Oracle case study: Sales at any price

Although high-pressure tactics are common in the chaotic world of corporate software sales, Oracle has always stood out. A look into how the database giant sells its software, and itself.

REDWOOD SHORES, Calif.--It is a sales manager's worst nightmare: a midnight call from Larry Ellison demanding to know why an important deal didn't close.

"If the numbers weren't coming in, the sledgehammer came out. Saturday, Sunday, any day, anytime, a call would come into the house or the office," a former Oracle employee said, noting that the chief executive's mercurial reputation is well deserved. "Oracle is a great company, but Larry treated people like chattel rather than humans."

To avoid such wrath, sales representatives may be willing to do whatever is necessary to make a deal. And that, critics say, is where the problem begins.

Customers and current and former Oracle employees say many companies that have purchased products from the database leader--most recently its customer-relationship management applications--have complained that they were misled about the technology's capabilities during the sales pitch, leaving them with software riddled with problems from the start.

"We had an order-entry product that didn't work," a former Oracle sales representative said. "We were successful in making the sale and getting them to implement it, but (the product) didn't work for them. We had a lot of pressure to sell the applications, even though they weren't ready for prime time."

Broken promises
Pressure to make a sale is nothing new in the hypercompetitive business of corporate software, where a single contract can make or break a budget for an entire company, and Oracle is just one of countless manufacturers known for using aggressive tactics. But industry veterans say many salespeople--driven by Wall Street's relentless demands to meet earnings targets--often go too far to close a deal, making promises that are never fulfilled.

That touches off a domino chain of problems for company consultants, software engineers, and ultimately the customers, who often plan their businesses around these products only to get stuck with seemingly endless bills for installing, fixing, upgrading and tailoring their systems. Some companies have taken legal action, but far more end up paying for services that can cost 10 times the price of the original product.

"If you want to grow, you have to make promises for things that you don't yet have. Where it breaks down is when the sales reps lack discipline in what is promised and following through," a former Oracle manager said. "When you're a big company and have 40 sales guys who are not familiar with engineering and the product design, that's when it hits the fan."

Although hardball sales tactics are not the exclusive domain of any one corporate software company, Oracle in particular has long been known throughout the industry both for its prowess and its pugnacity--qualities attributable in no small part to Ellison himself.

Oracle declined to comment on this report.

"Oracle kind of admits this (aggressiveness) with a little bit of pride to say that they go out and get the job done," said Joshua Greenbaum, an analyst who heads Enterprise Applications Consulting. "I don't expect Oracle, to a large degree, to stop that very aggressive salesmanship. It's what made them who they are today."

Craig Ramsey, former vice president of U.S. commercial sales for Oracle, acknowledged that salespeople were under tremendous pressure to land a deal. "Software is always in a state of development. But the more pressure there is on sales and managers to make the numbers, the more likely they are to sell features that haven't been developed," he said.

Not surprisingly, tension typically builds as the quarter draws to a close. Wall Street applies microscopic scrutiny to earnings reports at those times, and a negative assessment can tank a stock price overnight.

Giving it away
Some customers have grown savvy to this desperation and use it as leverage.

"All quarter long, there is no pressure and you do your normal selling. But in the last couple weeks before the end of the quarter, things get frantic," former Oracle President Ray Lane said. "The sales process is geared toward the end of the quarter, and the customers know that if they hold out till the end of the quarter, they get the best deals. This situation has gotten worse with the economy."

Deep discounts are standard practice among all corporate software manufacturers--even to the point of giving some products away. Oracle used that tactic recently when competing against Siebel and PeopleSoft for large contracts, throwing in its customer-relationship management software for free, sources say.

"That's the tactic," Forrester Research analyst Laurie Orlov said. "They discount if you buy before a certain date, and sometimes they have free (software) modules thrown in."

Competitors say this kind of guerrilla maneuvering is classic Oracle. "One customer once said, on a sales automation product, that Oracle didn't want Siebel to win the business," a former Siebel executive said. "That's what they've typically done with their ERP products."

This speaks to another aspect of Oracle's culture--its reputation for making competition a personal matter. Ellison has long been known to harbor animosity for Tom Siebel, who was a senior executive at Oracle in the 1980s, and their rivalry has taken on bitter tones over the years.

Indeed, failure by any measure is not tolerated at this deceptively sterile compound at 500 Oracle Parkway just off San Francisco Bay, a message that is communicated to its sales staff directly from the top.

Stories of Oracle sales exploits are legion, many focusing on the establishment of personal relationships with executives who have purchasing power. Tactics include slipping personal notes under the front door of a prospective customer's home and offering to give a CEO a ride to the airport just for an opportunity to talk.

"I even knew of a guy who went to the same church as one customer who was Irish Catholic--and he was a Jew," one former Oracle manager said.

