As most sourcing professionals would agree, Oracle is one tough vendor. From its organisational complexity, to the challenge of finding good negotiation leverage, this growing technology giant can be one of the most challenging to work with. A recent survey of 20 different Oracle customer organisations within Forrester's Sourcing and Vendor Management (SVM) Leadership Council found that across the board, the primary point of contention was Oracle's lack of flexibility on price model evolution, volume/scope changes, and overall business transparency (such as pricing). Council members also expressed that from their perspective, Oracle constantly tries to upsell and increase their costs.
But let's face it -- you can't avoid Oracle. The same survey also found that while many member organisations claim they would prefer not to do business with Oracle, it's broad portfolio and frequent acquisitions make it nearly impossible to totally remove from your sourcing strategy. In the words of one council member, it's "very difficult to get rid of them!"
You're up against some of the most able, highly trained, and well motivated sales reps on the planet, but by understanding how Oracle works, you can increase your chances of reducing costs and improving terms and conditions. Drawing on existing research, Oracle's Annual report, current news items, and feedback from its SVM Council Members, Forrester offers the following recommendations for sourcing managers looking to achieve better results from Oracle negotiations.
1. Prepare for Oracle's Central Approval Process
Oracle has highly centralised approval processes, so it is insufficient merely to convince your rep to give you the deal you want -- you also have to help him convince the decision-makers in Redwood Shores. The rep submits your case via a deal summary that describes the customer's context, what products you are considering buying, what concessions he wants to give you, and why. To help reps assemble the evidence to support your case, sourcing pros should focus on maximising the current deal's size as well as identifying future revenue opportunities. Oracle's discounting policy looks mainly at the current transaction, so bring forward and push back small purchases to aggregate them into a single PO. That may mean you start paying maintenance on some products before you're ready to implement them, so factor that into your evaluation and ensure that your discount level takes that into account.
Sourcing managers should also strive to create high-level contacts between your executives and Oracle's sales and marketing leaders who are responsible for your industry. Offer to support their efforts by acting as a case study and reference customer, participate in their product planning process, speak at Oracle's events -- all of these add weight to the deal summary and help justify favorable treatment.
2. Consider Unlimited Agreements to Gain Leverage
Oracle's growth trajectory drives incentives for customers to buy licenses now that they perhaps do not need for several years. For organisations that have already selected Oracle as their preferred supplier, this can provide some leverage as they enter into contract negotiations. Sourcing managers that expect to buy a lot from Oracle over the next two to three years should take a good look at its unlimited license agreement (ULA), which eliminates the need to control and manage license metrics such as users and processors.
ULAs are typically a win-win deal for Oracle and the customer. In addition to simplified license management, buyers can get attractive discount levels with a ULA. For example, Forrester has helped clients cut the price they pay for Oracle licensees by over 30 per cent by placing a single purchase order for what they would otherwise have bought over a three-year period. Oracle will use these discounts to encourage customers to sign a ULA, as it has to sell more and more ULAs each quarter to make up for the revenue it can no longer get from customers that already have them.
3. Negotiate Maintenance with a License Purchase or Consider Third-Party Support Providers
Standalone maintenance renewals are rarely even negotiations because Oracle holds all the cards. You can't even threaten to delay the PO because Oracle will bill you anyway, withhold support until you pay, and charge you reinstatement fees when you admit defeat. You can, however, try to avoid being in this position by securing amnesty from annual increases when you make the initial purchase. In return for a large contract, Oracle will often agree to hold maintenance costs for two to three years. In addition, while Oracle's repricing policy typically prevents you from cutting support fees on products you're not using, reps may agree to an adjustment if you scrap some licenses at the same time as you buy something else. Your total support won't go down, but it will go up less than it would have done had you not obtained the concession.
For those that refuse to accept Oracle's maintenance rates, third-party support providers (3SPs) are still an option, for many of Oracle's applications. Most companies should stay with the software publisher's maintenance program and ensure that they are able to upgrade frequently to benefit from the stream of new functionality. However, some business units won't be able to do that, either because they have over-customised the product or simply because they are very satisfied with their current release. For sites without near-term upgrade plans, 3SPs like Rimini Street, Abtech, CedarCrestone, netCustomer, Spinnaker Support, or Versytec offer customers immediate cost savings, improvements in service levels, and immunity from continual price increases.
Duncan Jones is a principal analyst at Forrester Research, where he serves sourcing and vendor management professionals.
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.