Oracle: Shelfware Blues and Non-linear Discounting
Author: Eric Guyer
If you find yourself paying support on Oracle software that is no longer deployed, then this blog is for you. (The remaining three people may want to continue reading regardless since shelfware is a common affliction that may or may not want to be avoided.) It’s not only common, but also causes resentment among IT executives keen on cutting costs. It’s worth mentioning Oracle’s reasoning.
When you license software, Oracle extends a discount commensurate with volume. Years later, when you seek to eliminate shelfware from the associated renewal, Oracle forfeits the original discount via re-pricing. The pertinent policy language is publicly available here, and states:
Pricing for support is based upon the level of support and the volume of licenses for which support is ordered. In the event that a subset of licenses on a single order is terminated or if the level of support is reduced, support for the remaining licenses on that license order will be priced at Oracle’s list price for support in effect at the time of termination or reduction minus the applicable standard discount.
For example, consider an order of 100 Processors of Oracle Database Enterprise Edition that is awarded a hypothetical discount of 80%, resulting in a yearly support fee of $209,000. A few years later–through server consolidation–the customer finds itself paying support for 50 Processors that are not in use. This customer is mistaken to believe that eliminating 50 Processors from the support renewal will result in a yearly savings of $104,500. Rather, Oracle will re-price support to a net discount of 60%, or $0 savings. The customer can only begin to save money when repricing reaches a standard discount of 25%. In this case, the customer would have to eliminate 74 Processors from the renewal to begin saving.
For those advanced students: this doesn’t account for the average 3% per year cost-of-living increase in maintenance. Nor does it account for the price increase from $40,000 to $47,500 (of Database Enterprise Edition) that was enacted mid-2008. Keep in mind that Oracle’s repricing policy applies current list price, not the list price of when the licenses were originally acquired. In this case, the 16% increase in price is roughly equal to the compounded increase of maintenance over a 5-yr period, assuming we forego net present value.
Most IT executives understand this dynamic of deal-making, but still get heartburn over expensive renewal line items that are not in use, especially several years later when a host of internal and external dynamics have shifted. That said, the actual issue isn’t shelfware or even re-pricing. It’s the fact that Oracle’s discounting structure isn’t linear. And by non-linear, I mean egregiously unfair.
Re-pricing is applied against a discount range of between 0 and 25 percent and up to $1,000,000. In other words, Oracle is suggesting that any license order over $1,000,000 would have been discounted as little as 25% off. The 20% range is applied to a list license amount of between $250,000 and $1,000,000, and so on. Anyone that has been anywhere near a license deal knows that discounting ranges are much, much, much higher. Another way to look at this is that list pricing applied to support renewals is double or more that of the original license order. While it’s hard to imagine Oracle publishing a re-pricing discount schedule that is anywhere near the reality of field-level discounting, it’s important to understand how Oracle locks customers into paying maintenance on shelfware.
There are solutions to this anticipated heartburn. Keep in mind, however, that licensing less doesn’t mean you’ll spend less. A book could be written on how best to negotiate with Oracle, specifically regarding when to ask for a quote. Fortunately, there is a team of experts at NET(net) to help you navigate this process and optimize your Oracle agreement.
As an added incentive, if you have an Oracle licensed environment 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.
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