Oracle, the most expensive software on the planet?

5 Oracle Cost Reduction Strategies

With one of its products licensed at $300,000 per Oracle Processor. Oracle Business Intelligence Suite Foundation, licensing a relatively small 4-processor quad-core server would cost $2.4 million (not including support and maintenance), making it one of the world’s most expensive software products to license.

As one of the top 3 Global ISV’s, Oracle provides Software, Hardware and Consultancy to customers enabling them support their key business functions. Revenues in 2016 were $37 Billion, of which 80% were software related.

Founded on its core capability Oracle has for nearly 40 years provided Database Software to 200 of the 200 Fortune companies. Oracle has acquired over 37 software companies since 2011, with its larger acquisitions of Siebel, PeopleSoft, Sun and BEA has enriched its portfolio to cover nearly all Business Processes. From ERP to Hardware and Cloud, Oracle has diversified its platform to become one of the titans of business Software.

Oracle’s aggressive and complex sales models have been a constant source of growth for Oracle and provide significant challenges to Procurement and IT teams.

 Lime Software’s work with 100's of large Enterprises has shown that the key areas in addressing cost reduction fall into the following 5 categories.

Technical Design and Architecture, Commercial Strategy, Compliance, Support Cost Reductions, The Cloud Approaches

Technical Design and Architecture

 In discussing Oracle Licensing and costs with many Software Architects and Software Asset Managers we often hear that the design process has not been coordinated with Licensing specialists to ensure that solutions delivered are fit for purpose in terms of cost factors.

At initial design or redesign of systems, we have seen multi-million dollar risk exposures built in due to bad understanding of the license requirements. VMWare is a prime example of this issue. Many companies committed to a scalable and more hardware cost effective model using VMWare, but the Licensing costs easily outstripped the benefits when you have to license everything. There have been many arguments about the validity of Oracle’s approach to this, but Oracle are even now still sticking to their original argument. You need to license anywhere where Oracle can run.

 "The complexity in Oracle licensing has been well documented, however the key to Oracle licensing is often misunderstood. You pay for what you use. If you’re not using it, you are wasting your money."

The reality we see is that systems are often 60-70% over designed in terms of capacity, resilient yes but over specified.

In recent years Capacity and Demand Analyst roles in IT have been declining, as cheap hardware has made it easier for IT to spend less on more hardware. Great news for Hardware vendors and IT managers but the Licensing costs have increased as More Hardware=More CPU=More Licenses. If you no longer have an expert in house giving you an accurate view of how much CPU you need, then you will be spending much more than you need to. Sounds obvious, but the amount of times we have seen systems designed for Oracle using formulas designed 1990’s. 

 In our view, good design aligns with good license models and a good understanding of what capacity the system will need to run at. All stakeholders need to understand what implications a particular License Metric and Hardware platform will make in delivery of a cost effective overall solution.

 Commercial Strategy

 One of the key areas of focus with reduction in cost for Oracle is Commercially. Oracle is expensive, but as most procurement and commercial managers are aware cost effective deals can be negotiated. In a survey to our customers install base 62% of responded that for new purchases Oracle was the keen to negotiate a price compared to Microsoft or IBM. The key hurdles they faced were Contracts Conditions and Cloud Purchasing incentives.

In terms of getting a good deal from Oracle, four key considerations should be understood.

 Timing

Oracle’s sales strategy of giving larger discounts at quarter/year end significantly impacts price and deal offers.

If Oracle knows in advance that you are going to purchase, they can get better internal approvals.

Future requirements

If you know that you will need additional licenses in 6 months, it may be better to include them in the Scale of the deal, and future proof your discounts.

Scale of the deal

Size is everything in this case, whether you are dealing with a global account rep or transactional internal rep, they all have their limits on what size of deal they can book and the amount of discount you can negotiate.

Often we see very large discrepancies in what customers paid for the same product purchased through different teams at Oracle.

Complexity of the purchase

The complexity and number of products required can influence the end result

Using simple license metrics can be more beneficial. Per User/Per Employee (Named User Plus) can be used if the end users can be counted. And will be less cost than Processor based licensing. 

Commercially, Oracle can be challenging, but with clear requirements and by understanding your Account Teams motives, you can deliver impressive discounts, and agreements, which benefit your organization.

  Compliance

It may be a platitude but in the case of software licensing the last thing you should be thinking is “What you don’t know can’t harm you”. We have seen an increasing rise in senior staff being moved internally or even dismissed for shortfalls in the software compliance. These are not just scare stories, given the increased scrutiny of risk in all businesses, either internal or government driven, it is clear that Software Asset Management and Regulatory Compliance will continue to dominate the headlines.

 In our experience, with 100’s of customer engagements, only 2 customers have had a 100% clean bill of health. Again this statistic is not trying to scaremonger, it is a plain fact and for Oracle it is often due to the following reasons.

 ·     No license keys - No need to activate or do anything, you can use it as much as you like with no controls or safeguards in risks/costs

·     Easily use chargeable features, with no controls

·     Failure to license Back-up/failover environments

·     Complexity of License Models

·     Licensing Virtual Environments

·     Removing Leavers- Staff are not removed from key systems when they leave the business.

As most Oracle customers are aware, Oracle LMS (Oracle License Management Services) are Oracle’s Internal Audit team, delivering 1000’s of customer audits every year. They are a separate team from Oracle Sales, Business Practices, and Oracle Support.                                                                                                                                                                                          
Given the potential Multi-million Dollar risk exposures, controls and audits should be mandatory. The key here is to factor in the cost of License Auditing when systems are designed, and commissioned, not afterwards when getting budgetary sign-off is difficult. A cost factor % of the system cost should be including enabling regular license audits in the cost justification of building the system.

Support Cost Reductions

Much has been said by companies offering to reduce support costs in Oracle Licenses. In practice this is quite difficult to achieve depending on how the licenses were acquired and what discounts achieved. It is something that a short review can conclude will be beneficial or not. The key here is whether support renewals have been consolidated.

In terms of replacing Oracle Support for third party vendors has also taken off in the last 5 years, this is however attracting a lot of legal battles, where Oracle is trying to protect its revenue streams.

We feel that bigger benefits can and are driven from Risk Avoidance through Compliance and System Architecture and Commercial agreements rather than eliminating support. This is due to Oracle stretching the support renewal cost to include the discount, before you can claim any benefit.

The Cloud Approaches

As Oracle pushes harder into the Cloud Market, they are incentivizing staff to sell cloud products and services. These will give greater discounts on traditional onsite purchases, however the benefits apart from cost are not yet transparent. Even if Oracle are seen as one of the top 5 Cloud Companies, there is still a considerable argument that the data Oracle is too mission critical to place in the Cloud. However as are Oracle is driven in this direction we are expecting to see significant changes in their license strategy over the next 2 years.

Conclusion

Each of the above areas should be taken into consideration in a holistic manner, so that not only can benefits overlap, also that the direction and the future state of an organizations investment in Oracle are achieved.

We expect that the following challenges will continue in to the mid-term, 2-5 years.

·     Significant change in Licensing policies due to Cloud adoption

·     Increased Audit Activity in the Mid-Market

·     Push for more uniform Master Service agreements

About the Author: Alex Andrew, Director of Lime Software, has been helping with Oracle customers and their licensing for over 17 years.

About Lime Software LTD, a pure play Oracle Licensing technology tool vendor, simplifying the way customers understand and quantify their risks.  

The views expressed in this document are those of Lime Software LTD, and reflect work conducted over the last 10 years, with real life examples from customers Globally.