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What will Oracle's price hikes mean for Oracle customers?

Oracle's new list prices will likely come as bad news for existing and prospective customers, but there are still areas for leverage in negotiations, analysts say.

Oracle's decision to raise its list prices by 15% to 20% is cause for concern for both existing and prospective customers. But there are opportunities to offset those hikes, according to industry analysts.

Oracle's new price list, updated June 16, includes increased pricing for its new 11g database Enterprise Edition (from $40,000 to $47,500 per CPU) and for BEA Weblogic, now named Oracle's lead app server (from $17,000 to $25,000 per CPU).

"There will be some concerns among customers and new prospects," said Duncan Jones, senior analyst with Cambridge, Mass.-based Forrester Research. "People have to be careful and look not just at headline figures, but everything. It's one reason we advise our clients to get as much protection against future increases as they can."

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Indeed, Oracle is widely regarded as a tough negotiator in licensing arrangements – and tougher with existing customers than with new ones. Both Forrester and Boston-based AMR Research Inc. encourage customers to focus on getting the best deal they can with their initial purchases -- because if they don't, they may not have much leverage later on. In fact, this is why the recent price hikes will affect Oracle customers differently.

"For existing customers [the price hikes are] ultimately dependent on what their current contract looks like," said David Blake, vice president of contract negotiation and benchmarking services at AMR. "For those with acquired products, in a lot of those cases, those existing customers will not have price holds built in. A lot of customers who do this right will have a discount hold or price hold."

New deals for old acquisitions

But customers considering adding new Oracle products and those running one of the many technologies Oracle has acquired in recent years may be disappointed. While many are feeling pressure to move from their old pricing structure to Oracle's own standardized approach, they will now have a harder time getting the deal they could have had one month ago, Blake said. This may be especially true for customers caught up in past Oracle acquisitions, especially users of PeopleSoft, JD Edwards and Agile.

"When Oracle first acquired those companies, those customers could maintain those existing contracts," Blake said. "Agile, for example -- where [customers] were on a favorable concurrent user model -- Oracle is approaching a lot of those customers as those agreements have lapsed and pushing standard practices like a named user model."

News of the price hikes broke Monday in the Channel Marker blog. Oracle is in a quiet period, ahead of its fourth quarter earnings call next week.

Where is the leverage in negotiating under the new price list?

Customers are not entirely without leverage, however. Where customers know Oracle has increased pricing 15% to 20% on the price list, they should push for corresponding discounts, Blake advised.

Of course, the fact that Oracle is raising prices on acquired products, as well as its own, comes as no surprise. It has been several years since Oracle last raised prices, and it is one of the few technology vendors that publishes its price lists -- in contrast with SAP, its chief competition in the applications arena, and IBM in database and middleware -- although analysts agree that the list prices and actual prices are often not the same, thanks to volume discounting and other considerations.

Oracle's making these changes in the midst of the current economic climate reflects recent consolidation, one analyst said.

"There's no sort of cost-base justification for an increase, and so it's more driven by what they feel they can get from the market because of their strong position," Forrester's Jones said. "They've been gaining market share, and they're trying to take advantage of that. Given that these customers don't have much choice, the price sensitivity isn't so great, and [Oracle] believes [it's] going to end up with more revenue, not less."

The move, according to Blake, is clearly an effort by Oracle to improve its margins. In comparison, SAP recently eliminated its low-cost maintenance and support option, bringing it in line with Oracle, where maintenance and support costs 22% of license fees.

"One of the things you can think about is the goliath vs. goliath environment that is happening out there," Blake said. "I'm sure these two organizations are monitoring their growth and their margins."

Both analysts agree that, wherever possible, customers should pit SAP and Oracle against each other when negotiating deals.

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