January 29, 2002 3:00 PM PST

Pricing official for new Oracle software

Oracle on Tuesday officially said it would alter the pricing methods for its business applications, after the news leaked out weeks ago. Executives said the plan could save customers 25 percent to 75 percent on license fees.

The company is attempting to spur adoption of a wider portion of its business applications for companies, called Oracle 11i e-business software. The package of programs includes software for marketing, sales, accounting and order fulfillment, among other business functions.

As part of the new pricing mechanism, Oracle will charge a company $4,000 for each "professional" user of its application and $400 for each "self service" customer, the company said. The distinction is that a self-service customer has only limited access to the applications in Oracle's suite.

Oracle Chief Executive Larry Ellison jumped the gun by announcing the revamped pricing plan during remarks at an Oracle conference earlier this month in Amsterdam, Netherlands.

Previously, Oracle customers would be charged on the basis of what applications they used and how frequently they used them. The new pricing plan relates to the number of applications customers need and "augments" its current pricing, said Jacqueline Woods, a company vice president.

What may underlie Oracle's move, however, is a desire for more of its customers to use only Oracle applications, rather than a combination of Oracle software and that of competitors such as Siebel Systems, SAP or PeopleSoft, analysts say.

"Oracle has always pushed the whole suite (of business software) message very hard," said Jennifer Chew, an analyst with industry consultants Forrester Research. "I think Oracle is still ignoring the fact that it's a multi-vendor world."

Software pricing has long been a confusing experience for customers to digest and for companies to explain. Oracle executives say this latest gambit represents a bid to streamline its pricing scheme so that a customer can access a wider array of its application software. Oracle will maintain a pricing plan for sales of particular software applications, though the new plan stresses use of the company's entire suite of business software programs.

But Oracle executives say the pricing plan mirrors a strategy at the company to stress the benefits of a business software package that combines traditional ERP (enterprise resource planning) tools with CRM (customer relationship management) software.

"What we needed was a pricing schema that was in support of the message we have out there," Woods said.

Current Oracle customers will receive a credit for license fees they have already paid. Under the new plan's guidelines, a customer has to spend at least $250,000 for the plan to kick in. Because most of Oracle's customers are large companies, that figure is, in many cases, a small fraction of what they will pay for Oracle's software.

By implementing such a pricing bundle, Oracle may be hoping to jump-start flagging sales of its business application software. Oracle's sales have declined more than its competitors', with licensing revenue for its 11i e-business package down 42 percent year over year in its most recent quarter, ended Nov. 30.

"It will help Oracle in the market if they can make it sound clear and simple," said Katherine Jones, managing director for enterprise business applications at Aberdeen Group.

 

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