Oracle faces revolt against its licensing practices

Ever since the mid-2000 departure of chief operating officer Ray Lane – after a progressive marginalisation of his role in the company by its flamboyant founder and CEO Larry Ellison – database software giant Oracle seems to have become more and more accident-prone. First, there was the ill-fated introduction of ‘power unit' licensing, which many customers perceived as a thinly veiled attempt to squeeze more revenue from a captive installed base. The model was scrapped after a few months of customer outcry.


Larry Ellison, Oracle


Next was the rushed launch of the Oracle 11i application suite, for which Oracle has had to issue several thousand bug fixes. But now Oracle has hit its most awkward crisis in years as it has become embroiled in a debate with major customers and their analyst group advisers, again, over the software company's licensing policies. With analysts suggesting users should refuse to pay Oracle until it reworks these charges, the high-profile row could have serious consequences for a company that is already at a ten-year low-point in sales growth.

At issue are licences issued before January 2000, when Oracle offered its database software on a per-user basis, with the crux of the debate centred around how it defines licence categories known as "multiplexing". In software licence agreements, this has traditionally covered the use of intermediate software such as web servers and transaction processing (TP) monitors that enable a pool of users to share a single database connection.


Company name: Oracle

HQ: Redwood Shores, California

Main activity: Database and applications software

Last full year revenues: $10.86 billion

Last full year net income: $2.56 billion

Key issue: Oracle has been slammed by some customers and analysts for attempting to reinterpret database licence conditions, but the company has pleaded innocence. However, the affair has re-ignited old grievances about how Oracle treats a largely captive customer base.



However, Meta Group analyst Charlie Garry says that Oracle has unilaterally expanded the definition of this term to cover everyday batch data feeds from non-Oracle applications into Oracle databases, a move that hits the company's customers in data warehousing environments particularly hard.

In one example, Garry claims that a customer feeding sales data into an Oracle-based data warehouse from a 5,000-user order entry application must purchase Oracle licences to cover all of those 5,000 users, despite the fact that many of them will not directly use the Oracle database.

Oracle's stance is ludicrous if taken to its logical conclusion, says Garry. "Assume your company does some marketing and you get a tape in from the US Census Bureau. With this new definition, if you had a licence on a named-user basis, you would have to license all 300 million Americans who participated in the creation of that data," says Garry. Typically, Oracle offers customers that it says contravene its multiplexing licence condition the alternative of shifting to a per-processor licence. This not only means a substantial increase in the amount they have to pay, but such licences also require a bigger up-front cost.

And the company is adamant that it has neither changed, nor reinterpreted, the terms of its per-user database software licence. It says that customers were wrongly advised in the first place that they could licence a user as a batch process.

But analysts claim that Oracle has tried to move the goal posts and can produce the disgruntled customers to prove it. "We have had a cluster of calls from clients [in March and April] who have been approached by Oracle essentially telling the client that they were no longer in compliance [with the terms of their original licence] because they were getting batch feeds into their Oracle database," says Garry.

Yet as a result of the ensuing furore, Oracle has grudgingly reversed its hard-line stance and said that it will let "non-compliant customers", who have genuinely misunderstood the licence rules, off the hook. "Oracle is taking no action against these customers because of the misinterpretation. These customers can continue to license Oracle in the manner that they have been," says a terse statement from Oracle.

It refuses to comment further, but regardless of where the blame lies, the controversy has also caused a number of old grievances to bubble to the surface.

Gartner analyst Betsy Burton is questioning Oracle's sales tactics. For the last year, the company's licence revenues have been in decline and it has sought to reverse that through various changes to licencing. She says the company is trying to pre-sell more licences than the customer will ever need and that it is trying to tie users down to long five- or seven-year contracts.

Customers are being enticed to sign such deals with the bait of big discounts on list prices. Yet the bottom line is that they will end up shelling out far more on these deals than they would if they calculated their likely usage more precisely and signed one- or two-year deals instead.

Meta's Charlie Garry believes that the recent controversy should focus users' minds far more clearly on their software licensing costs. He makes a number of cost-cutting recommendations.

First, that organisations with per-user licences should slash the number of users on the agreement because typically, most only use between half and two-thirds of the user rights that they originally signed up for.

Second, they should look closely at whether they can run the standard edition Oracle database, priced at $15,000 per processor, instead of the $40,000 per processor enterprise edition. While the standard edition lacks a number high-end features, it is able to scale up to four-processor systems.

Finally, Garry says that the episode should stimulate users to adopt a comprehensive infrastructure portfolio management strategy so that disparate purchases throughout the organisation can be consolidated and the organisation's overall negotiating power improved.

With many CIOs still under pressure to deliver big cost savings, such measures may be more effective than major outsourcing programmes or cutting further back on projects and staff. All of which could prove to be to Oracle's ultimate cost.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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