How to Negotiate with Oracle Post-Canary SwallowingBy Lisa Vaas | Posted 2004-12-21 Email Print
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Opinion: When customers head into licensing negotiations with Oracle post-PeopleSoft merger, they should be prepared to wage a little psychological warfare, negotiating experts say.When it comes to sales and to negotiating licensing and support, Oracle has always been stocked with tough-as-nails negotiators.
The company at times has attempted to domesticate its team, such as in August when it released its first-ever set of guidelines to instruct its direct sales staff in North America on how to play nice with partners. Feedback on that move has been that it's like putting a Band-Aid on a gushing artery, however.
And it hasn't helped customers that, oftentimes, Oracle's terms are confusing, leaving customers scratching their heads as they try to figure out when to migrate or convert licenses to a new model and how to figure out if it's cost-effective; when to buy an applications suite versus components; and how to determine support and product maintenance costs.
Not that everyone thinks customers are up a creek at this point. Peter Burris, an independent analyst, told me that Oracle will "absolutely have to continue" to slash prices post-mergerjust as both Oracle and PeopleSoft did while this battle was ongoingif it wants to continue to acquire new customers.
But how many new customers are there for databases and ERP (enterprise resource planning) applications? The number of new applications going in are pretty modest, compared to the late '90s, when everybody was doing ERP and grand, unified applications were going to solve everyone's problems.
Since then, Burris noted, people have stepped back and said hey, let's not try to solve everything at once with one big application. "A lot of the activity is in much more segmented problems being solved, utilizing technologies that are relatively easy to implement and relatively inexpensive to manage," he said. "Certainly MySQL, the whole Microsoft [SQL Server stack], and Sybase still does OK in that world."
True, you can plug MySQL's open-source database into a certain segment of jobs, and true, vendors are all hot to get their hands on SMBs (small and midsized businesses) that want to do modest things with commodity databases, such as serving up Web pages. But when it comes to serious enterprise girth, IBM and Oracle are the players that most people take seriously.
And when it comes to enterprise applications, we get down to Oracle CEO Larry Ellison's take on the software market, which is that it's mature and ripe for consolidation.
Next Page: Lessen dependence, or give the impression of it.
Oracle has a good balance sheet, and it has a good installed base. What it needs to do now is to take steps to make it hard for people to leave its fold. As it is, Oracle's often seen as a database of record for PeopleSoft accounts. With the purchase of PeopleSoft, Oracle not only increases the size of its installed base in enterprise applications, but it's better able to control the tie-in to PeopleSoft on the database side, Burris said.
That will make it easier for Oracle to raise prices. Anthony Bradley, a former META Group analyst who's now a consultant with Booz Allen Hamilton, told me that the situation with PeopleSoftespecially where an enterprise is running PeopleSoft applications on top of Oracle databasescreates a stronger Oracle footprint in the corporation that Oracle will use in negotiations.
"Oracle's known to be very hard-line in negotiating," he said in a recent conversation. "Even in situations where customers' need for software and licensing has declined, they'll deploy a number of negotiation techniques to maintain revenues."
Bradley has penned a must-read article on the intricacies of Oracle's licensing and negotiating tactics: "Oracle is Putting the Support Screws to Customers" (PDF file). After you read that, do your due diligence and check out Oracle's response on IT Manager's Journal.
The more dependent a company is on Oracle, the stronger hardball Oracle can play in contract negotiations. When it comes to getting out from under the 800-pound gorilla, it all comes down to two things: either decreasing dependence on Oracle or decreasing the appearance of dependence on Oracle.
Decrease dependence on Oracle technology. As Bradley puts it, Oracle is a big company. It sells databases, application servers and, particularly in the future, applications. If your enterprise can do so, mix it up. Don't run Oracle applications on top of the Oracle applications server on top of the Oracle database.
Or, Bradley said, if you're running an OLTP database, choose a different database vendor for data warehousing. Or use smaller application vendor products. "Even if Oracle's the primary vendor, maintain the capability to expand deployments on Oracle's competition," Bradley said.
Have a real option, even if it's relatively small in comparison to Oracle. Run SAP somewhere, anywheremaybe for general ledger, with PeopleSoft running human resources. Make sure, of course, that Oracle knows that competitors are in the shop.
Sandwich vendor presentations. This is a little trick Bradley has clients do: Schedule three vendor presentations on the same day. Schedule Oracle to be in the middle. Make sure that, as Oracle reps come in the door, they see Microsoft reps leaving. Have IBM waiting in the lobby as Oracle reps are leaving. Or Lawson, or Salesforce.com, or whatever competitors might be in the race for a given application. Make sure Oracle understands that your enterprise has options.
Gather up potential business and hold it over Oracle's head. Here's another Bradley trick: Look through your organization and gather up all of the potential business Oracle could get from your organization. Then wave it over their heads. Make it be known that, if mistreated, this is the business Oracle won't get.
Don't migrate. If you're running PeopleSoft on a non-Oracle database, consider the negotiating strength this lends you. Don't increase your dependencestay put, and stay strong come negotiations time.
Write to me at firstname.lastname@example.org.
eWEEK.com Associate Editor Lisa Vaas has written about enterprise applications since 1997.
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