If the personal approach doesn't work, money offers another powerful incentive. In dealing with a Fortune 500 company that was weighing a database purchase, Oracle offered steep discounts, according to an executive from a competing company.

"The customer asked us if we could match, and our answer was no," he said. "Oracle says they have a standard discount that they give everyone based on volume, but lately we've heard the discounting goes beyond being volume-based."

A former Siebel employee agreed. "Oracle will never lose a deal on price," he said. "They will just give away their stuff and make it up with services later."

That could mean a considerable expense for the customer. Arvindh Balakrishnan, a former Oracle manager who is now chief executive of software company MetricStream.com, said the cost of after-the-fact consulting often exceeds the price of the product by severalfold.

Mounting expenses
"I myself was involved in selling a product for $25 million with consulting costs of $80 million," Balakrishnan said. "This is nothing new. A 1-to-1 price-consulting ratio would be considered extremely good."

Golfsmith International is one company with firsthand experience with that harsh reality. Things got so bad at one point that the golf equipment retailer felt compelled to send a letter to its customers explaining business problems caused by complications with Oracle's software.

"In the spring of (1999), Golfsmith launched a new companywide $4.8 million computer software upgrade to better service the customer. Since implementing the system on January 1 (2000), we have been experiencing unbelievable difficulties. It is fair to say that we have spent millions of dollars over and above the original Oracle licensing fees working to solve the problems," Golfsmith President Carl Paul said in a letter written to customers Feb. 19, 2000.

"We tested the new system extensively with 50 users in November and everything was fine," he added. "We then waited until the slowest time of the golf year to implement it. However, when we flipped the switch in January and had 400-plus users at one time, the system 'bogged down.' A short time later, when we applied a fix recommended by Oracle, the system crashed. We were completely down and had no computer system for about a week."

Golfsmith ended up having 150 customer service representatives taking orders by hand over the phone, according to the letter. "We shipped orders manually, but could not come close to keeping up with demand. We didn't even have computers to tell customers the status of their orders, and we were literally dead in the water," Paul wrote.

Golfsmith said the company does not comment on such matters to the press. A source at Golfsmith noted that the software issue has since been resolved, saying only that the company is "happy with Oracle now."

Others assume that expensive services are an inevitable cost of using cutting-edge technology.

"If you are going to be a pioneer and the first companies to use a release, you understand there is a price to be paid to be on the bleeding edge," said Jeff Francis, a president at Applied Digital Solutions, a consulting firm that uses and sells Oracle's 11i customer-relationship software. "It's a problem that the industry has in general. No software vendor waits until the product was totally ready before it was released."

Still, in some cases, the cost of bug-ridden software can backfire on the manufacturer if the customer puts up a fight.

"There was a huge multinational company that was attempting to do a worldwide rollout of applications that would handle multi-currencies. The functionality they thought would be there wasn't," a former Oracle executive said. "They threatened to file all these lawsuits, and to resolve the issue, Oracle gave them credit for future purchases of software and committed support and consulting resources until they were successful.

"It took more than a year to fix the problem, with five to seven people committed to the project. Each of these people made about $150,000 a year, and Oracle absorbed the cost."

Such consequences rarely come back to haunt those who sold the products to begin with.

Salespeople off the hook
"The salespeople didn't care. Oracle's philosophy was to sell the product and go on to the next customer," a former Oracle sales representative said. "Customer satisfaction was left to whoever was going to implement the software, whether they were from Oracle or an outside consultant. If a sales rep got a call from a customer that it didn't work, we tried to ignore the call or have our service department help them."

Because the technology industry is so maniacally competitive--and the stakes of each contract are so high--top performers are always in demand. A sales representative with a large account like Ford Motor or British Telecommunications can land a multimillion-dollar contract almost single-handedly.

"Some people make $1 million selling software--maybe not every year, but they may reach that level occasionally. They're in the 1 to 2 percent category," former Oracle Vice President Ramsey said. "Then about 15 to 20 percent make over $300,000 a year. And if people don't make their quotas, they're usually fired if they work for Oracle, Siebel or SAP."

Ramsey, who has also been senior vice president of worldwide sales for Siebel, said that company and others have annual quotas in the range of $2 million to $4 million for sales representatives, depending on their levels of experience.

Such quotas are met in part by selling expensive, one-size-only packages that contain more software than many customers require. This strategy benefits their companies as well as their own personal track records, because more complicated technology usually translates to more consulting fees.

"What that means is, we give them a Cadillac when they're asking for a Corolla. You'll get more than you might need," an Oracle software consultant said. "But that's how we make money: You need help to implement the software."

This consultant and others say they often have no idea what customers were told about the products before they bought them.

"I go in there not knowing what the salespeople said. We go in there, and I find myself saying, 'You were told this could do what? Oh, really? Let me get back to you on that,'" he said. "The salespeople win the account, get their commission, and move on to the next customer. They wash their hands of it. We're left with the dirty work."

REDWOOD SHORES, Calif.--It is a sales manager's worst nightmare: a midnight call from Larry Ellison demanding to know why an important deal didn't close.

"If the numbers weren't coming in, the sledgehammer came out. Saturday, Sunday, any day, anytime, a call would come into the house or the office," a former Oracle employee said, noting that the chief executive's mercurial reputation is well deserved. "Oracle is a great company, but Larry treated people like chattel rather than humans."

To avoid such wrath, sales representatives may be willing to do whatever is necessary to make a deal. And that, critics say, is where the problem begins.

Customers and current and former Oracle employees say many companies that have purchased products from the database leader--most recently its customer-relationship management applications--have complained that they were misled about the technology's capabilities during the sales pitch, leaving them with software riddled with problems from the start.

"We had an order-entry product that didn't work," a former Oracle sales representative said. "We were successful in making the sale and getting them to implement it, but (the product) didn't work for them. We had a lot of pressure to sell the applications, even though they weren't ready for prime time."

Broken promises
Pressure to make a sale is nothing new in the hypercompetitive business of corporate software, where a single contract can make or break a budget for an entire company, and Oracle is just one of countless manufacturers known for using aggressive tactics. But industry veterans say many salespeople--driven by Wall Street's relentless demands to meet earnings targets--often go too far to close a deal, making promises that are never fulfilled.

That touches off a domino chain of problems for company consultants, software engineers, and ultimately the customers, who often plan their businesses around these products only to get stuck with seemingly endless bills for installing, fixing, upgrading and tailoring their systems. Some companies have taken legal action, but far more end up paying for services that can cost 10 times the price of the original product.

"If you want to grow, you have to make promises for things that you don't yet have. Where it breaks down is when the sales reps lack discipline in what is promised and following through," a former Oracle manager said. "When you're a big company and have 40 sales guys who are not familiar with engineering and the product design, that's when it hits the fan."

Although hardball sales tactics are not the exclusive domain of any one corporate software company, Oracle in particular has long been known throughout the industry both for its prowess and its pugnacity--qualities attributable in no small part to Ellison himself.

Oracle declined to comment on this report.

"Oracle kind of admits this (aggressiveness) with a little bit of pride to say that they go out and get the job done," said Joshua Greenbaum, an analyst who heads Enterprise Applications Consulting. "I don't expect Oracle, to a large degree, to stop that very aggressive salesmanship. It's what made them who they are today."

Craig Ramsey, former vice president of U.S. commercial sales for Oracle, acknowledged that salespeople were under tremendous pressure to land a deal. "Software is always in a state of development. But the more pressure there is on sales and managers to make the numbers, the more likely they are to sell features that haven't been developed," he said.

Not surprisingly, tension typically builds as the quarter draws to a close. Wall Street applies microscopic scrutiny to earnings reports at those times, and a negative assessment can tank a stock price overnight.

Giving it away
Some customers have grown savvy to this desperation and use it as leverage.

"All quarter long, there is no pressure and you do your normal selling. But in the last couple weeks before the end of the quarter, things get frantic," former Oracle President Ray Lane said. "The sales process is geared toward the end of the quarter, and the customers know that if they hold out till the end of the quarter, they get the best deals. This situation has gotten worse with the economy."

Deep discounts are standard practice among all corporate software manufacturers--even to the point of giving some products away. Oracle used that tactic recently when competing against Siebel and PeopleSoft for large contracts, throwing in its customer-relationship management software for free, sources say.

"That's the tactic," Forrester Research analyst Laurie Orlov said. "They discount if you buy before a certain date, and sometimes they have free (software) modules thrown in."

Competitors say this kind of guerrilla maneuvering is classic Oracle. "One customer once said, on a sales automation product, that Oracle didn't want Siebel to win the business," a former Siebel executive said. "That's what they've typically done with their ERP products."

This speaks to another aspect of Oracle's culture--its reputation for making competition a personal matter. Ellison has long been known to harbor animosity for Tom Siebel, who was a senior executive at Oracle in the 1980s, and their rivalry has taken on bitter tones over the years.

Indeed, failure by any measure is not tolerated at this deceptively sterile compound at 500 Oracle Parkway just off San Francisco Bay, a message that is communicated to its sales staff directly from the top.

Stories of Oracle sales exploits are legion, many focusing on the establishment of personal relationships with executives who have purchasing power. Tactics include slipping personal notes under the front door of a prospective customer's home and offering to give a CEO a ride to the airport just for an opportunity to talk.

"I even knew of a guy who went to the same church as one customer who was Irish Catholic--and he was a Jew," one former Oracle manager said.

If the personal approach doesn't work, money offers another powerful incentive. In dealing with a Fortune 500 company that was weighing a database purchase, Oracle offered steep discounts, according to an executive from a competing company.

"The customer asked us if we could match, and our answer was no," he said. "Oracle says they have a standard discount that they give everyone based on volume, but lately we've heard the discounting goes beyond being volume-based."

A former Siebel employee agreed. "Oracle will never lose a deal on price," he said. "They will just give away their stuff and make it up with services later."

That could mean a considerable expense for the customer. Arvindh Balakrishnan, a former Oracle manager who is now chief executive of software company MetricStream.com, said the cost of after-the-fact consulting often exceeds the price of the product by severalfold.

Mounting expenses
"I myself was involved in selling a product for $25 million with consulting costs of $80 million," Balakrishnan said. "This is nothing new. A 1-to-1 price-consulting ratio would be considered extremely good."

Golfsmith International is one company with firsthand experience with that harsh reality. Things got so bad at one point that the golf equipment retailer felt compelled to send a letter to its customers explaining business problems caused by complications with Oracle's software.

"In the spring of (1999), Golfsmith launched a new companywide $4.8 million computer software upgrade to better service the customer. Since implementing the system on January 1 (2000), we have been experiencing unbelievable difficulties. It is fair to say that we have spent millions of dollars over and above the original Oracle licensing fees working to solve the problems," Golfsmith President Carl Paul said in a letter written to customers Feb. 19, 2000.

"We tested the new system extensively with 50 users in November and everything was fine," he added. "We then waited until the slowest time of the golf year to implement it. However, when we flipped the switch in January and had 400-plus users at one time, the system 'bogged down.' A short time later, when we applied a fix recommended by Oracle, the system crashed. We were completely down and had no computer system for about a week."

Golfsmith ended up having 150 customer service representatives taking orders by hand over the phone, according to the letter. "We shipped orders manually, but could not come close to keeping up with demand. We didn't even have computers to tell customers the status of their orders, and we were literally dead in the water," Paul wrote.

Golfsmith said the company does not comment on such matters to the press. A source at Golfsmith noted that the software issue has since been resolved, saying only that the company is "happy with Oracle now."

Others assume that expensive services are an inevitable cost of using cutting-edge technology.

"If you are going to be a pioneer and the first companies to use a release, you understand there is a price to be paid to be on the bleeding edge," said Jeff Francis, a president at Applied Digital Solutions, a consulting firm that uses and sells Oracle's 11i customer-relationship software. "It's a problem that the industry has in general. No software vendor waits until the product was totally ready before it was released."

Still, in some cases, the cost of bug-ridden software can backfire on the manufacturer if the customer puts up a fight.

"There was a huge multinational company that was attempting to do a worldwide rollout of applications that would handle multi-currencies. The functionality they thought would be there wasn't," a former Oracle executive said. "They threatened to file all these lawsuits, and to resolve the issue, Oracle gave them credit for future purchases of software and committed support and consulting resources until they were successful.

"It took more than a year to fix the problem, with five to seven people committed to the project. Each of these people made about $150,000 a year, and Oracle absorbed the cost."

Such consequences rarely come back to haunt those who sold the products to begin with.

Salespeople off the hook
"The salespeople didn't care. Oracle's philosophy was to sell the product and go on to the next customer," a former Oracle sales representative said. "Customer satisfaction was left to whoever was going to implement the software, whether they were from Oracle or an outside consultant. If a sales rep got a call from a customer that it didn't work, we tried to ignore the call or have our service department help them."

Because the technology industry is so maniacally competitive--and the stakes of each contract are so high--top performers are always in demand. A sales representative with a large account like Ford Motor or British Telecommunications can land a multimillion-dollar contract almost single-handedly.

"Some people make $1 million selling software--maybe not every year, but they may reach that level occasionally. They're in the 1 to 2 percent category," former Oracle Vice President Ramsey said. "Then about 15 to 20 percent make over $300,000 a year. And if people don't make their quotas, they're usually fired if they work for Oracle, Siebel or SAP."

Ramsey, who has also been senior vice president of worldwide sales for Siebel, said that company and others have annual quotas in the range of $2 million to $4 million for sales representatives, depending on their levels of experience.

Such quotas are met in part by selling expensive, one-size-only packages that contain more software than many customers require. This strategy benefits their companies as well as their own personal track records, because more complicated technology usually translates to more consulting fees.

"What that means is, we give them a Cadillac when they're asking for a Corolla. You'll get more than you might need," an Oracle software consultant said. "But that's how we make money: You need help to implement the software."

This consultant and others say they often have no idea what customers were told about the products before they bought them.

"I go in there not knowing what the salespeople said. We go in there, and I find myself saying, 'You were told this could do what? Oh, really? Let me get back to you on that,'" he said. "The salespeople win the account, get their commission, and move on to the next customer. They wash their hands of it. We're left with the dirty work."