Oracle Database Appliance: How much it really costs

This column from consultant Eric Guyer breaks down the hardware and software costs of the Oracle Database Appliance, unveiled last week and targeted for smaller businesses.

To understand the new Oracle Database Appliance from a licensing perspective requires a quick review of the basics.

First, Oracle makes a distinction among virtualization and partitioning technologies when deciding whether a subset of server capacity may be licensed. <!-- @REG -->The mostinfamous case is VMware, for which Oracle does not allow sub-capacity licensing. Second, Oracle does not offer a model that enables customers to scale down licensing based on varying CPU usage. These two fundamental licensing policies haven’t changed for at least a decade.

In other words, licensing Oracle is more like buying a car than riding a taxi. You have to pay for the whole car regardless of how much you drive. Taxis may be more expensive on an hourly basis, but to shift out of the analogy, modern technology scales, shares resources and moves in and out of the cloud in a way that Oracle’s licensing has not kept up with.

Back to Oracle’s new appliance. Oracle says its pay-as-you-grow licensing model benefits customers. What makes this somewhat misleading is that many may think this is akin to the familiar Unix-style sub-capacity licensing, whereby you can scale up and back, depending on workload. The best example of scaling down is Amazon’s Elastic Compute Cloud, or EC2, in which you pay by the hour with no long-term commitment.

Rather, I suspect that Oracle’s pay-as-you-grow licensing is some form of a price-hold beyond the initial order that enables the customer to add processor licenses of Oracle Database Enterprise Edition and extra-cost options as cores are activated. So you can scale up, but not back down. The difference now seems to be that Oracle has baked in its own flavor of CPU affinity, which keeps database processes from digesting cores that aren’t in its partition. While Oracle has sought to differentiate its own virtual machine from VMware on technical merits, the opportunity to license fewer cores via Oracle VM’s CPU affinity is likely the reason customers would use it.

Another intriguing benefit of the new database appliance relates to Real Application Clusters (RAC) One Node, which looks, smells and barks like an active passive cluster. The difference is that One Node is an extra-cost option of Enterprise Edition. As a side note, many are not familiar with Oracle’s policy, which says the passive node in a cluster does not require licensing unless failed over to for more than 10 days in a year.

So, what is the Oracle Database Appliance?

For starters, it’s another step in Oracle’s commitment to remove the need for third-party software in database deployments. Oracle has historically relied on expensive, best-of-breed products for file management, clustering, operating systems and virtualization. You can still use all of those products, but Oracle offers free alternatives to each.

It is also a move toward a telecommunications approach to selling enterprise software. That is, Oracle’s margins on software are so high that over the long term, it makes more dollars and sense to give away the hardware and discount the software less up-front. Not that Oracle is giving away hardware or will give it away any time soon. It’s similar to what mobile phone providers do. Let me explain.

Consider the licensing cost for 24 cores of Oracle Database Enterprise Edition, RAC, Partitioning, Advanced Compression and two management packs. At list price that’s more than $2 million in software licensing and support over three years. Of that, $832,000 is maintenance renewal at profit margins in the low 90s.

Every percentage point discount costs Oracle $20,563.17 in top line revenue. While the sunk cost of the database machine is unknown, it only takes two-and-a-half percentage points of software discount to fill the gap. The pitch becomes this: As long as you pay maintenance on the software, the underlying hardware is free and eligible for refresh every four years or so. Cancellation incurs a penalty. Sound familiar? Wireless providers more than supplement their device subsidies by increasing monthly fees, not to mention cancellation fees and a two-year commitment.

What I find most intriguing about the Oracle Database Appliance is that it seems to be an attempt at snagging entry-level database workloads. Throwing Enterprise Edition and RAC at those seems like over-engineering, especially if you are only licensing four cores across the cluster. Considering the workload, you could have Standard Edition One running in an active passive cluster for much cheaper. Yes, there are fewer features in Oracle’s Standard Edition, but it may be enough for your database environment.

The $50,000 cost of the appliance is reasonable unless compared with that of Dell, whose market segment is one that Hewlett-Packard, IBM, Cisco and now Oracle don’t care to compete in. But if you’re aiming for entry-level workloads, $7,000 Dell boxes may be a viable threat, especially when there is nothing within the Oracle Database Appliance that can’t be replicated on other gear. 

Finally, it’s important to understand what “software sold separately” means. Pricing software for Exadata, Exalogic and the new database appliance is the traditional method of applying core factors to calculate how many processors for the database and how many extra-cost options you want. Licenses for Enterprise Database, RAC, Management Packs, et cetera, that are sitting on the shelf or being freed up from retiring existing workloads may be transferred to the Oracle Database Appliance.

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