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Analysts: Per-processor pricing to die out

As Oracle Corp. prepares to release new licensing fees in connection with its new 10g database and application server, analysts are predicting the arrival of a new utility pricing model.

Analysts and users are predicting an inevitable demise for per-processor pricing, as Oracle Corp. prepares to release new licensing fees in connection with its new 10g database and application server products.

Oracle CEO Larry Ellison told reporters at OracleWorld last week that the model of pricing per-processor licensing costs should be replaced with a utility pricing model, and Oracle plans to release a new pricing strategy soon.

"The idea is that traditional processor licensing has been based on the number of processors in the machine, no matter what you use," said Joshua Greenbaum, principal consultant at Daly City, Calif.-based Enterprise Applications Consulting.

Most of the time, you have more processor that you need," Greenbaum said. "The grid model is still processor based. What you do, or the outsourcer does, is throw more processor at the problem, and you pay a little more that week for your processing."

Over time, analysts agree, the costs of computing should be cheaper for those using a utility-based model.

Remaining competitive while increasing revenue will be a challenge for Oracle as it moves ahead with its 10g products, said Carl Olofson, program director for information and data management software research at Framingham, Mass.-based International Data Corp.

"They're introducing a lot of functionality in 10g intended to appeal to the midmarket, but they need to adjust their pricing and packaging in order to provide products that are competitive with SQL Server and IBM DB2," Olofson said.

"It would be nice to pay for the processors you use as you use them," he said. "And it seems inevitable that we're all moving in that direction."

Many Oracle users agree that Oracle pricing has to reflect the way processors will be used in its new grid model.

"The philosophy of 10g is having more, cheaper processors spread out the load, but if Oracle's still keeping the same per-processor price on licensing, they're going to be sinking themselves," said Keith Holmes, director of database administration at Irving, Texas-based Archon Group, a commercial real estate investment management and mortgage loan company.

Currently, customers are paying $40,000 per processor for the enterprise edition of Oracle 9i and $15,000 for the standard edition.

Idle computer resources are expensive, Greenbaum said. Companies don't want to be paying for all the processors on the grid.

Olofson said Oracle is not the only vendor dealing with changes in its pricing and licensing models.

"As all these vendors emphasize flexibility and deployment and go to the utility-computing model, they're all going to have to revisit their pricing and licensing policies," he said.

Oracle users agree that Oracle pricing has to reflect the way processors will be used in its new grid model.

Oracle has for many years battled its reputation as a company whose products are overpriced and whose pricing strategy requires advanced analytical skills to understand.

However, said Jacqueline Woods, vice president for Oracle global pricing and licensing strategy, that image is an unfair one.

"Every business is unique and has specific issues that need to be addressed," Woods said to a group of users attending a seminar at OracleWorld last week.

Woods encouraged users to ask their sales representatives whether there are any special discounts on products or services and urged users to e-mail specific inquiries directly to Oracle.

Kerry Howell, a database administrator with Ingenix Inc., a health care data warehousing company based in Salt Lake City, also sells databases and administrative software to small police and sheriff's departments in Utah and Texas. Howell said his customers often have difficulty understanding complex pricing methods used by large vendors like Oracle.

"I like what I see of this grid concept, but it's obviously not geared towards my small or even midsized customers," he said. "They can't afford Oracle's expensive products."


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To provide your feedback on this article, contact Robert Westervelt.

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