Oracle Corp.’s unlimited license agreements (ULAs) can make great sense for companies that want to use a lot of the vendor’s software, but a number of potential pitfalls can get buried in the fine print, according to a new report from Forrester Research Inc.
The topic of ULAs is especially timely, as Oracle is in its fourth fiscal quarter, meaning the company is scrambling to sign deals before the fiscal year ends.
Oracle ULAs usually last for three years, upon which they revert to a normal model based on metrics, or a new ULA is negotiated, Forrester said in the report, which was authored by analysts Duncan Jones, Liz Herbert and Rory Stanton.
ULAs have their benefits for both Oracle and customers, Forrester said. Customers can deploy software as they wish, rather than having to be parsimonious with a fixed number of licenses. They also don’t need to spend time managing licenses to ensure compliance.
In turn, Oracle gains because customers are more likely to standardize on its products, shoving competitors out of the picture.
However, “calling the contract ‘unlimited’ doesn’t make it so,” the report adds.
Customers should scrutinize ULA clauses that cover licensing scope. Language providing coverage not just for the customer but also other entities, such as majority-owned affiliates and 50 percent joint ventures, should be included, the report notes.
ULAs must also have some type of mechanism for adding or removing products, as customers may find they don’t have all the software they truly need or that they have unnecessary software, as the agreement unfolds. Ideally, the same discount off list price agreed upon for the original ULA, which is often substantial, should apply to new purchases, Forrester said.
Oracle’s frequent acquisitions present another issue for ULAs. The report cites an example of one unnamed ULA customer who “found that Oracle’s
acquisition of BEA had made some of the products obsolete, and so it faced an excessive cost to switch to equivalent BEA functionality.”
ULAs should provide some protections against such scenarios, according to Forrester: “If Oracle subsumes your product within a different product that you haven’t licensed, you should be able to use, install and upgrade to that new product, provided you don’t use functionality that wasn’t in the one you bought.”
Miro Consulting, a Woodbridge, New Jersey, firm that advises clients on Oracle contract negotiations, finds that many end up unhappy with the ULAs they sign, according to company President Eliot Arlo Colon.
There are three crucial tasks customers interested in a ULA must complete before putting pen to paper, Colon said.
First, they “need buy-in from different business areas, not just IT. You need at least one unbiased person to do a sanity check,” he said.
“The second thing, and this is the hardest thing for CIOs, is you want to go into this and pretend you’re a startup or entrepreneur,” Colon added. “If I’m an entrepreneur, and this is my startup business, and write an agreement from scratch, what would I do?” This approach will help a customer avoid blithe acceptance of seemingly boilerplate contract terms, he said.
Finally, ULAs are much more complex than many people realize, Colon said. “Whatever time you think you’re going to need, you probably need to double it.” In fact, companies should start at least a year in advance of signing a deal, he said.
Ultimately, ULAs simply must be placed into the proper perspective, according to Colon.
“You’re still getting a tremendous amount of product at a very low cost,” he said. “It’s a very complex, custom volume agreement. If you take it from that standpoint, you have to see if it makes sense. For some clients it does.”
An Oracle spokeswoman declined comment.