Oracle Goes on Pricing Defensive

Oracle Corp. CEO Larry Ellison this week disputed reports that users are unhappy with his company's new capacity-based pricing scheme for its flagship database product.

Yet in interviews this week with more than a dozen Oracle users, Computerworld again found that, while some users say they are willing to live with the current pricing structure, many are unhappy. And as reported here, some are willing to consider alternatives to letting Oracle take advantage of its market dominance.

In an interview at Oracle's OpenWorld conference, Ellison defended what he called Oracle's response to the demands of the market. He argued that Oracle isn't the only company that uses capacity-based pricing and that skyrocketing sales figures are proof that customers are happy.

"People are buying more than ever," said Ellison, adding that sales for Oracle8i grew by 32% last year. "The market has voted. By and large, the customers really like it." Research firm International Data Corp. in Framingham, Mass., reported last year that Oracle's share of the 1999 global database market was 42.2%.

Oracle8i's pricing is based on a measure it calls the universal power unit. Company officials have defended the measure, calling it a way for the company to simplify pricing. However, Ellison said, Oracle still has a wide range of pricing options. Customers can pay based on how fast a machine is, or they can choose an enterprise price, he said.

"We think choice is a good thing," said Ellison. "We have more choice for pricing than anybody else."

Although Ellison maintained that the vast majority of Oracle customers are happy with the pricing, some members of the Chicago-based International Oracle Users Group (IOUG) said they don't see it that way.

Mixed Reaction

"That's not what I'm hearing," said IOUG President Richard Niemiec. "I think there are variations. The reaction is mixed based on how close the [companies] are to Oracle. A lot of people have not investigated what a UPU is."

Samuel Asher, president of Sam Asher Computing Services Inc., a custom software development company in Rochester, N.Y., recently vowed to move his database infrastructure from Oracle to IBM's DB2 out of frustration with Oracle's pricing. "I am certain that I am not alone in my desire to eschew another information systems monopoly," said Asher.

Don Feinberg, chief technology officer at IPnetwork.com, an online intellectual property management firm in New York, said that although Ellison is correct that other vendors use capacity-based pricing, the comparison isn't fair. "The fact that capacity-based pricing is widely used is hardly proof that the market likes such a thing," said Feinberg. "If people are over a barrel, they will pay."

Michael Karaman, vice president and chief technology officer for product development at The MedStat Group Inc. in Ann Arbor, Mich., said Ellison's contention that users like the new pricing is proof that he's out of touch with the market. "The only reason that there has not been a wholesale revolt is that Oracle is a predominant corporate standard," he said.

For MedStat, "the switch from concurrent user pricing to power-based pricing increases costs for new machines by one to two orders of magnitude," said Karaman.

"I have explained the licensing issues to my clients, and they have difficulty believing that their total charges for e-services will be so high," said John Chadwick, a United Kingdom-based consultant and an IOUG member.

Chadwick, who is putting together a public information database, said the UPU model would boost his database licensing costs to $40,500 for standard Oracle, $270,000 for the Enterprise edition and $81,000 for Oracle Internet Application Server software. "We are very seriously looking at using DB2 and Sybase as alternatives," he said.

Tony Jedlinski, president of the Chicago Oracle Users Group, said that although many users will appreciate a more simple pricing scheme, some may feel they are being taken advantage of. "Some customers may be faced with unanticipated and unbudgeted price increases for support and updates," said Jedlinski. "Had these factors been known from the start, these customers may have chosen a competitor's product or designed their systems differently," he said.

Jim Hill, systems manager for databases at HealthSouth Corp. in Birmingham, Ala., said he "hated" to see Oracle eliminate concurrent user licenses. The old pricing scheme gave his company more flexibility, he said.

Paul Dorsey, president of Dulcian Inc., a consulting firm for Oracle products in Iselin, N.J., said Oracle is going to charge customers as much as customers will allow the vendor to get away with. "There is enough leeway in the pricing structure that if you are willing to argue a little, you can get Oracle to give you a fair price for their software," he said.

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