How to negotiate with Oracle for a better cloud deal
Set your organization up for a successful cloud deal. Learn the challenges you'll need to overcome with these insights on Oracle's cloud sales strategy from ClearEdge Partners.
Oracle is determined to execute more cloud deals and secure a top spot in the cloud market. If your organization is pursuing an Oracle cloud deal, it's important to understand the tactics at work in the vendor's cloud-focused strategy prior to negotiations.
Oracle Cloud Infrastructure (OCI), the company's IaaS offering, lags behind cloud leaders such as Amazon and Microsoft, as well as several other vendors. It currently has roughly 2% market share, according to ClearEdge Partners, a business consulting agency. Oracle intends to close the gap by transitioning its traditional on-premises base to a subscription cloud model.
It's also banking on Oracle Fusion Middleware. This suite of services enables customers to transfer legacy business application to the cloud. The Fusion Cloud ERP business saw 33% year-over-year growth in 2020, according to ClearEdge.
ClearEdge provides insights on Oracle's cloud sales behavior and trends in its Oracle Supplier Briefing webinar. Joe Malarney, senior analyst at ClearEdge, spoke to SearchCloudComputing about these strategies as well as what customers need to know to successfully negotiate with Oracle.
With the right preparation, you can counter Oracle's strategies and obtain a cloud deal at the right cost and value for your enterprise.
Be aware of Oracle sales tactics
Oracle sales reps are equipped with various tactics to drive up cloud purchases. Many of these strategies focus on moving Oracle's existing on-premises customers to the cloud.
According to ClearEdge, Oracle employs the following strategies to increase cloud adoption.
Oracle is known for extensive audits and strict penalties for violations. The company uses the threat of violation fees to get customers to spend on the cloud. When an audit detects a violation that would result in a large penalty, Oracle will offer to settle the audit with a cloud purchase.
"Their auditing, in general, is a successful scare tactic," said Malarney. "It's something that a lot of customers are aware of, and we've seen them have to pay substantial fees, if they do get caught either over-deployed or over-utilizing their products."
On-premises discounts in exchange for cloud
Another Oracle cloud sales strategy is to dish out significant discounts for on-premises deals when customers add a cloud purchase. This tactic brings in customers that have no use for cloud services but want to save on their on-premises support costs. On-premises customers will commit to cloud services for the savings despite having no actual purpose for them.
Oracle's Annual Universal Credits deals are part of this strategy. With these credits, you commit to spend a monthly amount on any Oracle IaaS and PaaS offering in return for a discount.
Customers are incentivized to become familiar with Oracle cloud products during the credit period. This is a way to hook companies into long-term cloud use once they have tried out the products, Malarney said. ClearEdge reported a 40% increase in Annual Universal Cloud Credit cases in the last year.
Long term deals
Oracle uses perpetual unlimited licensing agreements (PULAs) to lock customers into long-term deals with no expiration date.
ClearEdge states that with a PULA, "Oracle can reduce your organization's existing support-run rate, which makes it very attractive to customers who have longed to reduce their Opex costs but couldn't due to Oracle's stringent technical support policies."
However, PULAs require a high upfront fee. Oracle factors the historical run-rate into the cost, so PULAs are expensive for customers with significant Oracle usage. These long-term agreements are only cost-effective for companies with a clear understanding of demand. For it to make sense financially, they should be able to forecast expectations for at least the next five years.
Oracle offers consulting services via its Software Investment Advisory (SIA) group. These advisory services are marketed as a way to optimize your Oracle deal. However, they are another Oracle sales tactic. The consulting services give the SIA group full access to your environments, which they can use to find opportunities to upsell you. For example, SIA could detect a compliance issue and alert the auditing team.
Flexible support rules
Oracle has a reputation for strict pricing structure and licensing agreements. However, ClearEdge observed Oracle taking a more flexible approach to these rules in exchange for investment in cloud services or unlimited licensing agreements. For example, customers now have opportunities to unbundle contracts without penalties if they purchase OCI.
Oracle representatives did not respond to a request for comment about this piece.
Overcome negotiation challenges
When you reach the negotiation stage, there are various hurdles to work through to optimize your cloud deal. ClearEdge observed customers struggle the most with the following elements when preparing to negotiate with Oracle.
- Forecast models
- Pricing analysis
- Supplier knowledge
Let's review ways to counteract each of these challenges to get the most out of your Oracle cloud deal.
Build your own forecast
Before you negotiate with Oracle, you need to have your own forecast of the cloud resource and usage you'll need. If not, Oracle will project more than necessary, which results in a more expensive contract.
"The most important piece of information that you can have is a business-as-usual or demand forecast of what you are going to use, or what you currently are using," Malarney said. "Oracle is going to take a view of what they think you need and that's always going to be inflated."
Joe MalarneySenior analyst at ClearEdge Partners
One of the ways Oracle inflates its forecast model is to set everything to be deployed as soon as your cloud deal starts. However, the transition to the cloud takes time. To counteract Oracle's strategy, create an implementation timeline that rolls out services gradually. Include this implementation timeline in your forecast model to only pay for products when you start using them.
Oracle's sales reps will also overestimate your forecast price by including new products that you don't need. To avoid this, understand the services you do need and request to remove services you don't. This leaves you with a forecast model that is more accurate to your demands.
"If you, as a customer, have scoped out what your needs are and have an airtight message surrounding that, that is one of the most effective ways that you can go into the negotiations with Oracle," Malarney said.
Analyze pricing based on value
Oracle bundles many of its cloud products. This means customers that want a standalone product are charged a much higher price due to all of the other services attached in the bundle.
To avoid this, prepare to negotiate with Oracle based on value, rather than price, Malarney said.
Perform a pricing analysis on the individual products in the bundle. Research the product you need, learn about competitive services and understand the value of that particular product as a standalone. Once you understand the value of the product that you need, compared to the overall price of the of the bundle, you can propose a discount that reflects the difference.
"If you're negotiating around discount, you've sort of already lost at that point because they know you're going to buy something," Malarney said. "So the most important thing is to come up with a strategy for utilizing the value that you're getting out of this."
Use supplier knowledge as leverage
There are many sales teams within Oracle that overlap and compete. Understanding how these internal teams intersect is helpful in a negotiation.
"Oracle is one hundred different companies in one," Malarney said. "You don't have to work through one team all the time if there are other sales teams aligned to you. For example, if you're looking at ERP applications and you are working through one back office cloud application team, you could still reach out to the NetSuite team that's aligned to you and see what their pitch is."
This is where supplier knowledge is useful. Learn about the different teams and their various pitches so you can use that internal competition in the negotiation.
About ClearEdge Partners
Founded by senior sales executives from large IT suppliers and informed by current market analytics, ClearEdge enables CIOs and their teams to make more competitive IT investments. By combining rigorous inspection and IT financial expertise, we identify risk and opportunity, align internal teams and maintain leverage throughout the lifecycle of supplier relationships. As a result, our clients maximize the value of their investments by unlocking millions of dollars from legacy spending and redirecting funds toward IT modernization, digital and cloud transformation with confidence and speed.