Oracle spends a lot of its energy and effort on persuading, some would say strong-arming, its clients into adopting its cloud technology. And lately, every year, Oracle rolls out some new techniques to get clients to pay for its cloud technology even if they don’t use it.
This creates the unusual situation in which Oracle may be the first cloud vendor with significant unused cloud capacity, so much so that its unused capacity might be more than what clients are actually using. We can’t know for sure if this is true, but it is certainly more likely with Oracle than other cloud vendors where the technology is purchased and immediately used by customers.
It is always interesting at end of the fiscal year in May to see how Oracle is playing this game. Oracle, like all established software vendors with a big installed base, has a massive amount of incentives and pressure tactics to move its customer base in the direction it would like it to go.
As we’ve reported before, Oracle has used its license auditing model to run the “Audit Bargain Close” playbook to encourage customers who are out of compliance to sign new deals to get into compliance. The latest iteration of this strategy involves pushing clients toward the Oracle Cloud or products that run on it. Some people have changed the slogan to “Audit Bargain Cloud” because of this tactic.
In the last year, we’ve seen Oracle try new strategies to increase cloud adoption because it knows that Wall Street must view Oracle as a cloud company in order for it to be seen as having a bright future. Otherwise, investors will see Oracle lagging behind Amazon, Google, or Microsoft, and Oracle will instead risk being viewed as a legacy vendor, which will reduce its valuation.
Recently, I spoke with Craig Guarente, CEO and Founder of Palisade Compliance, to better understand how Oracle is adapting its tactics for promoting sales of its cloud. Palisade Compliance is a firm that offers advice and consulting to Oracle customers about how to best handle negotiations with Oracle about licenses and compliance audits. Guarente says the mission of Palisade Compliance is to enable businesses to reduce their Oracle costs, stay in compliance, and take back control of their Oracle business relationship. I’ve worked with Palisade on various research and content projects. Based on his firm’s experience in the marketplace, here’s what Guarente, who worked for more than 10 years at Oracle in their licensing department, says Oracle’s been doing to encourage/pressure/strong-arm adoption of its cloud.
A Cloud-First Policy for New Technologies
While the vast majority of Oracle’s customers are using on-prem versions, Oracle now releases all new versions of its software on the Oracle Cloud first and then for its on-prem versions. This has the bizarre effect of making the vast majority of its customers wait to get the best stuff Oracle has to offer. Is Oracle doing this as a favor to its on-prem customers? No. It’s doing it as an incentive to get its customers to use its cloud technology first.
“99% of the money that people have spent with Oracle has been on prem, not cloud. And now, all of a sudden, cloud comes first,” said Guarente.
Now, to be fair, Microsoft has done the same thing and has focused its energies on improving its cloud offerings rather than on-prem software. But Oracle’s tactics are still notable.
Oracle Discouraging Use of Other Clouds
Oracle does a lot of its licensing through an unlimited licensing agreement (ULA), which allows customers to deploy an unlimited number of licenses at first and then eventually certify the number of licenses they actually want to use. If you have a ULA, once you certify, you can deploy these licenses anywhere. However, you can only certify on-prem licenses. For licenses you deployed on AWS or Azure, you have to buy new licenses. And at the moment you certify, since you can’t certify those licenses deployed on AWS or Azure, you are by definition out of compliance.
This, obviously, goes against the previous spirit of the ULA by making certain types of licenses not really unlimited.
“It’s a way for Oracle to get you to not use third party clouds,” Guarente said. “Oracle wants you to use the Oracle Cloud or deploy on prem. If you want to run on Azure or AWS, you’ll have to fight for that.”
In addition, Oracle has another license model where if you’re in a non-Oracle cloud environment, you have to pay twice as much than if you are running in the Oracle Cloud.
More Attacks on Third-Party Support
Oracle has a very complex licensing structure in which licenses refer to policies that may be online that then refer to other documents — it’s an intricate web of information. One of those documents recently changed and now Oracle limits downloads of support documents to 500 a day and also requires customers to use a patch within 90 days of its download.
Guarente sees this as an attempt to make it more difficult for third-party support providers who have a model of downloading lots of Oracle content for support so that a client that is two or three releases back can then use these documents later once they move up to Oracle’s current offerings.
Clearly, with these policies, Oracle is now trying to discourage this practice by making it more difficult. But in doing so, Oracle is also making it more difficult for customers to get support.
“These are major changes to Oracle policies that are buried in a URL,” Guarente told me. “Do they even apply? Can Oracle make these changes? Oracle has an obligation under most of its support agreements to not materially reduce the level of support. Is this a material reduction? I don’t know the answer to that. But it’s worrisome.”
Cloud Forms of ULA and Universal Cloud Credits
In applying its ULA model to the cloud with Universal Cloud Credits (UCCs), Oracle is creating a situation in which they have a bulk purchase license for cloud usage, but the customers can exceed the amount purchased in the license. Under this structure, customers spend a certain amount over three years to buy cloud credits, but then pay immediately for 1/36 of those, regardless of how much is used. Additionally, customers then pay for going over their cloud usage in an individual quarter. Of course, this happens with other cloud vendors, but they don’t generally use a Universal Cloud Credit model in which you buy years of cloud services in bulk.
“These UCC contracts are very similar to a ULA. If customers buy $3.6 million of these UCC credits, then Oracle bills them $100,000 dollars a month for three years, right? So it’s $100,000 evenly split out over three years. In month one you’re not using it, so you give Oracle $100,000 for nothing. Month two, you might use 5% of it, in month three—so the first year as you ramp up you’re giving Oracle all this money for nothing and then if you actually start using it, it’s very easy to go over that $100,000 dollars, there’s nothing preventing that, there’s no governors, and there’s nothing that says you’re about to meet your usage limit. It’s like your cell phone — if you go international, all of a sudden without warning you get a huge bill. I’m starting to see customers who are getting these unexpected bills, and they just didn’t know that they went over,” Guarente said.
We should point out that this problem is evidence that Oracle Cloud is being used by some customers in accelerating amounts. The more customers report this problem, the weaker the case for Oracle having lots of unused cloud capacity.