Oracle last week blamed the sluggish economy for its failure to meet its third-quarter earnings forecast. But some users are telling a different story, faulting the software vendor for refusing to budge on what they see as exorbitant pricing.
"Now that the dot-com bubble has burst and a healthy dose of reality has been injected, Oracle's totalitarian license scheme is coming back to bite them in the ass good and hard," said Gary Norwell, a database developer at Hybrid Turkeys, a division of Netherlands-based Nutreco Holding NV.
"Venture capital is all but dried up, and the last thing a start-up will do is spend the first $600,000 on Oracle for redundant Solaris servers," said Joel Shandelman, chief technology officer at Optionable Inc., an Internet-based options brokerage in New York. "They are looking elsewhere for less expensive [database] software."
Oracle last week announced that its third-quarter income grew 16 percent to US$583 million, or $0.10 per share - $0.02 per share below analysts' original expectations. Revenue for the quarter came in at $2.7 billion, compared with $2.4 billion for the same quarter last year. The software developer reported a database license growth rate of 6 percent for the quarter, slightly better than earlier forecasts that pegged the growth rate at only 1 percent.
In a statement earlier in the month warning of the slip, CEO Larry Ellison blamed the last-minute downturn on the reluctance of chief executives at user companies to loosen their purse strings and finalize deals that Oracle was counting on during the final days of the third quarter.
"A substantial number of our customers decided to delay their IT spending based on the economic slowdown in the United States," Ellison said. "The problem is the US economy." Oracle chief financial officer Jeff Henley said the economic slowdown led to a negative 67 percent growth rate in the dot-com segment alone, hurting earnings overall.
But some users say the pricing used by the software developer is at least partly to blame. Last year, the company introduced a new pricing model for Oracle8i based on a measure it calls the "universal power unit" (UPU). The UPU is calculated by multiplying the number of processors by the processor speed. That number is then multiplied by the price per UPU, as determined by Oracle. The total price tag can run into the hundreds of thousands of dollars.
John Chadwick, a database manager for the British government, said the pricing problems have spread across the Atlantic. As dot-coms with different software from different vendors merge, they will inevitably be faced with deciding which is the most cost effective to maintain, said Chadwick. "Why replace a 250-MHz system with a 1,000-MHz system at the end of a lease if the Oracle license cost is going to not only exceed the server cost, but also the business benefit?"
In a recent study, Giga Information Group attributed the slowdown in Oracle database sales to an increasingly competitive market, customer confusion about the availability of the latest Oracle9i release and the company's "luxury scale" pricing.
"We believe many customers are at a minimum elongating their sales cycles, if not completely deciding against Oracle and moving to competitors solely based on cost," said Teri Palanca, an analyst at Giga. "This situation will continue unless Oracle either changes its pricing or begins ... to offer steeper discounts."
Rich Niemiec, president of the International Oracle Users Group, said many users are waiting for both the economy to pick up and the release this spring of Oracle9i, which is expected to offer money-saving administration features.
Carl Olofson, an analyst at IDC, said news of the slowdown, coming as it did during the last few weeks of the quarter, could be damaging to Oracle because the company has traditionally earned a large portion of its annual revenue at that time. Softness in the economy may be "somewhat to blame" for the downturn, said Olofson, but he declined to speculate on user dissatisfaction with pricing.
"Undoubtedly, many dot-coms based their business on Oracle products, and Ellison expected the trend to go on until the New Economy replaced the Old Economy," said Norwell. "Sorry, Larry, it ain't gonna happen in your lifetime."