Oracle offers on-premise support discount for cloud buyers
Oracle's latest bid to attract customer workloads to its public cloud involves discounts on traditional software license maintenance and support fees.
Oracle will offer customers discounts on their existing on-premise software license maintenance fees in exchange for them buying credits for its public cloud.
The new Oracle Support Rewards offer gives customers a minimum of 25 cents off their maintenance tab for every dollar they spend on Universal Credits for Oracle Cloud Infrastructure (OCI) services. Companies that have an Oracle Unlimited License Agreement will receive 33 cents for every dollar spent on OCI services.
Oracle's latest move to attract its installed base to OCI follows March's launch of Oracle Cloud Lift, which provides migration services for on-premises workloads at no charge. The generous offers underscore Oracle's desire to gain share against the likes of AWS and Microsoft, which lead OCI by large margins.
"Customers see us now as an IP-oriented license provider," said Ross Brown, vice president of cloud go-to-market at Oracle. "We want to be seen as an ongoing services partner for them."
Oracle and other enterprise software vendors with a long history in on-premises software licensing have benefited greatly from traditional maintenance revenue, which can carry profit margins in the 90% range.
While Oracle and other vendors tend to offer heavy discounts off list price for traditional licenses, the profits come in the annual maintenance payments, which are calculated at 22% of the base license cost. If customers have stable systems, they may call support only a handful of times each year. That means each call could have a paper cost of many thousands of dollars, while Oracle's own costs for delivering support remain low.
Maintenance fees have been vexing enough for enterprise customers that a cottage industry of third-party support providers such as Rimini Street has emerged in recent years. These companies offer heavy discounts on support services for customers who choose to drop Oracle maintenance.
Although OCI services may not carry 90% profit margins, Oracle believes that the Support Rewards incentive makes sense.
"Depending on the mix of services, this is not at all deleterious to earnings and it can be accretive," Brown said. Oracle also believes cloud revenue is sticky and a key long-term growth factor, he added.
Oracle has had success in SaaS applications compared with IaaS and PaaS. Support Rewards does not apply to Oracle's SaaS products, which run on OCI.
It's also confined to Oracle's installed base, as third-party technology products the company resells aren't included in the offer. Still, Oracle's broader goal is to raise the perception among enterprise IT shops that OCI is a complete cloud platform that can be used to build next-generation applications of all types, not merely a place to rehost Oracle databases and apps.
"While this is an installed base play, it's really about 'let's go win all of IT in our installed base,'" Brown said.
At a glance, Support Rewards' benefit may look like a customer simply swapping on-premise spend for cloud spend. There are nuances to consider, said R "Ray" Wang, founder and CEO of Constellation Research.
R "Ray" WangCEO, Constellation Research
"They are trying to move existing customers onto OCI before AWS, Azure or GCP go after their base," Wang said. "The offer at first may look like a zero-sum game, but the savings come from moving off on-premises workloads to OCI." That's because the amount of automation occurring on the OCI back -end can run workloads more cost-efficiently than in an on-premises environment, he said.
"Do total dollars go down? We'll have to see, but it's looking like they are actually in a win-win situation here," Wang added.
There are other factors for customers to consider beyond potential savings, said Elaina Stergiades, an analyst at IDC.
"It's good to see an organization like Oracle recognize that a number of customers can benefit from programs like Oracle Support Rewards as they try to figure out the best 'route to cloud,'" she said. "Anytime large enterprise software vendors provide significant discounts for existing support contracts it's notable, although I will be interested to see how Oracle's support capabilities evolve for customers who take advantage of this program and move to OCI."