Top 5 Ways Oracle Makes You See RED

Author: Steven Zolman

Oracle have you seeing RED, and concerned about spending too much GREEN?

When it comes to draconian supplier policies, perhaps no one makes their customers see more RED than Oracle.  Many times, seeing Oracle RED also costs you too much of your hard earned GREEN.  We have documented over 40 major issues that routinely cost our clients too much GREEN when it comes to dealing with Oracle.  Below, we discuss the Top 5 Ways Oracle Makes You See RED.

The Top 5 Ways Oracle Makes You See RED and Costs You Too Much GREEN:

5.    Bundling of Support
4.    Re-Pricing Provision
3.    Matching Support Policy
2.    Binding of Legacy Maintenance
1.    Oracle Audits

5:  Bundling of Support

Oracle combines technical break/fix product support with product upgradability (the rights to upgrade the product with no additional software license cost) and sells this bundled solution as its annual maintenance and support services, which is generally priced at 22% of the net license value of the underlying license it supports.  Oracle used to price these items separately at 7/22 (about 32% of the costs) for technical support and 15/22 (about 68% of the costs) for product upgradability, and would allow customers to buy one without the other.  That option no longer exists.  Customers are now forced into an ‘all or nothing’ mindset when it comes to bundled maintenance and support services.  Some clients would like to continue to receive technical support but have no plans to upgrade the software, perhaps due to an environment lockdown or application sun-setting.  In this case, customers would be well served with a technical support (only) offering.  This Oracle policy causes clients in this situation to overpay by more than triple the market value for the service they need.

4:  Re-Pricing Provision

Yet another way Oracle makes you see RED is when clients run up against the dreaded Oracle re-pricing provision, which allows Oracle to re-price annual maintenance and support services to the effective list value of the software when customers cancel partial orders.  Oracle considers software sold on one order as a license set, and if a customer were to buy $1M of software at a 50% discount (pays $500k for the net license), the normal support costs would be $110k per year at 22%.  In this case, let’s say the customer wanted to cancel support on 50% of the license value:  you would expect that the customer’s annual maintenance and support services costs would reduce to $55k right?  Well, you would be wrong; you would be way wrong.  The standard language in the Oracle agreement allows for Oracle to re-price the remaining software on the order back to list price, and apply the 22% maintenance number to that figure.  In this case, a 50% reduction of software entitlement at $1M of List License Value on the originating order would result in $500k of software, and at 22% for maintenance, the new resulting annual maintenance amount would be $110,000, representing a 0% reduction in costs in exchange for a 50% reduction in entitlements.  The reasoning for this is clear.  It represents yet another way that Oracle can strongly discourage its customers from right-sizing their environments, thereby minimizing the risk that the sacred cow of highly profitable annuity income from annual maintenance and support services continues to flow with wall-street regularity.

3:  Matching Support Policy

Another issue that makes our clients see RED is Oracle’s matching support policy.  Basically, this policy requires Oracle customers to maintain a matching level of annual maintenance and support services across a product in its entirety.  The business reason Oracle cites is to prevent customers from having many similar licenses, but only supporting a few of them, which makes it difficult for Oracle to determine if the customer calling for support will use the support only for the supported licenses and not for the other licenses that are not supported.  This policy seems like a reasonable approach, but many of our clients have multiple operating environments in different business units, sometimes in different geographies or even countries, and sometimes these are unrelated businesses that just so happen to be owned by the same company.  In many cases, there is no relation between the needs of the operating environments, and therefore any policy to enforce equal treatment is unjustly onerous.  In this case, let’s say the customer is a sun-setting a major application that uses Oracle database licenses in one business unit and no longer needs to have those licenses supported because the environment is highly stable, will introduce no changes, and will eventually turn off after some time.  In this case, another unrelated business unit actively uses Oracle’s database and wants to continue to have these licenses supported.  Oracle’s response to this is to require the customer to match service levels, so either both environments have to be fully covered, or neither can be.  This generally forces customers to continue to support licenses that do not require it because they cannot risk de-supporting critical environments.

2:  Binding of Legacy Maintenance  

Another way Oracle makes you see RED is through the Oracle policy that binds legacy maintenance to a migration of licenses.  In the case where you migrate one license type to another, you don’t just buy the incremental new license and pay the resulting maintenance (even if that is significantly more affordable to do), Oracle actually makes you pay for the migrated license and the resulting maintenance is added to your legacy maintenance.  In real world terms, this almost always comes at a huge cost premium.  A client with a list license value of $2M, a net license value of $1M, and an existing maintenance obligation of $220k per year that migrates to a new net license of $500k, will not pay $110k in annual maintenance and support services costs as you might expect, rather they would pay $330k as the migrated maintenance is additive to the legacy maintenance.  In our direct experiences, this policy has been enforced numerous times even when it is quite clear that the client could simply dispose of the legacy licenses, terminating the usage rights, buy the migration license at market value, and pay considerably less overall.  Amazingly, Oracle has even erected policies that prevent clients from this very behavior, making it nearly impossible to escape punitive maintenance costs from impaired Oracle assets.

1:  Oracle Audits!

The number one way Oracle makes you see RED is with an Oracle Audit.  Oracle Audits have become reviled by clients because they not only represent a completely polarizing view of the license grants and governing contract language, but also call into question many of Oracle’s other policies.   Some clients view this as a deliberate attempt to place customers in the cross hairs of the Oracle audit police.    Auditors vehemently argue unrealistic positions that are seemingly backed by unintelligible contract language, resulting in surreal liabilities representing previously unimaginable amounts of money.  These opening volley positions are often dramatically reduced as clients work with Oracle to try to make sense of it all, but Oracle Audits now top our list of the issues that make clients see RED the most, and costs them the most GREEN!

Seeing RED yet?

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If you have an Oracle licensed environment and you are an existing client of ours, contact us.  Through the end of May 2015, we are offering no risk assessments of your Oracle environment.  It is our experience that 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.

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  1. By Is Oracle Making You See Red Too? - Spinnaker Support on September 14, 2015 at 6:16 pm

    […] of Net(net), Inc. recently wrote a blog worthy of a David Letterman top 10 countdown titled, “Top 5 Ways Oracle Makes You See Red.”  Despite the fact that he chose to let Oracle off the hook by limiting his focus to 5 commonly […]

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