Written with David Floyer
Please see Wikibon's updated adoption figures for virtualization of production database workloads. We note that despite Oracle's early negative stance toward adopting VMware, its support of virtualization has been outstanding.
It's also worth checking out Wikibon's advice on virtualizing Oracle.
Recently, Wikibon conducted in-depth interviews with a variety of organizations and knowledgeable Oracle and virtualization practitioners; including:
- Five Oracle sites pursuing virtualization. The individuals interviewed are intimately involved with the Oracle/VMware/Hyper-V/Citrix issues and varied from the DB administrator to the deputy CIO.
- The CEO and CTO of a VMware/Oracle consultancy. This consultancy is unique in advocating VMware for virtually all Oracle instances.
- Internal IT operations professionals at a leading IT company responsible for in-house Oracle deployments.
This note summarizes our findings and puts forth tactical and strategic advice to IT organizations (ITOs) interested in generally improving Oracle negotiations and specifically virtualizing Oracle databases.
Myths About Oracle Negotiations
There are many misconceptions about Oracle negotiations. For example, a majority of users we speak with believe they cannot get Oracle to decrease maintenance pricing below 22% of license fees. This is not correct, and we’ve found several examples where users have negotiated maintenance below 22% (e.g. 20% and 18% respectively). The catch is deals must be substantial in order to succeed at securing these lower fees (e.g. $5M plus transactions). Oracle is highly motivated to bundle as many of its hardware, software, database, middleware and application solutions as possible. Those customers pursing Oracle's preferred strategy will get the best deals and ultimately become more locked-in to Oracle. Despite these risks, we see IT organizations pursing a bundling buying strategy, and our conclusion is if you go this direction you may as well negotiate the best deal, because Oracle will eventually raise prices on you.
Also, many Oracle users report that they try to wait until the end of a quarter to negotiate with Oracle. For the vast majority of organizations this is a mistake as Oracle reps are too busy chasing large deals at quarter’s end and won’t spend time negotiating smaller transactions. The best strategy for ITOs with Oracle transactions of less than $2M is to negotiate hard EARLY not late in the quarter, when sales reps have more time, are less busy chasing deals over $2M, and are trying to build pipeline.
In addition, many Wikibon users indicate that Oracle will not negotiate price decreases. This is simply not the case as we’ve seen Oracle aggressively discount to maintain customer footprint. Exadata deals are extremely competitive right now, and Oracle is offering ‘white glove’ service, often for no additional charge, for customers willing to buy large bundles of Oracle products and services. Customers should be aware that attractive Exadata deals will not last forever and will lock-in users long-term and the appeal of Exadata will decline over time as competitive offerings enter the market and Oracle's terms become more onerous once users are firmly locked to Oracle.
Oracle is less willing to negotiate long-term maintenance discounts and flexible pricing (e.g. favorable forward pricing). Often these terms are more valuable than up-front discounts, and users should negotiate hard in this area.
In addition, ITOs should consider the following six guidelines during Oracle negotiations:
- Oracle’s License and Service Agreement should be approached with extreme caution. The document contains terms and conditions that often don’t apply to a specific transaction. Users should insist that Oracle remove any definitions and terms that do not apply to their specific transaction (e.g. Solaris- or JD Edwards-specific terms that may not apply).
- Organizations will find Oracle is much more willing to negotiate if it believes the deal to be competitive. Wikibon knows of several instances where customers have received substantially improved deals by simply initiating (in earnest) IBM DB2 or Microsoft SQL Server pilots and made Oracle aware they are prepared to walk. Caution: We also know of several instances where Oracle has not blinked and customers have been forced to either accept worse terms or migrate major systems off Oracle; a costly endeavor not for the faint of heart.
- Organizations licensing software from companies that may be acquired by Oracle (i.e. virtually any software company) should state specifically that their terms and conditions survive the sale of assets of the current vendor to any acquiring entity and that change of control does not alter the negotiated T&C’s of the current license. Customers of JDE, Peoplesoft and other vendors that have been acquired by Oracle learned the hard way that not having such clauses in existing contracts was costly. In general, users should negotiate as much long-term flexibility into contracts as possible. Where a current (non-Oracle) vendor pushes back, users should negotiate a clause in the event of a sale that ‘triggers’ greater long-term pricing and maintenance flexibility to reduce the risk of Oracle imposing onerous terms.
- Users must understand testing and backup limitations. Oracle’s terms around testing and backup are very specific, and users that don’t pay attention to such items will be exposed to Oracle audits. Organizations must endeavor to be in compliance or suffer the consequences. This fact underscores the importance of simplifying agreements with Oracle and eliminating unnecessary terms and definitions that may confuse future staff not familiar with the original deal terms.
- The commitment of a sales professional, even in writing, will be superseded by the Oracle Ordering Document. Unlike many companies, Oracle’s Master Agreement does not typically supersede all other agreements, and the ordering doc will take precedence. ITOs must make sure they understand and align the objectives of these important documents.
- Organizations should treat Oracle negotiations as projects. Organize teams from business, legal, applications, IT operations, compliance, and contracting to make sure all bases are well-understood and covered. Oracle lawyers know their contracts better than their customers, and the more homework you do the better.
