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Dissecting the Oracle Continuous Innovation Model: Great Deal for You or Oracle?

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Every Oracle customer should pay close attention to the way that our friends in Redwood Shores have reorganized their support model to address a variety of forces that will reshape the enterprise software landscape in the next decade.

There is a model that has been around for a few years, but has received little (if any) public attention. Oracle calls this model “continuous innovation.” This relatively new model is focused on keeping Oracle in the best possible position over the next 10 years as the transition to the cloud and to SaaS applications accelerates. It is designed only for Oracle applications like Oracle’s PeopleSoft, Siebel, eBusiness Suite (EBS), and JD Edwards EnterpriseOne and World.

Like everything Oracle does as a sales, marketing, and value capture company, this model is shrewd, strategic, and designed to maintain Oracle’s incredibly powerful market position. But based on my research, there has been no public analysis of this model. That leaves customers in the dark. Therefore, this is the first in a series of articles that will explain the continuous innovation model as well as address some crucial questions about it so both current and potential Oracle customers can fully understand what this model means for their businesses.

The most important question that has not been fully answered is: What does this offer do for Oracle customers? Given how little attention this model has received, it’s a question that’s imperative to answer. And as part of the Escape Hatch from Oracle Research Mission at Early Adopter Research, we are going to answer these questions in great detail in a series of articles. This article is the first in the series and focuses on these questions:

– What are the challenges facing Oracle in 2020?
– What is Oracle’s continuous innovation model?
– What is new and different about the model?
– What are the benefits to Oracle from the model?
– What are the risks to Oracle from the model?
– What are the benefits and burdens for Oracle customers?

The key point with all these questions is to explore the model in depth and not just accept Oracle’s implicit assertion that it’s an improvement for all customers. Businesses cannot truly assess whether a shift like this is right for them unless they understand it. We hope to provide that understanding here.

What are the challenges facing Oracle in 2020?

As we have long argued in the Escape Hatch from Oracle Research Mission, the best way to see Oracle is as two companies. Oracle is a product company, one of the greatest software companies ever. The world today could not run without Oracle products, both databases and applications. This company continues to create even better products.

Oracle is also a second company: a sales, marketing, and value extraction system. This company, like all enterprise software companies, brings products to market, executes a sales process, and creates new relationships with customers.

But Oracle is different from other companies in two respects. Oracle has a huge installed base that produces almost $20 billion a year in revenue. Oracle has an audit-based licensing model that it uses to gain leverage with customers. The aggressive tactics of the value extraction arm have made Oracle quite unpopular with many of its customers.

As time passes, Oracle customers constantly reevaluate their use of Oracle technology. Oracle charges about 20% of the original license fees for support of its software. Customers want as much value as possible for paying those fees. But the landscape has changed and now Oracle is facing challenges on many fronts:

Slow Oracle Cloud Adoption: Oracle is facing an uphill battle to become one of the main cloud platforms. Its cloud platform is growing slower than competitors and the installed base is much smaller. Additionally, when existing customers do decide to migrate to the cloud, Oracle often loses them to larger, more established cloud providers or tries to strong-arm clients into buying Oracle Cloud to boost its cloud numbers.

SaaS Application Migration: Oracle’s support revenue primarily comes from traditional enterprise licenses for software that is installed and run by customers. Most new software, from Oracle and other firms, is software-as-a-service, with a subscription model. If a company decides to move from an on-premise application to a SaaS version, it is not simple, even with the same vendor. Naturally Oracle wants its customers to migrate to Oracle SaaS products.

Third-Party Support: Customers really don’t like paying support fees to any vendor if little value is provided. Oracle also uses its license auditing process to aggressively find unauthorized use of its products and improve its bargaining position. This is known as Audit Bargain Close. Oracle has lost significant revenue to third-party support providers like Rimini Street, who offer value-added support at half the price Oracle charges.

Upgrade Fatigue: Many Oracle customers run products that are several versions behind the latest version. Because migrating to a new version is onerous, customers are at risk of churning and adopting third-party support or migrating to competitors’ SaaS products (think Salesforce). Oracle often does not support out-of-date versions, making third-party support the only viable option. Oracle is literally driving some customers away. Or, given the effort involved, customers may decide to adopt a more modern solution from another vendor.

So, the ideal solution from Oracle’s perspective is as follows:

Keep as many on-premise support customers as possible paying maintenance for as long as is feasible. The margin for support for on-premise software is 90% or higher, and therefore work in Oracle’s favor.
If a customer decides to upgrade to a SaaS product, make sure it is an Oracle product.

But the ideal solution from the customer perspective is all about value. Specifically customers seek to:

Get the most value from their applications.
Pay the least amount of money for that value.

What is Oracle’s continuous innovation support model?

Now we can look at the nature of the Oracle continuous innovation support model and what it does both for Oracle and for customers.

Over the past few years, Oracle has declared a new support model for its applications. This model moves from upgrades to updates, with no major releases forthcoming.

For those who don’t live and breathe this stuff, it may not seem that there is much difference between an upgrade and an update.

An upgrade in the world of enterprise software usually means a major improvement, lots of changes, like a new model of a car. Most of the time, the software version number changes.

An update is a smaller collection of changes, sometimes fixes and sometimes smaller improvements. Updates might come out several times a year. An upgrade might be released every few years.

Oracle’s announcement that it is stopping upgrades is big news. Here’s what they said specifically: