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Oracle Software: how to save costs Author: Richard Spithoven

ORACLE SOFTWARE: HOW TO SAVE COSTS

Contents Introduction......................................................................................................................................................3

Increasing Support Fees................................................................................................................................4

Shelfware..........................................................................................................................................................5

But what can you then do to start saving costs?.....................................................................................9

Conclusion.....................................................................................................................................................11


Introduction Many organizations make use of different Oracle programs. Licenses and associated support maintenance are purchased whenever there is a specific demand for such licenses and support. The moments licenses and support are purchased differ, and they are typically driven by the business requirements of an organization. These business requirements change over time.

Most organizations assume that the associated costs related to their changing software requirements will change as well. If your software requirements remain the same, you continue to pay the same. If your software requirements increase, you will need to pay more. And if your software requirements decrease, you will pay less. A logical way of thinking, but in practice, it turns out to be incorrect.

Often your recurring costs will only increase, even if your software requirements remain the same or decrease. Causing a headache for many CIOs and CFOs that have the objective to deliver the appropriate service against the lowest costs. But what options do you have to save costs on your Oracle estate to make the “transformation” within your organization (e.g. to the cloud) possible?


Increasing Support Fees The discounts applied when new licenses are purchased depend on the type of programs purchased, the (financial) volume of licenses purchased, the moment the licenses were purchased and the commercial negotiation skills of your purchasing department. The recurring annual support maintenance fees associated with these licenses are typically calculated at 22% of the net license fees. As an example, in case you purchase software licenses for a total net fee of 100,000 USD then the first-year support maintenance fees associated to these licenses is a total of 22,000 USD.

The support maintenance of these licenses does however increase over time. This since the terms and conditions of your license agreement (OLSA/OMA) state that the fees for software update license and support (SULS) will not increase by more than 4% over the prior year’s fees. Many organizations are familiar with this principle under the term “support indexation”. Because of this indexation, the support fees do increase, year over year.

As an example, have a close look at the below table which provides an overview of the actual support maintenance fees applicable for licenses which have been purchased in year 1 at a net license fee of 100,000 USD.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Net

license: $100,000

Net

Support: $22,000 $22,880 $23,795 $24,747 $25,737 $26,766 $27,837 $28,950 $30,109 $31,313

Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20

Net

Support: $32,565 $33,868 $35,223 $36,632 $38,097 $39,621 $41,206 $42,854 $44,568 $46,350

The initial (first year) maintenance is calculated at 22% of the net license fee (22,000 USD). After 5 years, the applicable support fee for the same licenses is 25,737 USD. After 10 years, the applicable support fee for the same licenses is 31,313 USD. And after 20 years, the applicable support fee for the same licenses is 46,350 USD.

Conclusion: Even if your business requirements do not change over time, the associated support fees do increase. In this example, after 20 years they have more than double


Shelfware As per the introduction of this whitepaper, the purchase of new software licenses is generally driven by specific business requirements. But these business requirements are rarely stable and often subject to change. Your company may have decided to roll out a new business application and at the drawing board it was determined what specific functionalities were needed. But during the implementation phase it turned out that certain modules were in fact not needed. Or even worse, the implementation of a specific application completely failed. Or your company may have decided to consolidate your database environments and to deploy these on a smaller number of servers. Or your company may have decided to purchase more licenses than initially needed, just to have a bigger volume and a better discount. These are just a few of the examples we see on a daily basis. All these situations result in “Shelfware”. Shelfware is software that was purchased but is not in use (they are on the shelf). Certain companies make a conscious decision to keep a number of these licenses on the shelf for any future planned usage. But many organizations would like to cancel the support fees of these licenses. This since they want to reduce the costs for these unused licenses. Your software requirements decrease, so your costs should decrease as well, right? This turns out to be more difficult in practice. Let us explain why.

Oracle’s Technical Support Policies (which specify the terms and conditions under which the support maintenance has been obtained and which can be found here) are written in such a way that they protect Oracle’s recurring support stream. Three clauses of this policy are important to understand: Matching Service Level: This clause states: “When acquiring technical support, all licenses in any given license set must be supported under the same technical support service level. You may not support a subset of licenses within a license set; the license set must be reduced by terminating any unsupported licenses. You will be required to document license terminations via a termination letter”.

