Why Oracle’s Government Legal Battles Matter for Customers

Oracle’s recent legal battles with the U.S. government have been widely reported.  Here is a brief summary of the two prominent legal battles and what they could mean for Oracle customers.

Oracle Sues the U.S. DoD

First, Oracle filed a lawsuit against the Department of Defense (DoD) alleging the award process for the $10B Pentagon JEDI cloud initiative is unfair and violates federal procurement law.  The nature of Oracle’s allegation is that the DoD issued an RFP for a 10-year cloud contract that they will award to a single provider.  Additionally, Oracle claims that the RFP was drafted in such a way as to favor AWS.

Oracle and other cloud vendors claim that a single vendor approach contradicts well established procurement requirements.  It also goes against best industry practices of a multi-cloud strategy that fosters constant competition, faster innovation, and lower prices. The RFP process closed in October 2018, with an expected vendor award to be made in April 2019.

The Irony is Palpable

Oracle’s contracts and commercial practices are all designed to lock-in customers to their solutions.  In negotiations, Oracle positions that the size of the purchase and the duration of the commitment drive the level of discounting and commercial terms they are able to provide.  For Oracle to now complain about the unfairness and danger for the DoD to award a 10-year cloud contract to a single provider before a vendor selection has even been made, is somehow poetic.

Oracle is getting a taste of its own medicine now that a customer is positioning an award commitment that exactly aligns with what Oracle has claimed to be the best way to ensure the best pricing and most competitive commercial terms.  The only difference is that Oracle is now on the outside looking in and getting a taste of what their competitors have felt for years.

Also enlightening is the fact that Oracle filed this complaint shortly after the RFP was issued and months before a vendor award will even be made, presumptively admitting defeat to AWS.  For all the bluster Larry Ellison and Mark Hurd have made about how much faster, secure, and cheaper Oracle’s cloud solutions are and how poor AWS is, along with Oracle’s deep and long relationship with the federal government (including Co-CEO Safra Catz serving on President Trump’s transition team after he won the election), this has the potential to be a very stinging loss for Oracle.  The public sector has long been an industry where Oracle has been a leader, and an award decision to AWS could also serve as a symbolic moment for Oracle’s cloud adoption struggles to date.

The U.S. Department of Labor Points the Finger at Oracle

The second legal battle is with the U.S. Department of Labor, who is suing and accusing Oracle of pay discrimination, totaling $400 million in wages, against women and minorities dating back to 2013.  This is a serious allegation for a few reasons:

1. Public Perception

In today’s social media world and the activism of social justice warriors, public judgment on social matters is often determined at the time of the allegation, with the defendant having to prove their innocence:  Exhibit A being the Brett Kavanaugh confirmation hearings. Before any factual evidence was presented, people on both sides had already made up their minds with respect to his guilt or innocence.  Wage discrimination is a hot button topic that will also be a significant political issue in the upcoming 2020 Presidential election.  Billionaire Larry Ellison and Oracle are right out of central casting to be the poster child for this issue.  Oracle has nothing to win and everything to lose from a public relations perspective.

2. Hiring Talent and Customer Growth

We are already seeing employees in the technology sector not wanting to work with the federal government or anyone else that they perceive to be part of the social justice problem.  Employees are exerting pressure on executive management to forego government contracts that could be used to support issues with which they do not agree, like a boarder wall or military defense.  This type of issue could impact Oracle with respect to hiring talent — and customers could also get pressure to no longer do business with Oracle.

3. Government Contracts at Risk

If the allegations are proved to be true, which is a long way from being determined, then Oracle’s discrimination would be in violation of federal law and Oracle would be in breach of all of its public sector contracts.  While Oracle does not report revenue by industry, it claims to be a leader in the public sector which would account for a meaningful portion of its revenue.  A breach of these contracts, especially in such a widely reported public manner, would have Oracle resources scrambling to remedy and maintain these contracts.  Customers in other industries that do business with the government also typically have clauses in their supplier contracts with an obligation to remain compliant with federal discrimination laws.  Therefore, these contracts would also be at risk resulting in a domino effect.

Overall – What Does This Mean for Oracle and its Customers in the Short Term?

In a word – pressure!  While Oracle will do a great job of maintaining a calm and confident outward appearance, internally there is now even more pressure to close cloud deals and demonstrate migration of its installed customer base.  With Oracle already far trailing the cloud market and Wall Street’s skepticism of Oracle’s ability to start winning market share, we expect the company to put on a full court press to drive cloud deals before their 2019 fiscal year-end of May 31st.   Analysts will also be looking to see if these lawsuits are impacting Oracle’s execution ability in the short-term, while sizing up the potential long-term impact this could have on Oracle.  The only way for Oracle to combat this is by closing deals to demonstrate these legal battles are not impacting customer adoption and revenue.

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