Oracle: Kings of pricing.
One year after raising many prices by 20 percent or more, Oracle is once again raising prices--by 40 percent for certain products.
Interestingly, the products receiving the big price bumps are not the core database or application servers, but instead the administrative tools used for monitoring and compliance.
I'd certainly like to say this is price gouging, but really it is just smart business. Oracle knows database sales can't grow forever and that customers will sooner or later need to have additional tooling. Strategically, it's much smarter to price non-core components higher to ensure consistent adoption and cash flow of the primary product line.
This does introduce a few strategy questions related to the impending Sun acquisition--namely, how does Oracle price MySQL and its related packages, and will the existing tools work with MySQL or will customers running both be forced to buy two sets of tools? And will MySQL users be comfortable with Oracle changing pricing policies?
Pricing changes are common across all software companies, but open-source companies like MySQL have generally stuck to simple models to keep the costs of sales low and volumes high.
The big question is if Oracle owning MySQL helps customers. There are no doubt scenarios in which it will be convenient to buy and be supported from one source (the mythical "one throat to choke"), but it's hard to see how the hands-on approach of Oracle sales jives with MySQL's adoption to sales conversion process.
As a side note, if you think the GPL and open-source licensing is confusing, take a gander at Oracle's Application Licensing Table (PDF), which seems straightforward until you need to use a non-vanilla installation.
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I was somewhat shocked by the stellar results Oracle recently reported, considering the sorry state of the economy. I even called an analyst friend to find out if maybe there was some house of cards ala Computer Associated that explained the consistent rise in revenue and margin. But I was reminded of two simple facts explaining why Oracle remains dominant:
- Applications drive database sales
- Oracle owns pretty much everything
Oracle's acquisition streak has given the company an enormous breadth of offerings (say what you will about quality of the software) and the attempt at offering it's own Linux variant gives it an OS that's passable if not meaningful. But, I don't know that owning the operating system is important to the growth of sales in applications or databases. (Note: Matt Asay wrote a very good post about why Ubuntu should be Oracle's Linux of choice.)
Oracle applications and databases have to run on an operating system, but the operating system doesn't necessarily drive software sales, or sell databases. The OS may be a point of influence, but doesn't drive the dollar values that you get from software.
Meanwhile, Oracle has amassed such a wealth of software that it can not only drive it's own database sales through upgrades and replacements (JD Edwards or Siebel running on DB2 seems unlikely) but it can up-sell databases to customers of BEA or any of the other myriad applications it now owns.
Add MySQL into the equation and Oracle can sell you a database pretty much anytime for any purpose, to support any application (which you can probably buy from them too.)
This leads into some questions regarding Cisco's strategy, based on the idea that hardware should sell applications, as well as IBM's strategy, where services have often sold software and hardware. The future is of course a mix of all of these strategies, but it's not clear that another company is as well positioned as Oracle.
While certainly not unstoppable, Oracle's execution has been very impressive, especially in a down economy.
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Open source backup and recovery provider Zmanda, today announced that Zmanda Recovery Manager (ZRM) now allows MySQL databases to be backed up to a destination of choice, including a remote cloud storage service. ZRM also allows on-premises MySQL databases to be backed up to the upcoming Sun Cloud Storage Service, which enables DBAs to create disaster recovery archives of databases on a flexible, secure and open public cloud.
I've written several times in the past that backups and disaster recovery are ideal cloud scenarios though there are still issues to be addressed:
- Automation: How does the data get from internal servers to the cloud, or how does it get from individual databases?
- Security: What is the security model that can be applied and managed universally?
- Data integrity: How do I know that my data is actually my data if I am not in private space or virtual machines?
- Risk: What is the risk of losing my data?
Targeting MySQL is a good idea--considering that the database is already geared toward web infrastructure, it's logical to assume that MySQL users would be comfortable using cloud storage and backups.
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In preparation for my upcoming OSBC session, "Open-Core Licensing: The New Business Model Standard for Commercial Software," I dug through some old presentations to try to figure out how monetization efforts have changed in commercial open-source companies.
Ultimately, revenue from open source boils down to understanding buyer types, as described by former MySQL CEO and current Sun Senior Vice President Marten Mickos starting all the way back in 2005.
Marten described the buyer market for open-source solutions as:
- Those who spend time to save money
- Those who spend money to save time
Marten has also asserted that "in the past, differentiation was a compelling reason to buy but, if incorrectly implemented, it could also drive the compelling reason to abandon."
That statement leads into the topic of discussion around open-core licensing and the associated risk-versus-reward scenario as open-source vendors manage projects to balance revenue and community.
