Is there a Perception that Oracle is Misleading its Clients Over its Cloud Licensing Terms? 5 insights to be aware of

By Allan Watton on October 23, 2018

I recently came across an article in Forbes about Oracle’s cloud licensing terms that raises questions about whether it is misleading its clients over its operating practice. While this issue has arisen over Oracle’s cloud offerings, the key principles may well be relevant to you for other suppliers of solutions too.

The article was written by 10-year veteran contributor to Forbes, Dan Woods, CTO, consultant and speaker for Early Adopter Research, a New York-based organisation which helps businesses to succeed through the adoption of innovative tech solutions.

In the article, Woods states: “Oracle spends a lot of its energy and effort on persuading, some would say strong-arming, its clients into adopting its cloud technology. And lately, every year, Oracle rolls out some new techniques to get clients to pay for its cloud technology even if they don’t use it.” Woods clearly did not pull his punches with this review of Oracle’s tactics to ‘encourage’ customers into their cloud-based solutions with his views of their strategy for increasing profits.

To be fair, he does point out that Oracle is not alone in this, as some of its competitors also employ similar techniques: “Oracle, like all established software vendors with a big installed base, has a massive amount of incentives and pressure tactics to move its customer base in the direction it would like it to go.”

Technology companies, like Oracle, live for improved efficiencies to keep costs down and profits up. These organisations have to be seen as current and relevant to the investor market (because all big firms must consider how their perception impacts their share price), it’s not, therefore, surprising to Woods that Oracle is “pushing clients toward the Oracle Cloud or products that run on it”. Interestingly, however, he indicates that they may be using some rather unsavoury tactics to achieve this goal.

Cloud Customer Transition Strategy – 5 insights to be aware of

Within the Forbes article, Woods uses the opinions of Craig Guarente from Palisade Compliance to support his argument. For full disclosure, as Guarente’s business specialises in negotiating on client’s behalf to “enable businesses to reduce their Oracle costs, stay in compliance, and take back control of their Oracle business relationship”, his opinions may have a not entirely unbiased perspective. That aside, Guarente does raise some insights that should help to inform Oracle and other software supplier clients. Woods splits their shared views into five techniques that he has termed ‘Oracle’s Strong Arm Cloud Tactics’, which they use to convert existing users to their cloud products. It includes what he portrays as reportedly “worrisome” ways in which Oracle has conducted itself to these ends. We’ve summarised them below with our own commentary of these headings:

1. A Cloud First Policy

In view of the often business-demanding nature of Oracle applications, the vast majority of its customers are using on-premises versions of its software. While Oracle have had cloud-based products for some time, their acceleration of impetus to migrate clients to the cloud-based platforms is more recent.

In a move that appears to be designed to entice customers to convert to the cloud-based versions of its products, it now releases all new versions of its software on cloud first. This strategy seems a little sudden for Mr Guarente, though it is pointed out that Microsoft do a similar thing. So, if you’re an Oracle customer you’re left in no doubt that you are now entering ‘legacy’ status if you don’t convert to cloud.

The perception of legacy status is that it may become less supported, less demanded and potentially will be moved away from entirely at some point in the imminent future. This could be construed as a subtle mind game to make customers want to convert to the cloud. There is nothing wrong with that on its own, but when combined with the other tactics listed, it has raised questions.

2. Unlimited License Agreement (ULA) that Don’t Seem to be that Unlimited

If you have a ULA, you can ‘try before you buy’. It seems to allow clients to use unlimited licences until you are clear about how many licences you might need for your organisation, according to how you use the applications. However, when you do certify how many licences you need “you can only certify on-prem (SIC) licenses. For licenses you deployed on AWS or Azure, you have to buy new licenses.”

Mr Guarente stated that “It’s a way for Oracle to get you to not use third party clouds”, just Oracle Cloud. If this is the case then this is intended to lock down Oracle use onto Oracle systems, presumably so that monitoring and monetisation prospects can be maintained with a higher degree of accuracy and greater certainty. Although this still seems innocuous at first glance, it could be construed as questionable business and commercial practice.

