What does Oracle's new universal credit model mean to users?

30 oct '17 - Richard Spithoven - share: LinkedIN Mail
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With the announcement of the new “universal credits” model, Oracle aims to strengthen its position in the cloud market and break through Amazon’s hegemony. Does the software vendor succeed? And what should you pay attention to as an Oracle customer?

Although Oracle’s cloud sales are clearly increasing, the actual use of sold PaaS and IaaS products is lagging behind - especially in comparison to Amazon. On the one hand, this due to Oracle account managers using financial incentives - huge discounts, audits - to get customers into the cloud. Customers therefore sign a deal because it is financially attractive (for their on premises licenses), not because they need it professionally or already want to start using it. On the other hand, Amazon has been offering IaaS and PaaS services for over ten years, so why should you choose Oracle, that only recently started to focus on cloud? In addition, many companies don’t necessarily have a good experience with Oracle on a contractual level.

 

Flexible contracts

Oracle is trying to break Amazon’s dominant position in multiple ways. That started earlier this year by making the use of Oracle Database and Middleware software programs through the Amazon Cloud more expensive. Now the universal credit model is introduced. Oracle’s first cloud contracts had the same inflexibility as the old on premises licenses contracts, but with this new model, Oracle gives its customers much more freedom.

For example, if you bought a specific PaaS service for 100.000 euros, you were stuck to that service for a period of 12 months. Did you find out that another service was actually needed more during that year? Then you would have to close a new deal and lost 100.000 euros. In the universal credit model, this is much more flexible. You still invest the same 100.000 euros for a fixed period (for example 12 months), but can use that amount for all Oracle’s IaaS and PaaS services. In terms of user-friendliness, this is a huge improvement. The bigger the investment and the longer the contract term you commit to as an organization, the more advantageous the price agreements are.

 

Cash in on installed base

This way, Oracle certainly makes its cloud services more interesting for companies. But that does not mean that you have to accept just any cloud offer. No matter how financially attractive a deal seems to be, first, make sure your organization really needs it. And even if the added value is evident, it’s important to realize that Oracle has only one interest: getting as many businesses in the cloud as possible, as quickly as possible. The deal might be financially attractive now, but what guarantees are there that it will remain the same in three years?

 

Oracle is likely to increase the prices over years. It would be a repetition of Oracle’s approach in the early 80’s: first, it conquered a lot of market share with huge discounts, then conditions were adjusted (and prices were raised) to make more profit. Cashing in on installed base is a tactic used by many software vendors, in the cloud as well. Adobe initially offered its Creative Suites quite inexpensive in the cloud, but in the meantime, prices have been greatly adjusted upwards.

 

Spread your risks

You can overcome this by preventing being completely dependent on one software vendor. If you have all key applications, databases and hardware in the cloud with Oracle, there will be a vendor lock-in. This eliminates your negotiating position and Oracle can basically ask for any price they want. Spread your risks across multiple vendors. If you’re already in the process of switching to the cloud with its significant changes, this is the perfect moment to think about it. An additional advantage is that you can choose the best products from different vendors so the overall quality of your IT increases.

 

This article is also published on computable.nl (Dutch).

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