Key Wikibon Findings Around Virtualization
- The majority of databases in general, and Oracle in particular, and the ISV packages that use them will inevitably be virtualized. The business case for migration is overwhelming, with business continuity and equipment consolidation being the major financial drivers. The migration will be steady and deliberate over an extended period of five or more years. VMware is set to take the majority of the business with some momentum towards Microsoft Hyper-V, particularly in the SMB market.
- Oracle is less than supportive with regard to facilitating these initiatives unless Oracle VM is the virtualization platform. In our view, VMware is more mature for enterprise class use cases than Oracle VM and users should exercise caution with regard to Oracle's advice.
- For all customers with whom we spoke, support of Oracle under VMware is an important issue. Certification by Oracle is a different issue and this is an absolute requirement in some industries such as pharmaceutical when dealing with the FDA. However many customers indicate they are more than willing to move forward with VMware without Oracle certification.
- Contrary to popular belief, Oracle does support and will certify VMware for certain industry segments (e.g. pharma). Oracle charges a substantial fee for this service and is extremely guarded with respect to making this information available broadly.
- Three of the six sites interviewed indicated that support for Oracle VMware is poor, specifically citing situations where Oracle will force users to revert to physical systems to re-create a problem before providing support. Virtualization users also reported that Oracle will threaten to change licensing models (to increase fees) and push hard for Oracle VM as an alternative to VMware. Exceptions are organizations paying very large maintenance bills or extensively using Oracle applications, giving them greater leverage.
- One virtualization consultancy we interviewed has an excellent and detailed story in support of the universal adoption of VMware with Oracle, which it tells with passion and conviction. However, not all their conclusions are supported by other practitioners or consultants, and while we found the consultancy extremely capable, users should be cautious about biases with virtualization advocates.
- VMware and Oracle implementation is sometimes perceived as too complex; the VMware and Oracle Databases Software Solutions Deployment Guide is 100 pages long and for high end customers must be considered carefully. Proper configuration is important to ensure good performance. While a significant part of the complexity is storage related, many customers at the low end will find implementations to be simple. Importantly, while implementation is sometimes complex, ongoing operations, once implemented properly, will be dramatically simplified with virtualization.
- The consultancy claims 50% of VMware Oracle installations have wrongly configured storage systems, and Wikibon has confirming evidence from other research that storage is a significant problem area for VMware installations in general, and databases in particular. The issues emerge mainly as performance and problem-determination complexities.
- Users should be cautious about vendor claims with regard to virtualizing mission-critical databases generally and Oracle specifically. Many early VMware/DB implementations had to be pulled back due to friction from Oracle and overall perceived risk. It is important that application heads exercise caution with respect to critical systems and fully understand the risk/reward balance before aggressively pursuing initiatives.
- Virtualization will not reduce spend on Oracle licenses significantly, except tactically for a few customers. ISV software in general and Oracle software in particular is a “value sell”, and short term reductions are met by Oracle and other ISVs with changes in licensing models that favor their revenue streams. Users should not expect to outsmart Oracle with respect to licensing terms and conditions when it comes to virtualization.
Wikibon Recommendations Around Virtualization
Oracle has published its partitioning guidance in a document entitled Overview of licensing policies for partitioned environments. Practitioners interested in virtualizing Oracle should familiarize themselves with this document and get a general sense of Oracle’s posture, which can be summarized with the following Oracle statement:
“Soft partitioning is not permitted as a means to determine or limit the number of software licenses required for any given server.”
Users should be aware that Oracle will support VMware explicitly within certain industry segments. A key example is pharmaceutical. Users interested in virtualizing Oracle databases should stand together to increase leverage with Oracle and follow these five recommendations to improve leverage and minimize risk:
- Wikibon recommends users establish a best practice competency pool for virtualizing Oracle databases and applications. Practitioners should take a balanced position and aggressively adopt virtualization for Oracle solutions as appropriate.
- Many users have established outstanding high-availability solutions for bare-metal Tier-1 Oracle database-based applications which are well integrated with Oracle components (e.g. EMC SRDF together with Oracle Dataguard and ASM). Users should continue to leverage these capabilities and optimize operations for these environments.
- Wikibon recommends that users should tactically use virtualization technologies to reduce costs within Oracle environments. However Oracle has shown it can and will adapt its business model to maintain revenue in these cases. Users will typically be unable to re-negotiate Enterprise License Agreements (ELAs) with Oracle to reduce costs for VMware/Oracle instances, for example.
- Users should push the vendor community to re-design and simplify virtualization and storage configuration processes for Oracle systems, particularly at the high end.
- Wikibon recommends that IT organizations (ITOs) push for fewer higher skilled “generalist” groups to remove organizational constraints on the speed of adoption of emerging technologies such as server virtualization. The traditional ITO silos with storage, servers, database, and network specialists cause organizational friction and gets in the way of adoption.
Action Item: Oracle is aggressively pursuing a bundling strategy, and those users interested in that approach can and should negotiate better deals. Despite the obvious lock-in risks, if you're going in this direction Oracle is willing to negotiate with you; especially for large deals over $5M. Virtualization is a strategic initiative for many organizations, and Oracle will be less than supportive. IT organizations need to weigh the risks of Oracle's negative posture toward non-Oracle virtualization strategies with the benefits of virtualizing systems and apps. On balance, for most mainstream applications the benefits outweigh the risks. For mission critical apps the stakes are higher and more caution is warranted.
Footnotes: Note: Wikibon is not a legal firm and does not dispense legal advice. Users should consult with their attorneys before signing agreements with Oracle or other vendors.