Oracle Licensing Under Fire Once Again--This Time From Gartner

Oracle

On Monday, Gartner Group told its corporate clients to double-check Oracle software-licensing fees to ensure that the company has not "inappropriately imposed extra" charges on their database use. Gartner advises corporate customers on technology choices and licensing options. The report was publicly released late Tuesday.

Last week, Meta Group, another research firm, published a report saying Oracle had reinterpreted some terms in its contracts to extract extra fees from existing clients, a charge Oracle refuted.

Both research firms, as well as some Wall Street analysts, suspect that Oracle is seeking incremental revenue from current customers because new license sales have fallen for several quarters. New license sales for Oracle were down 30 percent for its last fiscal quarter, and database sales were down 25 percent, Oracle said on its last earnings call.

Betsy Burton, an analyst at Gartner, said Oracle has hurt itself among corporate accounts with high-handed sales tactics. So much so that it may be endangering its core database franchise.

"The core issue Oracle faces over pricing, over any economic issue and Sept. 11 residual [impact is its credibility in the marketplace. . . . Until they reconnect with their customer base, they're in trouble," she said. "Microsoft SQL Server is now a viable alternative, and despite IBM's stumbling around with different code bases, [it has a viable option [in DB2. This is not a one-horse race in the database market nor in any other market Oracle is in--from application servers to CRM," Burton said.

Oracle said it is within its rights to audit customers on their software usage.

"If there is an audit and you are found to be out of compliance, if you license 50 users of Financials and we determine you are using not only Financials but also Discrete Manufacturing . . . we will tell you to stop using it or pay for it," said Jacqueline Woods, vice president of Global Services at Oracle. "When someone purchases the software and pays for it, that's fine. If they're using software they didn't purchase, well, we do have some rights," she said.

All software companies reserve the right to audit corporate software use. Microsoft, Adobe and other vendors often rely on the Business Software Alliance, a Washington-based group backed by many vendors, to audit companies' software usage. Oracle is not a BSA member.

Woods said the company is doing no more customer audits than usual--about 400 annually. The company has 150,000 customers so "that's about three-tenths of one percent," she said.

Woods acknowledged that Oracle has been hurt in the past by overzealous field sales forces often under pressure to make their quota, but said that is old news from five years ago. "It still hangs on. I don't want to say we have a halo, but we have at least half a halo. We've changed our business processes and tried to be more customer-friendly," Woods said.

The Gartner report attributes the current problems to the Oracle field, not to headquarters. The report said Oracle salespeople are trying to press customers into buying the licensing option that costs the most, "whether it's processor-based or named-user" pricing.

And the report said some sales people are trying to sell far more licenses than a given customer would ever use in five- and seven-year enterprise license agreements.

It recommends that customers get price quotes on both per-processing and named-user licensing for any given installation and to do their own audits regularly on software use. The report also said Oracle wanted customers complaining about licensing issues to contact George Roberts, executive vice president of North America sales, directly.

A midwest database reseller who works with all of the major database vendors said that while Oracle databases scalability and security issues make it a favorite among enterprise accounts, "bad feelings for the company have been building among customers for some time."

Teri Palanca, database analyst at Giga Information Group said there is "a lot of urgent Oracle license renegotiation going on now."

In the past, Oracle's market leadership and technical expertise let it do what it wanted when it came to pricing and licensing. But that has all changed, Palanca said. "Back in the early '90s, they could get away with it against little companies such as Sybase and Informix. But now they have behemoths such as IBM and Microsoft to contend with. It's not like there's no competition."

Ironically, Oracle has made progress mending fences with another constituency: solution providers. Late last year, it changed its sales program so that value-added partners could partake in even the largest enterprise software sales.