How to get the best deal from Oracle

Customers, consultants and analysts weigh in on negotiating with the enterprise giant

Oracle is now in its fourth quarter, meaning the vendor and its customers are locked in the annual ritual of trying to get new deals done before the fiscal year ends on May 31.

The company has long been known as one of the industry's toughest negotiators, and that hasn't changed a bit this year, according to some observers. But there are a number of strategies customers can employ to ensure the best possible deal, according to some users, consultants and analysts.

One way is to think big.

Oracle's sales representatives have a short-term focus, "so they will prefer to get one big order now than get several smaller orders over the next three years, even if the latter would add up to more money in total," said Forrester Research analyst Duncan Jones in a report released this week.

Therefore, salespeople may be more generous with discounts and other concessions if the customer agrees to a larger purchase, he said.

The question to weigh is whether such a move makes financial sense in the longer term, since annual maintenance fees may kick in on some products before a customer is actually prepared to start using them, Jones added.

"Oracle's discounting policy can lure you into buying excess products and capacity and then you are doomed to pay maintenance on this shelfware forever," he wrote.

Shelfware -- unused software -- remains a pervasive problem in the IT industry, according to a new survey commissioned by 1E, maker of AppClarity, an application that looks for "software waste" in an organization's IT environment. More than 80 percent of roughly 500 respondents to the study in the U.S. and UK said they had shelfware.

Maintenance fees over time add up to far more than the initial cost of licenses, which are commonly discounted substantially off list price. Vendors prize maintenance fees, since they provide steady revenue even when new license sales are hard to find. This makes it difficult for customers to get vendors like Oracle to budge.

The only time Oracle customers have real leverage over maintenance fees is during a new license negotiation, when Oracle might agree to keep those costs flat for a couple of years in exchange for a large purchase, Jones said. Oracle might also agree to adjust maintenance fees customers are paying on shelfware in exchange for them buying something else, he wrote.

In the current environment, some deals may be easier to get than others, though.

Oracle is being less flexible on discounts for products they consider to be "best of breed," said Eliot Arlo Colon, president of Miro Consulting, a Woodbridge, New Jersey, firm that advises clients on Oracle license negotiations.

Overall, sales representatives have been pushing hardest on Fusion Middleware, BI (business intelligence) and security products, he added.

In addition, customers are getting approached by more salespeople than in past years, he said. "If you're in a database deal or an application deal, the next thing you know you're getting a call from the middleware rep, the BI rep, trying to get in on the deal."

Such crowding means agreements are taking longer to complete, Colon said.

The trend also ties into Oracle's strategy of selling customers on an end-to-end stack of technologies, from hardware to applications, which stems from its purchase of Sun Microsystems.

Oracle's sales activities have definitely been influenced by Mark Hurd, a former Hewlett-Packard CEO who was named co-president of Oracle last year, according to Colon.

"Mark Hurd has been very hands-on on the transactional level. That's been a big difference. The word on the street is that Hurd is getting involved with old clients, getting his hands dirty on a lot of stuff."

He is not interested in just the largest deals, either, Colon said. "It's been more on what he thinks is strategic to Oracle."

Hurd's influence has been positive, said John Matelski, CIO of the Gwinnett County, Georgia, government and chairman of the Independent Oracle Users Group's contract and product licensing committee.

IOUG has "had good conversations with Mark," said Matelski, who is also executive vice president of IOUG. "They are engaging customers a little more, their global customer programs team has been making more efforts to do outreach into the community."

That doesn't mean customers should be any less prepared to argue their side at contract time.

"One of the real keys is not going in it alone, by working with other organizations, be it within your industry or leveraging user groups," Matelski said. Knowing what your peers are getting in their Oracle deals can be valuable information at the bargaining table, he said.

Oracle frequently negotiates ULA (unlimited licensing agreements) for one or more products with customers. Gwinnett County itself recently renewed such a deal for Oracle's database, Matelski said. The county also uses Oracle's Primavera and Hyperion software, he said.

Oracle initially wanted a 4 percent increase on the database ULA renewal, but the county managed to negotiate no increase, Matelski said. It also added a number of Primavera user licenses it needed, which Oracle agreed to sell for the same price as some the county procured last year, Matelski said.

Massimo Zanetti Beverage USA, maker of coffee brands like Chock Full O'Nuts and Hills Bros., recently made an investment in Oracle's JD Edwards EnterpriseOne and Demantra software, said Bob Ashford, vice president of information technology.

It chose the Oracle package, which replaced a legacy system that had grown clunky and cumbersome, over software from other vendors, including SAP and Infor, Ashford said.

While the various vendors' software products seemed to be fairly close in terms of capabilities, Oracle "came out on top pretty substantially" for a number of reasons, including strong integration between the modules and their overall ease of use, he said.

Massimo also felt that the first implementation partner that SAP proposed would have been too expensive, and the company wasn't comfortable that a lower-cost partner SAP subsequently suggested would be capable of the job, Ashford said.

In contrast, the Oracle partners on the project were experienced and comfortable working across the various modules being installed, he said. The project went live in October on time and within budget. "The software is of outstanding quality," Ashford said. "It was an unbelievable, bug-free implementation."

Oracle was "fairly flexible" at the bargaining table, according to Ashford. For one, the sales representatives were willing to add additional software to the deal at "huge discounts," he said.

Having competing bids from SAP and Infor definitely helped Massimo secure favorable terms, he added.

Ultimately, negotiation strategies should change "depending on the type of Oracle customer you are," said analyst Ray Wang, CEO of Constellation Research.

"Die-hard Red Stack" customers -- those who have largely standardized on the company's applications and infrastructure software -- are simply locked in, he said via e-mail. "Oracle reps know it and so do the customers." It's best for these customers to try to cut shelfware, look for alternative SaaS (software-as-a-service) applications to cut their long-term dependence on Oracle and consider third-party software maintenance to reduce costs, he said.

Other customers have come into Oracle's orbit as the company acquired other software vendors, he said. For these, "the best strategy is to extract cost savings through consolidation of contracts," Wang said. Third-party software maintenance and shelfware reduction are two other paths to consider, he added.

Finally, brand-new Oracle customers should work with an experienced negotiator to develop a strategy that covers five phases of ownership, which include selection, implementation, adoption, maintenance and renewal, Wang said.

Oracle didn't respond to a request for comment on its current sales strategies.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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