3. Support Limitations

Woods goes on to suggest that Oracle are making it more difficult for its customers to find all of the information they, or third party support specialists, may need to manage and support their software. Woods states: “Oracle has a very complex licensing structure in which licenses refer to policies that may be online that then refer to other documents — it’s an intricate web of information.” And, that by limiting downloads and access to support documents they may be looking to steer customers towards their own support services. Guarente told Woods: “Oracle has an obligation under most of its support agreements to not materially reduce the level of support. Is this a material reduction? I don’t know the answer to that. But it’s worrisome.”

4. No Warning for Breaching Licence Usage Limits

When Oracle moves customers to the cloud it seems customers are encouraged to purchase Universal Cloud Credits (UCCs), which is the bulk purchase of licensed usage. Woods states: “Under this structure, customers spend a certain amount over three years to buy cloud credits, but then pay immediately for 1/36 of those, regardless of how much is used. Additionally, customers then pay for going over their cloud usage in an individual quarter.” Guarente presented the issues to this being twofold: firstly, as an organisation ramps up its usage of Oracle it may well be paying for access it does not need or fully utilise at the time, and secondly, and more importantly, there are no inbuilt safeguards within the login process to prevent a customer from going over its usage limit. At the end of a quarter, or as a result of an Oracle audit, Oracle customers could find themselves with sizeable bills that they had no idea they would get, as visibility of every user and every time they access Oracle systems can be challenging for a large organisation. The question is, does Oracle have a duty to provide customers with a mechanism for informing them when their access limit is nearing or has been reached to avoid such a situation in the first place, or is this simply a strategy for maximising the financial potential afforded by each existing customer?

5. Audit, Bargain, Cloud

It’s not an uncommon practice in the tech sector. ‘Audit, Bargain, Cloud’ is a tactic that Oracle are reportedly using to get customers onto a UCC licence agreement where, as stated above, there is the potential for the customer to inadvertently ramp up sizeable and unexpected bills. This is the crux of Wood’s article – the ‘strong-arm tactics’ he refers to.

At licence renewal, or at any time of Oracle’s choosing, they will reportedly run a detailed audit of a customer’s usage levels. As a result, usage information appears to be visible to Oracle but not to its customers. This is subsequently used to determine whether the customer has exceeded its licence limits. As it seems easy to do so, many may have and then they are reportedly faced with a stark choice by Oracle – pay up or move to the cloud, buying UCCs – and some of the money owed will be taken off the bill.

This seems to have been an issue for some time because in an article for Business Insider in 2015 Guarente says: “We’ve seen an uptick in aggressive audits and breach notices”, and in the same year Computing magazine ran an article on the subject stating: “Oracle has been accused of adopting ‘brutish’ sales tactics that ‘show disregard for customers’ and of ‘putting profits above gaining customers’ trust’ following the introduction of a new sales culture.” Then quoting an Oracle competitor “Oracle is issuing ‘breach notices’, where their sales representatives inform customers that they are over-using their service and have 30 days to either negotiate or stop using Oracle software.”

Conclusion

Woods concludes that “…it would appear that Oracle sees a need to pressure customers into cloud adoption. That hardly seems like a great business retention strategy, but given Oracle’s power over its customer base that comes from its licensing and compliance practices, it is a powerful tool.” The article raised some interesting thoughts.

1. Whether the identified issue of usage breaches is a tactic by Oracle or an oversight by them, shouldn’t the organisation be responsible for adapting its tech to warn its customers so fewer of them suffer the breaches and massive bills for over-usage? For a company like Oracle, surely that would be a simple fix, because if they can run an audit and identify when the breach happened, where it happened and by how much it happened, then surely this could be built into the solution?

2. Should this be possible, then wouldn’t Oracle have a duty to warn its customers that they are reaching their limit and to give them the option to increase limits or licences. Alternatively, to provide them with a grace period, should they exceed their usage limit, in which to choose whether to increase usage limits to maybe pay a slightly higher sum for the breach amount only if it’s a temporary situation?

Good practices are almost exclusively clear and simply understood by all parties. Therefore, should you be involved in licensing agreements, either as a supplier or a client, it would make sense to conduct all appropriate due diligence to ensure that there are any ambiguities or omissions in the licence which could be a cause of contention in the future or that are likely to adversely impact the manner in which you intend to use the software being licensed. Is Oracle misleading its clients? That’s for you to decide, but to see the article that inspired this piece, and a more detailed view of what Woods and Guarente think on the subject, click here.

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