is two-fold.
Oracle is now packaging discounted and more compelling deals that include some type of cloud subscription.
If you need to purchase additional on-premise licenses to account for growth or perhaps an incremental expansion of your Oracle footprint, you will find those deals now bundled with cloud subscriptions. Oracle is willing to provide much better discounting and more appealing commercial terms if a cloud subscription is included. In many ways, it is similar to the cable companies that have better pricing for bundles that include cable, internet, and phone, even though you may not want the phone service. I recently experienced this situation and ended up with the full bundle as the promotional price for the next 2 years was significantly less expensive than getting just cable and internet services. There are customers choosing to not even use the cloud service and may end up not renewing their cloud subscription when the term expires, but they are selecting the cloud package deal simply because it is more cost-effective compared to buying just the on-premise licenses alone.
Oracle is using aggressive audit tactics or out of compliance claims to persuade you to include a cloud subscription.
In limited circumstances, if the audit claim is not settled in a timely manner, Oracle may issue a breach of contract notice requiring customers to cease using all of their Oracle software licenses within 30 days. If you are a customer who is not looking to make any additional on-premise purchases and are content running what you currently have licensed from Oracle, there have been situations where Oracle has raised out-of-compliance issues that could subject you to an audit in hopes of persuading you into a cloud subscription. In some cases, the compliance claim may be completely accurate and substantiated. However, some clients have stated that the compliance claim appears to be falsely manufactured, where Oracle has been either unable or unwilling to substantiate the claim through the terms of their licensing agreement after being asked repeatedly to do so.
So regardless of your company’s requirements, desire to use the cloud, or value of the cloud solutions to your company, Oracle has a plan to force your hand to achieve Oracle’s goals. We have seen similar tactics using audit claims based on vague licensing policies subject to many different interpretations from other vendors such as SAP. These tactics are usually used as a means to drive additional revenue, irrespective of providing customer value. This has been a consistent knock on all the large software providers. The challenge for large software providers is that they simply need more and more revenue, and if customers do not see the value of their products or are unwilling or unable to make these additional investments according to the vendor’s timeframe, then the vendor will resort to these tactics to drive that revenue. Either way, the vendor’s perspective is that they are entitled to that revenue and will get it one way or another.
In summary, if you are an Oracle customer but do not have some type of Oracle Cloud Subscription; expect a call from your Oracle sales representative. If handled properly with enough advance planning, you can use Oracle’s thirst for cloud revenue as leverage and an opportunity to obtain a very compelling deal with meaningful price and commercial concessions from Oracle.
We have a wealth of experience advising clients on how to determine and secure the best licensing model with Oracle and would love to receive your feedback and thoughts. Please do not hesitate to post a comment. You may also contact me directly at [email protected] if you would prefer a more discrete discussion regarding your specific circumstances.