Oracle looks to evolve pricing; customers wary

Oracle looks to evolve pricing; customers wary

While Oracle executives are still talking up the benefits of the company's Project Fusion technology road map, users are still pondering how they will be footing the bill for it.

Project Fusion is Oracle's initiative to create a Java-based best-of-breed suite of applications based on components of its wide-ranging technology portfolio. With the acquisition in January of one-time rival PeopleSoft and its more recent buyout of retail software maker Retek, the company has also inherited a handful of licensing schemes it intends to pare down. That leaves a number of users, particularly those with PeopleSoft and J.D. Edwards & Co. installations, a bit wary.

Customers have a lot of questions about how the new licensing model will work, said Pat Dues, president of the independent Oracle Applications User Group (OAUG) in Atlanta. For instance, users who run PeopleSoft ERP and want to migrate to Oracle's software, or vice versa, are wondering how that will affect cost, said Dues, a project officer for the Las Vegas city manager's office, which uses Oracle E-Business Suite 11i.

To help deal with pricing issues, the OAUG maintains a pricing council to deal directly with Oracle and keep its members informed of any changes in policy.

For its part, Oracle has worked to reassure its installed base. "The sky is definitely not falling," said Jacqueline Woods, vice president of global practices at Oracle. Whatever existing licensing deals customers have will remain in place indefinitely; users need only convert to the Oracle model if they are expanding their license footprint, she said.

Under current licensing plans, Oracle is doing the following :

  • Oracle E-Business Suite 11i relies on named users, with two classes of users: in-house professional users and external self-service users.
  • PeopleSoft offers an enterprise user license based on parameters such as revenue or employees.
  • J.D. Edwards and World offer concurrent and named user schemes.
  • Retek factors in vertical-related variables such as the size of a company and the modules in use.
In the long run, to simplify pricing, Oracle is eyeing a variety of polices, including one that charges by a specific workflow that might run over several applications, such as order to cash, or by transaction volumes, Woods said.

Despite corporate assurances, "as it relates to pricing, most customers that I have spoken with are still unclear as to the current and evolving strategy," said John Matelski, deputy CIO for the city of Orlando, a PeopleSoft Enterprise ship. Matelski sits on the board of the Quest International Users Group, which is made up of J.D. Edwards customers.

If Oracle keeps its current maintenance pricing schemes, users will be satisfied, Matelski said. "Having said that, there is fear that changes will be made, and this is what's driving concerns in the global user community," he said.

Matelski also said customers want to know a firm date when Fusion pricing will take effect.

There isn't one yet, said Woods. "Fusion is an evolutionary process, and as we evolve, we will have a licensing model that supports the Fusion product set," she said.

A couple of J.D. Edwards customers observed that Oracle doesn't support a concurrent-user model -- only named users. That can lead to a loss of flexibility in licensing, said Robert Robinson, business systems supervisor at Durr Industrie, a J.D. Edwards EnterpriseOne shop in Plymouth. To add seats, Durr said he would have to buy them under a named-user license. He called pricing a "concern."

The Fusion project is a tremendous undertaking that will require what Robinson called a "generous" research and development budget. He wondered how Oracle will recoup its investment and questioned whether the company might pay for Fusion by raising prices for non-Oracle shops that migrate to Fusion, spiking maintenance fees or charging for migration.

"As the Oracle evangelists circulate, no one has yet talked about the cost to the user," said Robinson.

Woods said that a company can use both concurrent and named-user pricing schemes, noting that the latter model is the cheaper of the two.

For now, Oracle is looking to ensure stable recurring revenue and probably won't be doing much tinkering with pricing, said Paul Hamerman, analyst at Boston-based Forrester Research. He predicted that the company will discount heavily against rival and market leader SAP and ultimately turn to a subscription pricing scheme.

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