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Oracle licensing: A question of trust

Oracle's licensing model is similar to SAP's in several ways. Users of Oracle applications, such as E-Business Suite, must pay a fee based on various business metrics, and also must have the appropriate number of named user licences, what Oracle calls "End User Plus," for most people who work with Oracle software.

Oracle's technology products, such as the database and Fusion middleware, are priced differently. With these products, Oracle mandates processor-based pricing models. Virtualisation further complicates Oracle's processor-based licensing model, especially considering the differences that Oracle recognises between "hard" partitioning and "soft" partitioning. Servers virtualised using Xen-based OracleVM on x86 or Sun's LDOM T-series hypervisor-based OracleVM on SPARC can get the discount of "hard" partitioning.

According to Oracle, every other hypervisor - including other Xen-based hypervisors - can deliver only "soft" partitioning. Here's the catch: "soft" partitioning customers must license the Oracle product for all of the cores on the server, regardless of how many are actually used to run the Oracle application.

Oracle's software licensing model is "one of the most convoluted and complex" models in enterprise software, says Dave Blake, president and CEO of UpperEdge Consulting, which advises clients in enterprise software licensing issues. Some of that complexity stems from the acquisitions that Oracle has made over the years. Those models haven't been shifted to a company-wide standard, he says.

"Where their level of complexity comes in is how they tend to stray from their public list prices and metric pricing," Blake says. "I think Oracle has done a pretty smart thing outwardly facing, as far as declaring that they're fully transparent to the market by posting their list prices for their applications as well as their technology products to their website. Anybody with a web browser and an internet connection can go and download those list prices.

"Where complexity comes in, on the transaction side, is they tend not to present or propose standard template transactions that are based on those list prices," he says. "It's a little bit of a shell game in the sense that they publish their list prices, but 90 per cent of the transactions that we see tend to have custom bundles, custom quotes.

"They develop custom bundles or custom enterprise bundles for their respective pricing which then allows them basically to throw out the price book."

Aggressive business practices on the spot

The business practices of Oracle's sales team raises other concerns for Oracle customers. For example, Oracle is known to price entire custom bundles according to a single business metric, says Jeff Lazarto, an UpperEdge principal. "The challenge for companies is that, as their revenue increases, whether that's related to the value they receive from the Oracle products or not, they're now subjected to additional licence fees as their revenues grows," Lazarto claims. "Not only that, but their maintenance fees increase as well."

By and large, Upper Edge has found customers to be happy with their Oracle products. Products such as Exadata are driving real value into businesses, but what causes fear and uncertainty among Oracle customers are the licensing agreements, Lazarto says.

The inability to modify some of the existing licence agreements - to terminate licences or maintenance for individual products in a bundle - is another thorn in the side of Oracle customers, Lazarto says. "It's an all-or-nothing scenario," Lazarto says. He admits: "They do grant you the licence to terminate, I'd say, three products you didn't deploy out of 20, per their agreement and their policy. But then they have the right then to go back and re-price all of the remaining products, because in essence, you broke up the bundle. So they need to re-price what's left of the bundle, and re-price maintenance as well."

Oracle sales people have also been known to encourage customers to change their licence metric when renewing maintenance, Lazarto claims. For example, the Upper Edge consultant shared the story of a long-time Oracle database customer who licensed the product on a per-user basis (a very favorable licensing method), but said they were convinced to change their licence model to per-core pricing - Oracle's current method of pricing its database - during maintenance renewal negotiations.

"Oracle uses a very heavy-handed negotiation to get people to change their licence models," Lazarto claims. "I'd say one of the common complaints [from customers] is they just feel they're locked into Oracle at times. It's very difficult to break out of it."

That lock-in is a source of enormous revenue for the $37bn software giant. Oracle famously charges new application customers an annual maintenance fee equal to 22 per cent of the initial licence value. These maintenance fees are recorded in the "software license updates and product support" accounting bucket, which brought Oracle $4.2bn in its third quarter of fiscal year 2012, or 47 per cent of its total revenue. Oracle executives have referred to the maintenance revenue as its "birthright," but it's not always cigars and rye for its customers.

Blake recommends that Oracle and SAP customers read their licence agreements closely, make careful note of access rights, and do not be afraid to demand better terms from the vendors. In many cases, getting input from licensing experts, or even using software, may reduce licence expenditures significantly, and reduce the risk of unbudgeted increases and nasty little surprises going forward.

Oracle and SAP have compelling software, but it comes at a cost that may not be apparent at first blush. "If you listen to the press from Oracle and SAP, what they're touting is that they're being more open, they're providing more information to their clients and that the complexity of their models their pricing decreasing and simplifying," Blake says. "What we're seeing in fact is the exact opposite. Their models are getting more complex, and they're getting further complicated by various deployment models."

Oracle could not be reached to comment for this article.®

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