Oracle's Executive Chairman of the Board and Chief Technology Officer Larry Ellison speaks during his keynote address at Oracle OpenWorld in San Francisco
Former Oracle Corp. CEO Larry Ellison. Photograph by Robert Galbraith — Reuters

Oracle reportedly wields audits, license disputes to push cloud agenda

Jul 10, 2015

Anyone who has ever met an Oracle (orcl) sales person knows from a high-pressure sale.

For these people much of their rich compensation comes in bonuses earned when they hit particular quota numbers. So it's not at all surprising that Oracle, now all-in on cloud computing, is telling its sales people to push cloud and structuring incentives so that cloud sales are richly rewarded while sales of traditional on-premises software licenses, not so much.

If there is any doubt about Oracle's priority these days, co-founder and executive chairman Larry Ellison says it's cloud, and when Ellison speaks, the sales staff listens, especially when compensation aligns with what he says.

So, if an Oracle sales person hits 200% of her quota on sales of traditional on-premises database or middleware software, but misses the mark on cloud by even a smidge, she's not going to make the big bucks she would if she hit the cloud number alone.

This is not a new tactic. When Oracle, which had no comment for this story, came out with its Exadata hardware several years ago, sales people were paid more based on their hardware quotas than on software. So, while the hardware price may not have been discounted, sales people were cutting the price of associated software, sometimes to the bone, to make their server number. The salesperson made more money, the customer saved money at least on upfront software purchases. Win-win. Now pretty much the same thing is happening in cloud, according to reports in CRN and Business Insider.

According to CRN:

For a customer that needs to buy $1 million in net new Oracle software licensing (after discount) for a budgeted, on-premise project, Oracle sales reps will knock the price down to $800,000 if they agree to buy $200,000 in cloud credits, the sources told CRN.

The customer also saves money on its software support renewal, which costs 22 percent of the total amount of software they buy. After the first year, the customer can renew support based on the $800,000 figure as opposed to the $1 million figure.

In addition, Forbes reported last month that Oracle is wielding software audits — in which it checks to make sure big customers are complying with their Oracle enterprise license agreements—to sell more cloud.

According to that story, Oracle, which would not comment, is calling lawyers in faster to invoke "breach notices." These contractual notices mandate that non-compliant customers stop using the relevant software within 30 days. If the software in question happens to be the company's lifeblood database, that is a potentially lethal threat. But guess how the customer can avoid all that unpleasantness? By buying cloud! Cha-ching for Oracle.

Many software companies use software audits to wring more revenue out of existing customers, and critics suspect that licensing contracts are so complicated and long that it would be a miracle for any IT department to stay in compliance. Microsoft (msft) at least has promised to simplify this process, although the jury's out on that effort.

In some cases Oracle's existing customers are signing up for cloud to get better deals elsewhere or to stay out of the legal doghouse. But that's not the end of the story. The ticking time bomb here is that is that those signing up for "cloud" to get heavy discounts on other gear, may not end up using the cloud at all.

"We know people buying cloud to get the better software deal, many of whom may have the option to will turn it off in a year," said Daniel DeVenio, vice president at Palisade Compliance, which specializes in Oracle licensing advisory services.

So, such short-timers may be one-time gain for Oracle (or Microsoft.) but they may not constitute a long-time cloud win.

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