Oracle onslaught – new price strategy targets IBM, Microsoft, analyst says

Oracle Corp. has dropped its licensing price for multi-core processors by 25 per cent, but the strategy might not be enough for customers to favor Oracle over rivals like IBM and Microsoft, an analyst said.

Last Friday’s announcement by Oracle was evidence of an on-going price war the company is waging against Microsoft Corp. and IBM Corp., said Joshua Greenbaum, principal at Enterprise Applications Consulting, a research and technology consulting firm in Berkeley, Calif.

Oracle might gain a “leapfrog” advantage from the announcement, but there are usually multiple factors that lead a customer to choose one vendor over another, “and often price is not the biggest one.”

However Greenbaum admits Oracle is facing “a lot of pressure” particularly on pricing. “It is an environment where fundamentally the biggest competition is between IBM and Oracle, but because there are…other players involved, the pressure, particularly on pricing, is much more acute.”

Under Oracle’s new pricing strategy, the number of processor licenses required on a multi-core system is calculated based on the number of cores multiplied by .75, according to Jacqueline Woods, vice-president for pricing and licensing at Redwood, Shores, Calif.-based Oracle.

A four-way single core machine, for example, would require three processor licenses while a four-way dual-core system would need six processor licenses, Woods explained.

Previously, Oracle charged for multi-core processor licenses on a one-to-one basis.

The new pricing scheme – which took effect July 8 – effectively reduces the cost of a processor license by 25 per cent, the Oracle vice-president said.

Oracle’s new strategy was triggered by increasing move towards multi-core technologies among hardware vendors such as Intel, AMD, and Sun, said Woods. “In terms of what [the hardware vendors] indicated, it looks like [multi-core processors] will be the direction going forward.”

IBM and Microsoft have already declared their intention to charge only one license for AMD and Intel dual core chips. But Woods is not worried this pricing structure would put Oracle at a price disadvantage or hold back the adoption of dual-core technology.

She stressed the difference would only be in terms of the Intel and AMD chips. When it comes to other platforms, such as Unix and pSeries, both IBM and Microsoft have varied pricing policies, including a one-to-one per core pricing.

“So we’re 25 per cent less in that instance,” said Woods.

Oracle intends to adopt a universal pricing strategy across all hardware, she said.

The value of dual-core systems, in terms of performance, has also influenced Oracle’s decision to update its pricing strategy.

“Our research has determined that the performance you get from a dual-core is between 1.5 and 1.75 the performance of a single core. And pricing would be aligned to the performance value being received by the customer,” said Woods.

Oracle may still lag behind IBM and Microsoft, but its new pricing policy indicates that the software vendor is beginning to re-think its strategy on software licensing, according to IDC Canada analyst David Senf.

“You could say that Oracle is still at a competitive disadvantage, but I think it has gone a long way in dealing with issues that end-users and the IT industry, in general, were seeing,” said Senf.

He said the software industry is moving towards subscription-based and “software as a service” concept, and with the announcement, Oracle has taken a step along that road.

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