The promise of the cloud is to liberate IT from the cost and burden of tiresome daily IT administration, while delivering more freedom to select from the industry's latest and best innovations.
Too bad that goes against the very DNA of legacy ERP vendors such as Oracle, whose stock price and revenues historically are closely tied to recurring 90% margins on maintenance for traditional licensed software.
Meanwhile, for an ERP vendor to rewrite decades-old ERP application suites for the cloud has proven to be difficult, costly and time consuming. In addition, legacy ERP vendors are also being forced to address new competitors such as Amazon Web Services.
In a likely attempt to demonstrate traction in the cloud to Wall Street, Oracle appears to be scrambling to create new cloud-specific sales and consulting programs with names like "Universal Credits" for cloud services and "Soar to the Cloud." The apparent goal: move customers to the cloud, while preserving Oracle's traditional profit margins.
CIOs Are Voting With Their Budgets
A recent CIO survey from J. P. Morgan highlightings a shift in CIO spending away from Oracle, especially when it comes to cloud computing:
"The analyst's survey of 154 chief information officers revealed Oracle received the most indications for "spending contraction" this year. He also noted the company was mentioned by just 2 percent of the executives as their "most integral" vendor for cloud computing versus 27 percent for Microsoft and 12 percent for Amazon."
Among some customers, one reason for concern about adopting the Oracle cloud is that it can lead to even deeper vendor lock-in - which might explain Oracle's enthusiasm for promoting the switch. Consider what Oracle's co-CEO Mark Hurd told financial analysts in a recent earnings call: "When a customer who is on-prem paying us support moved to the cloud, they pay us more money, They don't pay us one to one, they don't pay us two to one, they pay us more like three to one. In some cases more than three to one."
If you do not want to pay up to three times more, make sure you know what you're doing before signing a cloud deal with Oracle.
The alternative, however, is also not sustainable - continuing to pay Oracle ~22% maintenance per year on software assets while receiving fewer and fewer new major software releases and in many cases seemingly little maintenance and support value.
Keep in mind that there is more than one way to "go to the cloud." If a Software as a Service (SaaS) ERP platform does not make sense for you, Infrastructure as a Service (IaaS) cloud hosting of your current software may still be an option - and Oracle is not the only one who can provide it. Selecting the wrong cloud could result in escalating costs over time, rather than new efficiencies.
Evaluating Oracle's Cloud Offers
Three Oracle Cloud programs are analyzed below and as you review, we encourage you to ask the question, "Are we confident we are getting more and paying less than we did before?"
Oracle Customer 2 Cloud - The First Attempt
This program was Oracle's attempt at lowering the financial hurdle to move to their cloud for Oracle customers of ERP, EPM, HCM, and CRM solutions from Oracle's Siebel, PeopleSoft, JD Edwards, and Oracle E-Business Suite. The program asks customers to give up existing software licenses in return for a new Oracle cloud service within the same product family.
Here are three things considerations for this option:
- Know Your True, Final Discount - The discounts you are initially offered may not be the final bottom line. For example, moving to Oracle SaaS may require additional investments in Oracle infrastructure for test and development instances. This may come as a surprise to some customers at the end after they have committed.
- Consider The Risks Of Paying Up Front - You may be offered the "opportunity" to pay up front for future software usage. Before you do, ask whether you are confident about what happens if there is an issue that impacts delay or quality in delivery of these cloud services. What is your SLA? And what if you don't utilize all the services? Do you get a refund?
- Understand Your Future Choices - Once you have signed your contract, what choices are available to you in the future for non-Oracle cloud software? Are you locked-in or do you have still have choice?
Oracle Universal Cloud Credits - The "Fast-Pass" To Vendor Lock-in
Oracle's follow-up to Customer 2 Cloud was the announcement of Oracle's Universal Credits program for cloud services in 2017. The promise of Universal Credits is flexibility in using Oracle's cloud product and rewards for customers who use it the most. This is a slightly softer approach where customers can keep their existing software licenses but dip their toe in the Oracle Cloud pond and try before they buy.
While you might think Oracle's Universal Credits would result in customers paying less for cloud services the more those services are used, the reality for many customers is quite the opposite. Palisade Compliance outlines this in great detail:
- Under the "Monthly Flex" payment plan Oracle is pushing most aggressively, customers pay Oracle in advance for cloud services, which they may or may not fully utilize. Ask Oracle what happens to those services you don't use.