In short, this clause specifies that all the licenses that technically depend on each other and/or share the same source code (eg. Oracle Database, Database Options and Database Management Packs) either all need to have an active support maintenance contract or none of the licenses should have an active support maintenance contract. So, if you have 600 Named User Plus licenses Oracle Database Enterprise Edition and 2 Processor licenses Partitioning, all these licenses need to have an active support contract. If you want to cancel the support for let’s say 100 Named User Plus licenses Oracle Database Enterprise Edition, such cancellation is possible, but you are required to terminate the licenses.


https://www.oracle.com/support/index.html?UA-50554478-1

Now for a lot of companies this is not causing a real problem. This since they are not planning to use the “shelfware” licenses anyway. But another important clause of these Technical Support Policies (the so called “Pricing Following Reduction of Licenses or Support Level) should be taken into account as well, as typically causes the problem. Pricing following Reduction of Licenses or Support Level: This clause states: “In the event that a subset of licenses on a single order is terminated or if the level of support is reduced, support for the remaining licenses on that license order will be priced at Oracle's list price for support in effect at the time of termination or reduction minus the applicable standard discount. Such support price will not exceed the previous support fees paid for both the remaining licenses and the licenses being terminated or unsupported, and will not be reduced below the previous support fees paid for the licenses continuing to be supported. If the license order from which licenses are being terminated established a price hold for additional licenses, support for all of the licenses ordered pursuant to the price hold will be priced at Oracle's list price for support in effect at the time of reduction minus the applicable standard discount.

In short, this clause specifies that if you have purchased a number of licenses through one single order and you want to terminate the support for a subset of the licenses purchased through such order, then the support maintenance fees for the licenses that you would like to continue to use will be recalculated. Such recalculation will be based upon current list support fees, minus the applicable standard discounts. These discounts are depending on the volume of the remaining licenses, but will never exceed 25%.

Let’s look at an example on how this works out in practice:

In 2014, an end user purchased the following programs through a single Ordering Document:

ORACLE PRODUCT QUANTITY LICENSE METRIC

Oracle Database Enterprise Edition 28 NUP

Oracle Partitioning 28 NUP Oracle Weblogic Suite 5 PROC


The fees as paid for these licenses (against a discount of 50%) are reflected in the below table:

ORACLE PRODUCT QUANTITY METRIC FEE SUPPORT FEE (1st YR) Oracle Database Enterprise Edition 28 NUP $13,300 $2,926

Oracle Partitioning 28 NUP $3,220 $708 Oracle Weblogic Suite 5 PROC $112,500 $24,750

The following year the end user decides to purchase support maintenance for these products. As a result of this, the applicable fees for these licenses (with an indexation of 3%) come down to the following:

ORACLE PRODUCT QUANTITY METRIC SUPPORT FEE (2nd YR) Oracle Database Enterprise Edition 28 NUP $3,043

Oracle Partitioning 28 NUP $736 Oracle Weblogic Suite 5 PROC $20,592

Then, in 2016, the end user decides to terminate the support maintenance for the Weblogic Suite licenses, since he is no longer using these licenses. According to the “Pricing following reduction of licenses or support level” clause, the recalculation of the support maintenance fees for the remaining licenses is based on Oracle’s current price list, coming down to:

ORACLE PRODUCT QUANTITY METRIC SUPPORT FEE (3rd YR) Oracle Database Enterprise Edition 28 NUP $5,852

Oracle Partitioning 28 NUP $1,428

Conclusion: As a result of the above, it is clear that the termination of the support maintenance fee for the Oracle Weblogic Suite licenses results in an increased support maintenance fee for the Oracle Database Enterprise Edition and Partitioning licenses. As a result of this, the end user typically would continue to pay support maintenance fees for the overall order (including the Weblogic Suite licenses), since the total fees of having all the licenses under an active support maintenance contract are similar to the fees applicable if only the Oracle Database Enterprise Edition and Partitioning licenses would remain under an active support maintenance contract.


You see that the logic of “if your software requirement decrease, you will pay less” is not applicable.

The last remaining and important clause to understand is the so called “Reinstatement” clause: Reinstatement of Oracle technical support End users are discouraged to terminate the support maintenance for certain licenses, due to Oracle’s policies and reinstatement fees. Reinstatement fees apply if support maintenance fees have not been paid at a certain moment in time or were not originally purchased with a program license.

The reinstatement fee is calculated as follows:

1. if support maintenance expired, the reinstatement fee is 150% of the last annual technical support fee the end user paid for the relevant program. The reinstatement fee is prorated from the date technical support is ordered back to the date technical support expired.

2. if an end user never acquired technical support for the relevant programs, then the reinstatement fee remains 150% of the net technical support fee that would have been charged if support had been ordered originally. The reinstatement fee is prorated back to the original program license order date.

Conclusion: As a result of the Reinstatement clause you will see that many organizations are afraid to pay the penalty of 150% to let the support maintenance of a license expire. Instead, end users continue to renew the support maintenance for unused licenses, simply because of the fact that they are afraid to get caught during the course of an audit and then be confronted with an increased support maintenance fee of 150%.


