Oracle negotiations 101: Is there any leverage?

Summary:Oracle is widely seen as the toughest vendor in negotiations with technology buyers, but there are a few tactics to use to cut deals. And most of them revolve around helping out Oracle's sales folks, according to Forrester Research.

Oracle is widely seen as the toughest vendor in negotiations with technology buyers, but there are a few tactics to use to cut deals. And most of them revolve around helping out Oracle's sales folks, according to Forrester Research.

Forrester's tips for negotiating come as Oracle wraps up its Collaborate conference in Orlando. At the conference, Oracle announced feature packs for PeopleSoft financial and supply chain modules, support timelines for JD Edwards software and a new version of the AutoVue enterprise visualization app.

The problem: All of these products will ultimately result in potential negotiations with Oracle---and that's not fun. Forrester's Duncan Jones noted in a report:

Many of the sourcing and vendor management professionals that speak with Forrester each year tell us that Oracle is their toughest vendor. You complain about the sales team’s unwillingness to negotiate licensing policies that you believe are unreasonable and the challenge of finding good negotiation leverage. Let’s face it, for most of you, Oracle’s products are strong (its products are Leaders in two thirds of Forrester Wave™ reports that include them) and so entrenched in your organization that you have to accept it as a key supplier for the foreseeable future.

So what can you do? Forrester says first you have to know how Oracle works. To wit:

  • Oracle targets your top executives so you can't push back when a deal lands on your desk. Discounts come in volume so small purchases are out. Your only real move is to save money and balance that with long-term support.
  • Oracle has to upsell you because it can't hit its revenue targets just selling new products to willing buyers. There's a push for more licensing deals. That's why per-core licensing exists---there's revenue even if customer rolls shrink.
  • Oracle doesn't allow contract changes and amendments are tightly controlled.
  • Maintenance is everything. Oracle grows its maintenance revenue 10 percent a year on average by new sales, annual increases and minimizing leakage.

With that backdrop, Forrester offered five tips. We'll go through them briefly. Also: Oracle's potential math problem: Worrisome licensing trends ahead; Art of the software deal can get messy

Stay in the negotiation and figure out how to buy. Forrester writes:

The software sourcing professional must combat Oracle’s strategy to isolate you from the sales process. It trains its sales reps to avoid commercial discussions until it has convinced your colleagues to buy its product, so by the time you get involved you have neither time nor leverage to negotiate effectively.

To counter this move, the IT buyer has to work with the higher up to agree on how they want to buy Oracle gear. Forrester recommends buying unlimited license agreements in multiyear deals. Oracle's sales reps get commissions sooner and the company brings revenue forward. You get a nice discount and a simple license model.

Help the sales rep write a deal summary. Oracle has centralized approvals for software deals. In other words, the rep can't just give you the deal you want. The rep has to submit a case outlining customer context, products needed and concessions. The IT buyer has to help the rep write this narrative, which should include maximizing the deal size, identifying future revenue opportunities for Oracle, vertical applications and business reasons.

Make sure governance knows the full cost of Oracle software. Any deal with Oracle needs to project growth in the number of per-core licenses, rising maintenance fees over multiple years and more users.

Line up products with discounts. Discounts aren't so hot if you really don't need the software. Understand the products and figure out if you really need them. Cut non-essential apps, but put on a price hold list.

Negotiation licensing and maintenance terms at the same time. Once the licensing deal is signed, you have no maintenance leverage. Oracle will just bill you and withhold support until you pay maintenance. But you can get maintenance amnesty terms when you do an initial licensing purchase.

Topics: Banking, CXO, Enterprise Software, Government, IT Employment, Oracle

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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