Revenue from new software sales is often used by analysts as a barometer of long term software company health and an indicator of general market confidence.
It’s a concept which speaks volumes when you look at Oracle’s recent remarkable earning results — the software giant grew an impressive 29 per cent in this area to $2.2bn (£1.34bn) for the third comparable quarter.
On face value this sounds pretty positive for CIOs and it’s great to see growing confidence in IT spend and competitive advantage in Oracle products. But under the surface, there are a few areas where danger is bubbling and it will pay CIOs to sit up and take note.
Let’s take a look at each key area of Oracle’s business and highlight some of these considerations for CIOs:
Recently there has been an apparent drop off in mid-market, smaller Oracle software deals. Historically these have been driven by business change programmes or often by compliance issues.
By contrast, ULA (unlimited license agreement) and ELA (Enterprise license agreement) style deals have increased dramatically. Oracle has managed to transact these deals with increasing efficiency, tying CIOs to the company for fixed periods of time.
Unusually for Oracle, we’ve also seen more sales campaigns sidestep CIOs and target those at the business executive level. The explanation behind this is simple — this group is more likely to go for a policy which, although expensive, means that compliance simply isn’t a concern. Money makes the problem go away.
But it’s CIOs who will likely have to point out the pitfalls of the intensive management and mammoth investment required to make the most of them.
Another area of stress for CIOs on the software side is previously bundled free-of-charge offerings within some of the (70+) recently acquired Oracle product lines. Changes in small print and shifts in attitude means that Oracle clients increasingly have to reinvest in software or support that they thought they already had rights to.
The SIA (Service Industry Association) has noted this and has recently lodged a complaint with Oracle in the US and Europe. This will be one to watch for CIOs and the precedent it sets could have long-lasting consequences for everyone’s bottom lines.
If you want to know where the confident Oracle swagger came from prior to the earnings call, look no further. Support is Oracle’s cash cow and increasingly its most protected asset.
The same ULA secret weapon used to boost software revenues is now being used in the Oracle fight against support fee cancellations. We don’t have too much room for detail here, but once a ULA is entered, the option to cancel support for unused products is more or less totally signed away.
This gives CIOs untold future concern, for example we know of scenarios whereby huge tranches of unused products cannot have support fees cancelled… ever.
Buyers beware. But not many buyers can realistically foresee some of these pitfalls and CIOs are often paying for shelfware, in perpetuity.
Oracle’s story of engineered-and-supported-as-one is resonating with CIOs and we see signs of deep concern in the IBM camp. IBM realises, as do CIOs, that if Oracle keeps winning share in high-end servers, its position will become difficult to shift.
Oracle has unusual power over the market, demonstrated recently with changes to Itanium server pricing and the recent announcement of end of software development for that platform — a move designed to increase licensing fees and disadvantage its competitors.
It is clear that Oracle is executing an impressive long term strategy that will secure its growth and the IT market’s dependence upon it. But as CIOs become more reliant on the software giant they will have to consider increasing their investments in vendor management and Oracle assetmanagement.
The alternative is to keep letting Oracle decide the rules of the game — a move which is sure to make life as a CIO an increasingly expensive and painful experience.
Martin Mutch is CEO of Rocela
Pic: Peter Kaminskicc2.0