But what can you then do to start saving costs? Although not published widely, there are a number of (legal) options that you can consider to start saving costs. These options first require a detailed, complete and accurate overview of a) your license entitlements and associated contractual terms and b) your current (and future planned) deployment of the Oracle programs. Why? The moment you start cutting costs of your Oracle portfolio, the likelihood of being audited will increase drastically. This since Oracle obviously does not like it when you start paying less. In addition, Oracle itself knows how complex it is to fully understand your entitlements and your actual deployment of the Oracle programs. And chances of incompleteness and inaccuracy are high. Something that would become clear if an audit would have been executed. Let’s assume that you have the right knowledge and expertise in-house to determine your real entitlements and associated terms. And let’s assume that you can determine your deployment and usage of the Oracle programs in a complete and accurate manner (as Oracle would do during an audit), then several options can be considered such as canceling a complete order or migrating parts of your licenses into licenses with a different metric. Cancel a complete order As per Oracle’s Technical Support policies, the “Pricing following Reduction of Licenses or Support Level” clause is only applicable in case you want to terminate part of the licenses you purchased through one and the same order. If you are sure that you are not using all the licenses as purchased through one order, then the support maintenance fees for that complete order can be cancelled altogether. This without having the risk of any “recalculations”. Rebuy of Used Licenses In case you have a complete and accurate understanding of your deployment and usage of the Oracle programs you most likely will find out that only parts of the licenses as purchased through one specific order are in use. If you only want to continue to pay support maintenance fees for these licenses, the ones that are used from one and the same order, then Oracle would apply its ‘Pricing following Reduction of Licenses or Support Level’ policy. As such this is not always an option. But there is nothing that prevents you from re-buying the licenses that you actually really need through a new order and then to cancel the support maintenance of the initial order that included the used and un-used licenses. Whether this is an economically viable option, depends on the license fees paid in the past, the corresponding support maintenance fees, the costs related to the rebuy of the needed licenses and whether the licenses can be depreciated (from an internal accounting/finance perspective). ORACLE SOFTWARE: HOW TO SAVE COSTS

Migrate parts of your licenses into licenses with a different metric Oracle applies a number of standard license migration ratios to migrate licenses from one metric to another. For example, in case you would like to migrate your Processor licenses Oracle Database Enterprise Edition into Named User Plus licenses, then Oracle would normally apply a standard migration ratio of 1 Processor = 50 Named User Plus licenses. The rationale behind such migration ratio is based on the fact that the list license and support price of 50 Named User Plus licenses equals the list license and support price of 1 Processor license. Let’s assume that you have one single order which includes 10 Processor licenses Oracle Database Enterprise Edition and 100 Named User Plus licenses Oracle Database Enterprise Edition. Of these 10 Processor licenses, you would like to terminate 4 Processor licenses, since these are no longer used. In case you would ask Oracle to terminate the support of these 4 Processor licenses, then Oracle would apply a repricing of the remaining 6 Processor licenses and 100 Named User Plus licenses. A situation which is not helping you to save your costs. But if you would ask Oracle to migrate 4 Processor licenses into 200 Named User Plus licenses, then Oracle is required to issue a so called “migration order”. Through this migration order the migration is effectuated, but also requires Oracle Support to split the support costs between the remaining licenses of the original order and the migration order. The moment that the licenses are then migrated, the support stream of the migrated licenses is a “separate order” and can be terminated as a whole. As such this option can be followed, in which the “shelfware” licenses are first migrated into a separate order, after which the support maintenance fee of the migrated shelfware licenses can be cancelled. Please note that a so-called license migration is not a contractual right but a business practice that Oracle contractually/legally can refuse to execute. It is therefore recommended to commercially negotiate to include standard migration ratios during your next license agreement renewal.


Conclusion The scenarios discussed in this paper are just a few examples of how you can start saving costs on your Oracle licenses – there are more options to consider. All options require you to have a complete, detailed and accurate understanding of your license entitlements, deployment and usage of the Oracle programs.

If you are in need of extra expertise and a structured approach to start saving costs, feel free to contact B-lay.

©2017 B-lay BV. All rights reserved.


About the author – Richard Spithoven "Understanding the facts enables you to make informed business decisions" Richard Spithoven is one of the partners at B-lay. Richard brings more than thirteen years of relevant license management experience to his role having previously served as regional director of compliance at Oracle. Richard uses his knowledge of the last decade in Oracle License Management Services to educate, equip and enable software end-users in their challenges with regards to proper software license management. Richard holds a master degree in IT, from the University of Amsterdam in The Netherlands. Contact Richard: [email protected] We share our knowledge, so you can focus on the facts! Do you want to know more about different related license management topics, we have a selection of white papers available through www.b-lay.com. If you are in need of extra expertise and a structured approach, feel free to contact B-lay. We will help you make software compliance an exciting opportunity to improve your business! About B-lay B-lay is a specialist in software license management and provides services around software compliance, software audits, software asset management tools and insight in software spend. Our services offer organizations worldwide insight into the risks associated with software licenses, help prevent license compliance issues and help create considerable cost savings by optimizing their licensing position. B-lay was founded in 2008 and has offices in the Netherlands, Romania and the US. B-lay BV | Maliebaan 79 | 3581 CG Utrecht | The Netherlands | [email protected] | www.b-lay.com | +31 88 0233 700

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