In Part I and II of this series we looked at how Oracle’s strategy is to protect and grow its support and maintenance revenues, at all costs.
As client budgets are stretched and competition from the open source movement grows, Oracle faces increasing pressure on its support renewals and becomes more and more sophisticated in sustaining them.
We examined why Oracle is pushing its Unlimited License Agreement (ULA) mechanism, trading perceived high discounts and flexibility for long term lock in of support and maintenance fees.
So, in Part III we conclude the analysis by looking at the fundamental steps that clients should undertake to negotiate an optimal ULA and why getting it wrong can be a lifetime penalty.
Step 1 Evaluate your Oracle License Requirement.
In our experience of having dealt with dozens of ULA’s, we invariably see clients that perceive ULA’s to be simpler than traditional perpetual licenses. Not the case, and understanding the fundamental sophistication of the ULA model is critical to Optimising Oracle ULA’s and avoiding the pitfalls. Learning from industry peers or independent specialists fast tracks the learning.
When Oracle itself estimates its return from a ULA it uses the term of the ULA and adds on 2-3 years. Thus a 3 year term ULA value is considered over 5-6 years. We advocate that clients should use DCF and ROI calculations in the same manner.
By modelling TCO this way it will quickly become apparent that getting deployment forecasts wrong will have a major impact at the end of term ULA declaration and crystallisation point. An extended term TCO calculation based on the pessimistic deployment forecast will open the right eyes and illustrate the potential risks.
Step 2 Negotiate the ULA
Focus on signed off Oracle product requirements and avoid the age old temptation of the ‘bundle’ as this is a major reason for shelf ware, value erosion and future frustration.
In any complex ULA negotiation the procurement team will face potentially hundreds of negotiable variables including price, terms, products and metrics to name a few. Focusing on the most relevant and realistic variables in a given situation will reduce the negotiation cycle and increase the value of the final agreement.
Understand the levers of value realisation. The actual value of the agreement will only be known after the actual term of the agreement itself. By far the greatest impact on actual value attainment will be actual deployment and terms that inhibit future flexibilities.
Inevitably negotiations focus on discount. In our experience however, the impact of discount itself is marginal when terms are poorly understood, risks are not estimated and deployment forecasts turn out to be optimistic. It is difficult to validate any discount percentages that are proposed for a ULA as there is no baseline list price for an “unlimited” license.
It is possible however, to make an assessment against your own forecast of expected product deployment over the ULA term and in the end, the net price will be the focus of any negotiation.
Step 3 Manage the ULA
It is rarely understood that an effectively negotiated ULA that is poorly managed during the term will often under perform compared to an average ULA that is well managed in terms of value realisation.
The majority of ULA’s will lose relevance during their term as unforeseeable events unfold in the client’s business, in datacentre environments and within Oracle itself. Remember that Oracle has made over 67 acquisitions since 2002 and the pace is not slowing.
Planning to track and assess the impact of known and unknown risks will inform a client of strategies to enhance the tangible benefits of a ULA. Getting the right monitoring and change management strategy during the term will help optimise the value from an Oracle ULA.
In reality many ULA’s do deliver flexibility and great value. However very many, possibly the majority under perform, sometimes significantly in relation to the business case used to justify the commitment. The long term consequence can be crippling and totally locked in.
Unless a client understands the nuances of ULA’s, has a robust long term view of its business and technology deployment, and proactively manages the risks of change, it will be a game of chance as to whether it delivers