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Beware the Oracle license audit

Undergoing an Oracle license audit is no picnic. There are several ways they start, and reasons why Oracle is so aggressive with them.

It’s never a good time for an Oracle license audit, but they happen. For Howard Latham, the IT infrastructure manager at a market research company in the U.K., it came when he was already knee-deep in another issue -- his disaster recovery site was booting his company out in favor of the London Olympics, and the company had to find shelter elsewhere.

“I understand Oracle has targets to meet, and they have to get a certain amount out of each customer before they start, but it’s a bit of an overhead that we could have done without,” Latham said.

Rarely will you hear Oracle, which declined to comment on this story, referring to its audit as an audit. According to various sources, the company apparently doesn’t like the word. It instead calls it License Management Services, or an Oracle licensing review. Whatever you want to call the division, here’s the scoop.

Why do Oracle license audits happen?

An Oracle audit usually comes about for one of three reasons, according to Eliot Arlo Colon, president of Miro Consulting.

They’re under substantial pressure to get reviews done and completed and bring in revenue. 

Eliot Arlo Colon, president of Miro Consulting, on Oracle's License Management Services division

One, there are audits in which someone at Oracle suspects that a client might be out of compliance. Audit employees write up a justification, which must be approved before going forward. Colon said Oracle scrutinizes these in detail, because it doesn’t want to assign its own resources to perform an audit if it isn’t going to find anything out of compliance.

Second, a client could accidentally out themselves. For example, the client might call Oracle Support and ask for help on a product for which it isn’t licensed. Or the client updates to a version of a product that requires certain management packs.

Finally, a client could ask Oracle for an audit. Colon said it usually happens when a C-suite executive gets in conversations with someone at Oracle, and after a discussion over software compliance, just asks Oracle to come in.

“Believe it or not, that happens more often than you would think,” Colon said.

Additional licensing fees are major goal of Oracle audits

Oracle owns nearly half of the relational database market, according to figures from Gartner Inc. As a result, it is harder for the company to gain new net users. As a result, Oracle sales reps are under tremendous pressure to get as much out of their current customers as they can. In a situation like this, an Oracle audit can be like a press squeezing juice out of a dry orange.

“They’re under substantial pressure to get reviews done and completed and bring in revenue,” Colon said.

It works. According to Oracle’s most recent quarterly report to the federal Securities and Exchange Commission, software license updates and product support account for 43% of the company’s total revenue. Though clearly not all of that is due to audits, it’s obvious that Oracle relies heavily on license updates to bring in revenue, and audits are one way of doing that.

One consultant, who asked to not be named for this article, said he doesn’t blame the sales reps. They’re understaffed and have quotas to meet. He said that if he were a sales rep for Oracle, he would threaten to audit every one of his customers.

Have Oracle audits increased since the Sun acquisition?

When Oracle announced its intention to acquire Sun Microsystems, there were concerns among Oracle and Sun customers that the deal would lead to closer scrutiny of their Oracle license agreements.

There are mixed opinions on whether that has actually happened, however. The unnamed consultant said he hasn’t seen an uptick.

Another consultant, Alex Gorbachev of The Pythian Group Inc., said it does seem like there has been an increase in the number of audits, but he wasn’t sure. He noted that Oracle has taken on more customers, so the company might just be dealing with more audits in aggregate.

Finally, Colon thinks the uptick in the last year or so has been more a result of the economy rebounding than the Sun acquisition per se.

“During the economic downturn, the frequency of audits went down a bit,” he said. “I think we had a dormant period of audits during 2009 and some of 2010, but now we’re back to the old pace.”

Coming soon: What exactly happens during an Oracle license audit? What are some common pitfalls in terms of what triggers a license violation, and what should you do to avoid it?

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