Will audits counter Oracle’s fall in traditional license sales?
Oracle’s nt Q1 report has failed to warm investors hearts. It has now missed expectations in five out of the last six quarters. Looking at the report, it was interesting to note that although cloud sales were up (SaaS, PaaS and Cloud infrastructure), this could not compensate for the decline of new software sales. According to the Q1 report, new software license sales were down 16 percent compared to just one year ago.
Analysts have been positive about Oracle's rapid expanding cloud offerings, but have been worried about Oracle’s traditional business of selling on-premise licenses to customers for running Oracle in their own datacenters. That fear proved valid when Oracle reported a five percent drop in revenue during it’s fourth-quarter report last fiscal year. Cloud grew with 29 percent in that report, but that still only accounted for five percent overall revenue growth.
Oracle co-CEOs Safra Catz and Mark Hurd have been trying to put a nice spin on the results, claiming that currency fluctuations were partly to blame for the results. According to Catz, the on-premise software business and the new cloud business grew at a combined rate of about six per cent in “constant currency”.
Mark Hurd promised that cloud revenue growth in the fourth quarter "will be over 60 per cent". Growth in Cloud will not compensate the decline of their traditional license sales in the short term.
The question is how Oracle will turn the tide. The obvious Knight in shining armor is Oracle License Management Services (LMS). Audit-generated revenue has been up for two years in a row, and I expect that trend will continue. As an added bonus, it is a good way for Oracle to show additional growth in Cloud (see my earlier Blog: Oracle sells ‘Cloud’ but does ‘Audit’). Oracle customers that have not received a software audit (or ‘review’ in Oracle LMS terms) for some time should be worried.
Similarly, if you’ve undergone business change such as new business launches, restructuring, divestment or acquisition, you should probably also expect a letter from Oracle LMS. Audits are a fact of life and won’t go away anytime soon. But the risk of audits are a lot bigger when a vendor isn’t doing as well as it (or perhaps its investors) would like.
In Oracle’s case, it is worth remembering that while LMS is a separate function, the resolution of any findings presented by LMS is the responsibility of the Oracle Account Manager.
By understanding their priorities and incentives, you can use the push to the cloud to help you get a better deal on the more traditional licenses you really need. So, accepting that their Q1 report makes a ramp up in audits all the more likely, what should Oracle customers do?
Here’s a quick checklist to ask yourself:
- Do you have a clear view on your Oracle estate?
- Do you have a current OSW?
- Are you aware of all risks related to architectural choices (ie. virtualization with VMware)?
- Have you refreshed your hardware running Oracle recently?
- Are you using Options or Enterprise Managers that you aren’t licensed for?
If you answered ‘no’ to either of the first questions, or ‘yes’ to the last three, you need to take action now.
Solutions like Snow’s Software Asset Management (SAM) platform, complete with the Oracle Management Option, can help ensure that when (not if) the letter arrives, you’ll be ready to meet the challenge head on.
To learn more about managing your Oracle software licenses, speak to a Snow SAM expert today.