Falling Dollar Leads to Oracle Enterprise Software Price Increases

Oracle recently announced a 15 percent hike in prices for some enterprise applications, and Forrester Research predicts there's more price increases from other U.S. vendors on the way.

In mid-June, Oracle released "updated" versions of pricing lists for its ERP and CRM application suites, database offerings and other product sets.

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Many of the increases were significant: a CPU license for its database, for example, rose from $40,000 to $47,500, more than 18 percent. In a Forrester Research report on the increases, Principal Analyst Ray Wang noted that Oracle applications previously priced at $3,995 per user jumped 15 percent to $4,595 per user. Those include such applications as: financials, HR, enterprise asset management, and inventory and order management.

With all that's going wrong with the U.S. economy, why would Oracle do this now, especially since Oracle reported strong fourth-quarter and full-year financial results in late June?

"Increases during an impending economic downturn appear illogical," Wang notes.

One of the main reasons behind the move is because of the worsening state of the U.S. dollar, and Oracle execs might see big trouble looming on the horizon. "Forrester believes that recouping for dollar devaluation is the main rationale behind the recent price shifts," writes Wang in the report. (For more on dealing with Oracle, see "How a European Bank Got Oracle to Surrender Key Software Licensing Points.")

There are two currency-related problems right now for Oracle, contends Wang. First, is that Oracle offers "one global price list" for all its products based in U.S. dollars, which Oracle makes public—a highly unusual move. (So if you're buying Oracle database technology in Europe now, you're very happy.)

"Unlike many vendors who account for global currency fluctuations with country-, region- and industry-specific uplifts, Oracle maintains consistent pricing in dollars," writes Wang. "The dramatic devaluation of the dollar has led to a de facto discount in the 30 percent to 35 percent range for multinationals that purchase in the pound sterling, the euro and, to a lesser extent, the Japanese yen. As a result, price increases mainly affect the U.S., while other euro zone countries will not see a major increase in real dollar terms."

Second, CEO Larry Ellison has challenged his company to hit 50 percent profit margins and 20 percent earnings annual growth. Much of that will come from Oracle's business application lines, like Hyperion, BEA and Siebel, which are part of Oracle's acquisition strategy. (See "Inside Oracle's Plans to Conquer the SMB Applications Market" for more on Oracle's future strategies.)

"With Forrester's estimate that more than 50 percent of Oracle's sales and sales expenses are incurred outside of the U.S.," Wang writes, "the currency issue has hampered this margin objective and created pricing arbitrage." (Wang notes that Forrester and other analysts firms have recommended that their clients purchase enterprise software in non-dollar currencies to "take advantage of the currency arbitrage.")

As of late, Oracle's financial results have come to signify the relative strength of the U.S. technology marketplace, as viewed by Wall Street. Therefore, enterprises should figure that more U.S.-based software companies may be increasing prices on their software and products.

"Dollar devaluation not only affects the price of oil, but now enterprise software as well," notes Wang. "Expect other US-based software vendors with a global presence and single global price list to make changes to the 'Silicon Dollar' equation and raise prices accordingly."

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