What do you do if you have a mature product and the market gives you grief over your complex pricing? You have to do something, but what you do depends on your level of market power and your view of pricing. With Oracle’s latest pricing announcement, one gets the sense that Oracle is still being Oracle. That is, this is the latest installment in Oracle’s attempt to update pricing without actually changing their pricing much. As the category leader, they get pressure to lower prices but know that they don’t have to do so. So while the headline suggests Oracle is simplifying, they are not. They remain, as ever, optimized for revenue capture.
Pricing changes in response to acquisitions
At this point the specifics are still up in the air, as Oracle is merely outlining the new options without detailing what they will mean for individual customers. Regardless of whether Oracle is taking a bold step forward or merely moving the chairs around–my expectation is far more of the latter than the former–there is the very real possibility that customers will gain greater visibility into their licensing costs, and that is always good for customers.
Market pressures meant Oracle had to do something following the acquisitions of PeopleSoft (which brought along JD Edwards) and Siebel. Combined with Oracle Applications and Oracle E-Business Suite, the post-acquisition Oracle was creating fear of deterring new customers. Oracle is especially exposed to SaaS-based options in the SMB market.
Adapting pricing to emerging technology
During 2005, Oracle recognized multi-core processors were here to stay and “simplified” its pricing based on a set of CPU-specific factors. A single-core processor required one license, but multi-core processors required a calculation multiplying the number of cores by a CPU-specific factor ranging from 0.75 to 0.25. Remember, for Oracle this was a simplification.
During 2006, Oracle came under fire for not adapting its licensing to the emerging use of virtualization. Microsoft, deciding to take their lemons and make lemonade, took virtualization out of the mix entirely. I noted at the time [link] that, at least in Microsoft’s case, the change was not entirely altruistic in that I predicted Microsoft would actually increase server revenue. Nevertheless, it simplified Microsoft pricing, looked good, and was easy to explain to the market.
Negotiation helps Oracle optimize pricing
Oracle ended 2006 with another licensing simplification, but in a move that surprised no one, they have not yet released enough information about the new licensing options so that customers and potential customers will know how much it will help. Customers now have four options for licensing:
- Component model–a la carte pricing
- Custom application suite model–custom bundling based on customer need
- Enterprise applications model–pricing based on an enterprise metric such as revenue or number of employees (which is it?)
- SMB model–for companies with less than $100 million in revenue
Since customers still have to negotiate a price with Oracle, it is not clear what impact, if any, these changes will have on a customer’s total license cost. My guess is as little as Oracle can get away with–remember, they are optimizing. Still, if customers gain greater visibility into what is driving their licensing costs that is a big win—for the customers at least. Visibility, of course, exposes Oracle to the risk that customers will do their own optimizing, and this will alter their licensing in ways that reduce the total amount spent.