Steven Zolman

Apr. 16,2013

With Oracle's fiscal year end fast approaching this May, many of our clients are considering making Oracle licensing purchases.  One of the most common questions we get is, "What type of license should I buy?"  Just the fact that clients are asking us these questions demonstrates great progress over the last 10 years.  It illustrates that savvy clients know that there can be very significant economic disparities between license types, with literally no loss at all of any business value achieved.  In fact, it's the exact same source code.

To illustrate this point, consider one client who is considering User Licenses vs. Processor licenses.  This is a consideration we often help our clients evaluate.  Due to the significantly high cost of user access, it's generally considered better to license Oracle software by the processor, rather than by the named user.  The "break even" for user access is around 50 users per processor license.  Any applications with more than 50 users per processor license are generally less costly to license by the processor than they are by the named user.  The trick being, not all processors are created equal.  Oracle offers a labyrinth of reasons of why it requires so many more processor licenses to license a seemingly smaller number of processors, namely processors are licensed by the 'cores' and by their respective power ratings, as documented by Oracle.

Super high performance systems that require lots of horsepower but do not have many users are prime targets for license type optimization.  In one case, a group of 300 scientists was using an application that was analyzing terabytes per day of satellite data, and was deployed on systems that required 64 Oracle processor licenses.  At $47,500 per processor, 64 processors cost $3,040,000 of List License Value (LLV).  In this case, Oracle had contractually committed to a 65% discount on software, so the client's out-of-pocket cost was $1,064,000 of Net License Value (NLV) with an annual maintenance stream of $234,080, for five year costs of $2,234,400.

Under the user licensing approach reflecting Oracle’s acceptable user minimum policies, the client had to pay $950 per user for a total of $608,000 of LLV discounted to $212,800 of NLV at the same 65% discount, with a maintenance stream of $46,816 coming to a total five year cost of $446,800, resulting in a savings of 80%.

This is an example of how powerful software licensing optimization can be.  There was no banging the table with Oracle during price negotiations.  There was no arguing about market values or what the discounts should be.  We simply studied the client's needs, assessed the available options, evaluated the financial implications of those options and helped the client make the best cost and value optimized decisions based on all the correct inputs.

So many times, optimization activities drive considerable value in this process beyond what clients think is possible. Imagine in this case, if we had to argue that Oracle should lower its 5-year costs from $2.2M to $446k and we didn't have sound reasoning why. This is what clients do virtually every day, without much success, as this is viewed by the supplier as a friction filled win-lose negotiation. In this case, however, the client comes to Oracle with a configured solution that is right licensed and it’s viewed as an incremental $446k of revenue that Oracle would otherwise not get due to its excessive cost of the processor solution.  Maybe just as importantly from a supplier relationship perspective, this is not viewed as a scorched earth negotiation that results in a 80% loss to what Oracle could have otherwise gotten because either license model is acceptable to Oracle.  As a result, Oracle is all too happy to book this order.

This is just one license type for one supplier.  Imagine when you start looking at dozens of license types, across thousands of software titles per hundreds of suppliers.  The complexities of software licensing optimization can quickly become a daunting challenge with seemingly insurmountable odds.

This is where NET(net) can help.  We've spent the last 10 years working with clients to evaluate their variable inputs to determine how to optimize supplier investments to offer the most business value achieved at the lowest possible cost.  Many clients think of us when it comes to negotiating the commercial arrangement with the supplier, and that is certainly a super strength of ours.  But there is a lot of science behind the actual cost and value optimization process of the underlying technology investments that can have dramatic effects on costs without negotiating anything.

If you have an Oracle licensed environment and you are an existing client of ours, contact us.  Through May, we are offering no risk assessments of your Oracle environment and in a high percentage of cases, there will be considerable savings opportunities that we can help you capture.  This goes for all clients, even if we have previously optimized your Oracle environment. The markets have changed and there are new market opportunities that you can exploit.  In addition, we have changed.  We have added excellent new capabilities to the team, including automated optimization tools that can do all the calculus to ensure you are in a cost optimized arrangement.

NET(net)’s Website/Blogs/Articles and other content is subject to NET(net)’s legal terms offered for general information purposes only, and while NET(net) may offer views and opinions regarding the subject matter, such views and opinions are not intended to malign or disparage any other company or other individual or group.

About NET(net)

Celebrating more than 10 years, NET(net) is the world’s leading IT Investment Optimization firm, helping clients Find, Get and Keep more economic and strategic value. With over 1,500 clients around the world in nearly all industries and geographies, and with the experience of over 15,000 field engagements with over 250 technology suppliers in XaaS, Cloud, Hardware, Software, Services, Healthcare, Outsourcing, Infrastructure, Telecommunications, and other areas of IT spend, resulting in incremental client value captured in excess of $100 billion since 2002, NET(net) has the expertise you need, the experience you want, and the performance you demand. Contact your NET(net) representative, email us today at info@netnetweb.com, visit us online at www.netnetweb.com, or call us at +1-866-2-NET-net to see if we can help you capture more value in your IT investments, agreements, and supplier relationships.