When Oracle boosted list prices for its database and middleware products last month, it was not clear whether it had also changed prices for its applications. This week, however, Oracle sources told us that the company did update prices for its applications, including many EnterpriseOne and World offerings. That update increased prices for many products by approximately 15 percent in the United States and the United Kingdom. In all fairness to Oracle, prices in some regions remained unchanged or even decreased.
To understand what Oracle has done, one first must realize that the company offers three licensing models for its applications. Component licenses are for small “a la carte” purchases of one to several products. Custom Application Suite (CAS) licenses are used for purchases of software bundles that are priced by the bundle user (otherwise known as a CAS user). Enterprise licenses are used for purchases by larger companies that have many internal and external users.
With that brief licensing lesson in mind, let’s look at Oracle’s pricing action. According to Oracle, the price increases apply to Component and CAS prices for all EnterpriseOne and World products. From the information we have received so far, Component prices for U.S. and U.K. customers rose by 15 percent for all JD Edwards products. CAS prices for these countries also rose across the board, though we are still trying to determine by how much.
By contrast, most Enterprise prices remained unchanged, though prices for a few EnterpriseOne offerings (mainly Human Resources and Supply Chain Planning products) increased by 15 percent. It also appears that Enterprise prices for most World products rose in the U.S. and U.K., though we are still trying to confirm this.
As I stated earlier, the price increases mainly apply to the U.S. and U.K. To understand why other countries are escaping unscathed, let’s go back to my previous analysis of Oracle’s price action. As I explained in that article, Oracle maintains a single global price list that is based on the U.S. dollar. Once or twice a year, it adjusts the prices that non-U.S. customers pay based on how their currency has changed versus the dollar. As many currencies (especially the euro) have risen against the dollar over the last several years, Oracle’s typical practice has been to reduce what customers in these “appreciating” countries pay in their currencies.
Last month, however, Oracle took a different tack. Instead of reducing prices for currencies that are appreciating versus the dollar, it raised its prices in dollar terms. As a result, many countries with appreciating currencies did not receive another reduction in their prices. For instance, prices in Euros and Yen remained flat. While Oracle is not discussing its intentions for this decision, it could (over time) reduce some of the incentive for multi-national firms to purchase licenses in Euros rather than dollars.
At the same time, Oracle rejiggered its exchange rates for some emerging economies so that JD Edwards products now cost less in their currencies. This is particularly true for Brazil, other parts of Latin America, and Eastern European countries. These are “greenfield” regions where JD Edwards products are experiencing significant growth, but are slugging it out for market share with Microsoft, SAP, and regional solutions. Oracle’s price actions could help EnterpriseOne and World win more customers in these highly competitive markets.
What About the Rest of Us?
While Oracle’s price action will be welcomed by customers in many emerging economies, the reception will be far cooler in other climes. Though current U.S. and U.K. customers will not feel the pain of the price increases immediately, many of them will when they purchase new modules or additional seats.
Some may argue that Oracle will reduce the impact of its increases through the heavy discounts that it frequently offers. This will only be true if discounts become even deeper than they are today. After all, if a company currently enjoys a 70 percent discount from Oracle and receives the same discount off the increased list prices, it will still pay 15 percent more on new licenses than it would have a month ago. Moreover, the same company will pay 15 percent more for support on those licenses, as annual support prices are pegged at 22 percent of license fees. Fortunately, support costs for existing licenses will remain unchanged.
If there is one group of customers that will fare the best, it will be those that have negotiated “price holds” into their existing contracts with Oracle. Such clauses, which set prices for additional seats and sometimes for new modules, are an excellent way to make future costs more predictable. In the wake of the latest price changes, we expect that more domestic companies will start asking for price holds in their Oracle contracts.
Since we have not yet gathered all of the facts about Oracle’s latest price changes, I am not going to offer a fuller analysis here or make additional recommendations. However, I do intend to offer further coverage on the price action as the remaining facts become available, so stay tuned.