Oracle reverses course on database pricing

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By Dan Verton

(IDG) -- Responding to long-standing user complaints about the high price of his company's database software, Oracle Corp. CEO Larry Ellison on Thursday eliminated a controversial capacity-based licensing approach and vowed to take on rival IBM at its own pricing game.

In an interview shortly after he announced the release of the new Oracle9i database, Ellison said Oracle will begin transitioning all of its database users to per-processor licenses Monday. The enterprise edition of the software will now be priced at $40,000 per processor, while the standard edition will cost $15,000 per CPU, he said.

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Users who are currently paying for software based on the Universal Power Unit (UPU) performance measurement that Oracle introduced a year ago will be given a standard formula to help them retroactively convert from power units to the new licensing structure, according to Ellison. Similar pricing changes are being made on Oracle's application server software.

"Every year, we lower our prices, and we sell more software," Ellison said. "This is, in fact, a price reduction from [the power-unit model]." For some configurations, according to figures posted on Oracle's online store, the new per-processor scheme will cut prices by 15 percent to 18 percent compared with the UPU approach.

The UPU pricing, which was based on the number of processors in a server and the speed of the devices, has been criticized as exorbitant by many Oracle users ever since it was implemented. Earlier this year, some customers pinned part of the blame for lower-than-expected database sales in Oracle's third quarter on the UPU approach.

Betsy Burton, an analyst at Stamford, Conn.-based Gartner Inc. and a longtime critic of the UPU pricing model, applauded Ellison's decision to abandon the power unit model. "Now, Oracle is listening to its customers," Burton said. She added that users who bought databases under the UPU scheme should contact Oracle "immediately to renegotiate their contracts."

Burton also predicted that the pricing change is likely to have a positive impact on Oracle's database sales. Some financial analysts have forecast that database revenue for the company's fourth quarter, which ended last month, could come in flat on a year-to-year basis when the financial results are announced Monday.

Ellison acknowledged that his decision to make the change was based on a desire to respond positively to increasing user dissatisfaction with the database software's high sticker price. He said he's also looking to counter a relentless marketing blitz by IBM that has sought to label Oracle's databases as overpriced.

"We want to make the comparison between Oracle and IBM as easy as possible," Ellison said. "IBM wants to compare pricing? Let's compare pricing. We've moved to the same metric that they're using to make it clear."

Although Oracle's per-processor pricing is still twice as expensive as IBM's, Ellison said there's a good reason for that: Oracle9i comes out of the box with more features than IBM's DB2 does, he claimed. Once users start adding in the cost of features that IBM charges extra for, he said, "they're actually more expensive than we are."

Phil Russom, an independent analyst in Waltham, Mass., said Oracle did the right thing for itself and for its customers by cutting prices and getting rid of the UPU measurement. "Oracle should expend whatever effort it takes to make the new packaging and pricing crystal clear, so [users] can plan their budgets with confidence," Russom said.

Ellison also struck back at critics of Oracle's pricing with a flurry of counterpunches based on Oracle9i's new shared disk architecture and clustering technology, which he said will let the company "really tackle the economy issue." According to Ellison, users will be able to increase capacity, performance and reliability by simply plugging in another "inexpensive" database server. "This is breakthrough technology," he claimed.