The Hidden Time Bomb in Your Oracle Cloud Contract

This article is an edited transcript of the video above.

We’ve talked a lot about how Oracle is pushing their customers to buy Oracle’s cloud, even when those clients don’t want it. Never forget what Oracle did to the City of Denver.

Despite Oracle’s aggressive tactics of pushing their customers to Oracle’s cloud, there are some companies that buy Oracle cloud with the intention of actually using it.

Big difference between cloud and on-premise

If you are in that group, you’ve bought Oracle cloud and you are using it, then you have an entirely new set of Oracle contracts, terms, practices, compliance risks, and opportunities from what you are used to in Oracle’s on-premise world. In fact, one of the biggest differences between Oracle on-premise contracts and their cloud contracts can have a serious impact on your IT budget and blow up on you in the worst possible way.

What I’m talking about here is future price protection. In the on-premise world, you always have a level of protection that Oracle can’t jack up the price on your maintenance. In the cloud world, however, there is no such price protection that we could find, and future cloud pricing is completely dependent on Oracle’s goodwill. Let’s look at this a little closer and let’s use Oracle on-premise license and support pricing as our guide.

No price protection in Oracle cloud contract

In the on-premise world, Oracle typically puts in their contracts the price for support/maintenance for one year. For example, let’s say the cost of the first year support is 1 million dollars. Some companies even have “support caps” built into their contracts. Years 2-4 could be capped at 2% increases or even flatlined. But what happens after that? What happens after your contractual support cap expires? Can Oracle double your support bill the following year? The answer is NO, Oracle cannot do that. Why? Because their support renewal pricing is detailed in their price lists. Specifically, Oracle’s price lists state that:

“The price of a technical support renewal for Software Update License & Support is the technical support fees paid for the same licenses in the prior year, increased by the Inflationary Adjustment Rate (IAR). For licenses with an active Contractual Cap Rate (CCR), support is increased by the lower CCR or the IAR.“
Source: Oracle Price List

This language precludes Oracle from jacking up the price of your support for your on-premise license. Unfortunately, we have not been able to find similar price protection language in Oracle cloud pricing documentation. That is potentially a HUGE PROBLEM for any company moving to the Oracle cloud. Using Oracle’s cloud is supposed to bring you certainty and flexibility in pricing. It appears Oracle’s cloud pricing does neither.

Let’s illustrate the problem. The chart below shows the difference between Oracle’s pricing for their on-premise support vs. their cloud. This illustration is based on a client negotiating a three-year agreement with Oracle for both products and an inflationary index of 3%.

The Pricing Time Bomb Hidden In Your Oracle Cloud Contracts

Take a look at years 4 through 7. You can see that cloud pricing for these years is whatever Oracle wants to charge you. That’s the bomb that could explode in your contracts. What if you don’t have a three-year pricing agreement from Oracle? Well, that bomb might very well explode in your next renewal. Don’t be surprised with double-digit price increases from Oracle. How about a 50% increase of 75% increase or more? Well, there is nothing in the contracts that prevents Oracle from doing just that.

Oracle does not make it easy for you to figure out their cloud pricing.

To be fair to Oracle, part of the reason is that they have SO MANY cloud offerings that they are probably having a hard time keeping up with all of them.

That being said, perhaps there is something out there protecting Oracle clients on the out years of cloud pricing. We have not come across it, and when our clients have asked Oracle for it, Oracle has not provided it to them.

Do you trust Oracle?

This leads to a very tough decision for anyone buying Oracle cloud services.  Do you trust Oracle? Will you trust them in the future after you are dependent on their services and you’ve lost your leverage to pick up and move somewhere else? We recommend you use Oracle’s past behavior as your guide in answering that question.

If you have moved to Oracle’s cloud, or you are thinking about it, please reach out to us at Palisade Compliance. We’ve helped customers of all sizes negotiate Oracle cloud contracts that defuse time bombs like this one. Our reputation, experience and complete independence from Oracle puts us in a uniquely qualified position to help you take back control from Oracle and avoid those explosives!

Picture of Craig Guarente
Craig Guarente
Craig is the President and Founder of Palisade Compliance, which he founded in 2011. Before 2011, Craig worked at Oracle for 16 years where he was the Global Vice President of Contracts, Business Practices, and Migrations. He was also the Global Process Owner for Oracle’s audit teams (LMS), a member of Oracle’s CIO advisory board, and on the Oracle User Group’s contract and licensing advisory board. Craig is now the leading expert on Oracle licensing, is quoted in dozens of publications, and assists with many high-profile Oracle disputes.