Oracle Corp. is pushing its high-end Exadata database appliance very hard, discounting the software and hardware components aggressively to close deals. But results thus far have been -- to
In the last few months, large Oracle shops reported discounts of more than 70% on the software portion of Exadata (in some cases higher than 75%) and 30% off the hardware. Those are aggressive discounts even for Oracle, which is famous for its quota-motivated sales force, and are probably due in part to the closing of Oracle’s fourth fiscal quarter on May 31, 2011. Oracle will release its fourth-quarter and year-end financials on June 23.
One long-time Oracle partner said that, unofficially, the typical discount runs 45% to 50% off list price for any software license deal worth $250,000. For bigger deals worth $1 million list, discounts can range from 65% to 69% off list in total for the partner, leaving the customer discount at 58% to 62%. Oracle did not return phone calls requesting comment.
The highest discounts seemed to target the company’s largest and most important “referenceable” customers, many of which were not happy with how Oracle adapted pricing on its year-old Sun Microsystems hardware franchise.
One large financial services firm which last year decided not to upgrade any of its existing Sun boxes, is now trying out an Exadata after “extremely deep” discounts were offered, a source there said.
But smaller, legacy Sun shops are not even kicking the tires on Exadata or Exalogic. The IT manager of a mid-sized healthcare chain in the Midwest said it has decommissioned all of its Sun hardware and he also plans to move the groups’ database workload off Oracle over to Microsoft SQL Server very soon. Why? Because of what he called Oracle’s pricy support and maintenance plans.
This case is particularly telling because the IT manager was a huge fan of Sun hardware. When the company’s last 30 to 40 Opteron-based Sun servers were packed up on the loading dock, bound for destruction, he had a very strong reaction. “I cried,” he admitted. “They were very good machines.”
In this case, the 3,000-person company that was a Sun hardware and Oracle database shop is morphing into an HP hardware and Microsoft database shop.
On the flip side, Alex Gorbachev, CTO of Pythian, an Ottawa-based provider of remote database services, said he sees a lot of interest and promise in Exadata, especially among Internet services-type companies that run their entire business on the database.
Big price is an issue even for big accounts
Oracle is hardly alone in pushing high-margin hardware/software appliances into enterprise data centers. Today Hewlett-Packard announced a spate of its own data center bundles.
But this consolidation of IT into big, expensive chunks carries its own concerns. Exadata, for example, concentrates a lot of heretofore separate data center purchases into one very big ticket item—even figuring in discounts.
For example, a full-rack Exadata Database Machine X2-2 HP (HP stands for high performance) lists for $1 million for the hardware alone. If users don’t move existing database licenses over, they’ll need to buy them -- the Oracle enterprise database lists for $47,500 per processor and the Exadata shop has to license that software for all active cores in the box. With 96 cores total in that model, that comes to a very big number. Exadata storage server software is another $10,000 per disk drive, and that cost gets rolled into the overall software support and maintenance agreement, said one source who has studied Oracle’s terms and conditions.
For maintenance, Oracle charges 22% of the software purchase price annually for the first two years -- that’s 15% for support and 7% for product upgrades. After the second year, Oracle ups the maintenance price by 5%. When it acquired Sun Microsystems, Oracle put all Sun hardware on 12%-per-year maintenance fees and mandated 100% support coverage that starts the day a server is ready to ship. If a customer had let some hardware go off support, it had to pay extra to get back on track and had to support 100% of all hardware in its shop to get patches and firmware upgrades. So, add 12% of the discounted Exadata hardware price to the support bill. All that adds up to a very healthy annuity stream, one that Oracle co-president Safra Catz once referred to as Oracle’s “birthright.” It’s also a huge expense for Oracle shops, and those that do the math carefully might opt for a different path. Some big Oracle shops without Exadata, but still weighing support costs, are dropping support on non-essential applications and modules to save money.
Goal: Moving the legacy Oracle software shop to Oracle hardware
Going forward, Oracle’s challenge is to preserve its huge database and applications installed base. One way to do that is to consolidate customer purchases onto Oracle hardware in a sort of turnkey iPod for the data center. That way all that software support gets rolled into one contract that is locked to the hardware itself. Many Oracle watchers refer back to Larry Ellison’s comments last year about how much he admired the IBM of the 1960s -- the IBM that built an empire on expensive turnkey IBM mainframes running IBM software.
Toward that end, Oracle’s ideal scenario would be for customers to run their databases on Exadatas and their middleware and applications on Exalogic, Oracle’s self-proclaimed cloud in a box. Exadata adds still more Oracle software -- Elastic Cloud to the mix. In that scenario, even more of a given company’s IT budget will be allocated to Oracle support and service.
All of that depends on Oracle being able to keep existing Oracle software customers happy. And there are, to be sure, real advantages in pre-integrated and tested software/hardware.
“The beauty of it is, once you buy, you get one number to call for all your support -- for the OS, hardware, software and storage. It’s definitely an appliance play. And, the knock on IBM all along was you got a bag of parts and then had to pay a lot to get IBM Services to come in and connect it all up. Oracle’s trying to push the whole car, not just a bunch of automotive parts,” said Scott Jenkins, CEO of The EBS Group, a Lenexa, Kan.-based Oracle consultant.
Oracle also clearly hopes to convert existing, loyal database customers who run the software on IBM, HP or Dell hardware to its own appliance.
“Oracle sells really well into its existing installed base. It protects those users with forward and backward [software] compatibility. Oracle’s challenge is to sell beyond that base,” said Lloyd Cohen, IDC’s director of worldwide market analysis for global enterprise server solutions.
But a recent Gabriel Group survey and other anecdotal reports indicate that the vaunted loyalty of longtime Oracle shops is fraying around the edges.
One IT pro who has parsed the Oracle Exadata and Exalogic terms and conditions carefully said other Oracle shops had better do the same to avoid support sticker shock down the road. “I think a lot of these people don’t know what they’re signing up for,” she noted. “This is a pretty extreme example of attempted vendor lock-in,” she said.