- Those same terms mean if you over-utilize, you will incur a penalty - much like overage charges on a mobile phone plan with limited minutes. Rather than getting a volume discount, the more you use the software over your cap, the more you're going to pay.
- You can pay more than what your contract appears to require. The rules on when discounts do and do not apply are complex and tend to result in customers paying more than they would expect, according to Palisade's analysis.
- Make sure you understand whether, in the process of adding cloud credits to your contract, Oracle will be adding or changing other terms of your existing licensing agreements for software not in the cloud.
Oracle Soar to the Cloud - The "Last Upgrade"?
The most recent Oracle Cloud program is Oracle's Soar to the Cloud program, launched in 2018. This program is heavily tied to Oracle Consulting and claims to streamline and reduce the costs of migrating to the Oracle cloud. In announcing Soar, Oracle CTO Larry Ellison also boasted that it will be "the last upgrade you'll ever do," implying that future software updates will happen on autopilot.
For any customer who has been through a painful software upgrade, this program can sound appealing. Oracle makes some bold marketing claims for Soar, which warrant a bit of scrutiny:
- As reported in The Register, Oracle says Soar will "reduce the time and cost of cloud migration up to 30%" versus what you could do on your own and allow the process to be completed "in as little as 20 weeks." The first red flag is that there are no published or documented comparisons to support either of Oracle's 30% claims. If they have proof, we haven't seen it.
- The second red flag is customizations are likely not included. Nearly every Oracle ERP application environment today is customized, but Oracle's answer to this seems to be to hire Oracle Consulting to help remove those customizations. The SVP of Oracle Consulting states, "What our consulting team will do is say, 'How do we unwind that complexity and teach you to take advantage of the out-of-the-box industry best practices built into our cloud technology?'" In other words, if the unique business processes supported by your customizations can't be reduced to configuration settings within Oracle's cloud software, you should expect that you likely have to give them up.
- The last thing to watch for is this claim that Oracle SaaS applications will be easier to manage. While many businesses would like to get out of the business of implementing ERP upgrades, the reality is you will likely still be upgrading, just at Oracle's pace and with Oracle potentially having more influence over the technology choices. Ask whether you trust that all Oracle upgrades will be worthwhile improvements. Then make sure you are ready to handle the training and change management issues that may arise when software changes arrive, sometimes before users are ready for them.
Better Choices Exist
Under pressure to prove itself in the cloud, Oracle, in turn, is pressuring customers into an unnatural act - making a commitment to the Oracle cloud, regardless of whether it serves their business interests. While the potential for digital innovation is great, much of the innovation in cloud software is coming from more agile startups, who are not burdened with preserving legacy application roadmaps and features.
In terms of cloud IaaS, it may be more beneficial for organizations to have choice to keep their existing software investments and customizations, but migrate those to a cloud IaaS platform of their choice.
Even while adopting SaaS, most enterprises will wind up with a hybrid IT environment, including local data center and traditional server hosting, as well as true SaaS and IaaS cloud resources. You may find it makes sense to take advantage of the efficiencies offered by a leading IaaS provider, such as AWS, in combination with the software you have already licensed and customized to support your business.
Rimini Street can be your ally in this transition. We can support your internally-deployed and cloud-hosted environments in a unified fashion. Let us be your trusted, independent advisor, offering software-neutral perspective on which new cloud services and applications make the most sense for your business, based on our insight into your environment and operations.
Over 2600 of the world's leading businesses including 15% of the Fortune 500 and Global 100 have moved to Rimini Street, saving up to 90% off their cost of software maintenance and support, while enjoying a higher quality of service. If you're running Oracle and considering the cloud, now is a good time to talk to Rimini Street.
The World of Enterprise Applications is Changing – Is It Time to Reroute your ERP Roadmap?
The cloud is changing how we think about choices for enterprise software, including ERP. To make the most of the cloud, organizations must understand that there is more than one route to the cloud – and they need to draw their own roadmap rather than letting vendors do it for them.
Jason Kotsaftis, Sr. Director, Product Marketing
Jason Kotsaftis is Sr. Director of Product Marketing at Rimini Street. Jason has over 20 years of industry experience with many of the world’s leading software organizations including Oracle, SAP, Microsoft and VMware. He has held leadership roles in driving some of the largest strategic global alliances in the industry and was most recently responsible for all solutions product marketing and product management for enterprise applications at Dell|EMC. He has a passion for delivering strong business outcomes for customers and is proud to share his experience as a contributor to this blog.