The big challenge for vendors trying to monetize open-source products is how to encourage payment for something (anything?) while not bastardizing the user base that is hooked on the free software. I've outlined below my latest attempt at explaining the commercial open-source evolution--or at least, an explanation of how several companies have matured their models to ensure both community and financial success.
- Support + free code
- Support + commercial license
- Support + commercial license + indemnity + warranty
- Support + commercial license + indemnity + warranty + exclusive features
There was a time when Java was the darling of the technology industry. It had everything going for it--technically advanced, relatively easy to use, and it held the magical promise of "write-once, run-anywhere."
But, over the last two years or so (seemingly ever since Sun changed it's stock ticker to JAVA), the language has become boring and moribund. Not that programming languages are such a thrill ride, but Java had a level of panache well beyond the norm.
Somehow Java has become really boring. People don't even argue about it anymore. Once thriving sites like TheServerSide don't have the excitement or vitriol that they did in the past. Based on some quick interviews I did, Java guys are all over the map as to why the excitement is gone, running the gamut from JSR bureaucracy, to the focus on things like JavaFX, to the changes in Java EE 6 that most developers didn't ask for and do nothing to support new paradigms like Web apps or cloud computing.
Sun has effectively lost the battle for the cloud to virtualization, which boggles the mind considering the enormous arsenal of servers, storage, and software that Sun has at its disposal to create a differentiated cloud offering for all of the enterprise Java shops. I remain of the opinion that Java should be the dominant platform for the cloud.
... Read more
One of the biggest misconceptions in software is that open source equals free. The early commercial open-source vendors like MySQL and JBoss were able to build decent businesses on top of a license/support-only business model, but over time we've seen that approach become difficult to grow beyond a certain threshold.
I suspect that in 2009 it will start becoming clearer as to what you pay for and why you should. Redmonk analyst Michael Cote made the prediction that next year "it will be cool to pay for software" and I agree. It's one thing to consume open-source software and quite another to pay for it.
Most open source vendors have tweaked their business models to include some kind of additional value only available as part of a subscription. This has brought various cries of derision suggesting that the code is no longer good as the community doesn't get to do QA, along with welcoming arms from investors and developers who want to monetize the code.
... Read moreThe more I read about Sun CEO Jonathan Schwartz betting the company's future open source, the more I grow concerned that if it fails, Sun will be the harbinger of sorrow for the rest of the open source world.
Sun is arguably the most important open source vendor right now as Schwartz has bet the company on software instead of its traditional hardware revenue. (I'm not discounting Red Hat's place, just that RH has been on the open source path since the beginning.)
Sun's strategy is audacious and reshapes the way that everything is done, but it's not clear that the strategy is correct or that Sun's existing corporate structure can execute on this enormous change. Staff reductions and other cost-cutting measures have little if anything to do with the switch to open source. Those measures would need to be taken regardless as the company is simply too bloated and expensive to run even if it generates a decent amount of cash.
Sun's approach--at least the way I'm reading it from Jonathan Schwartz's statements, is about making the software totally free and trying to sell support and hardware. This clearly diminishes the value of the products and doesn't offer a mechanism that encourages people to pay for software. It also puts an unnecessary burden on the notion of open source--such that if Sun is wrong, everyone else will look wrong too. But, Sun's approach is quite different from most (all?) of the open source start-ups and also different from Red Hat, the obvious leader.
The most successful open source companies have figured out ways to encourage people to pay for software. This usually includes a commercial license that removes the open source license restrictions. Typically, we see the base "open core" product plus some type of value added feature or service set that can't be obtained for the community version. The idea of simply selling support fell by the wayside for most companies at least one year ago.
... Read moreAfter more than five years participating in the open-source realm, I always find it interesting that we continue to ask the same questions about open-source companies versus projects, and consistently mix them up. Admittedly, we haven't always made it easy on ourselves with confusing licenses, varied revenue models, and reliance on a free product to manifest itself as a revenue stream.
Open source is a development and distribution strategy that software developers use to get their products into the hands of users. It's not a business model.
The business model is found in the additional value that developers (which are often vendors) put on top of the software in the form of support, additional features, etc. These provide revenue opportunities, which in turn creates a business.
An open-source "company" is the the strategic implementation of monetization efforts around an open-source software product.
... Read moreI was going to write something up about this announcement "Sun Microsystems and Intel Break Million-Messages-per Second Barrier for Thomson Reuters Market Data System" and relate it to how Twitter could leverage some design principles from financial services for scalability.
Then I clicked on the link to the Sun webpage for FinServ only to find out they had announced nearly the same exact thing two years ago.
A million-messages-per-second is still very impressive, but this is hardly news. Where is all the news about Sun's SOA, Cloud, or MySQL efforts?
UPDATED JULY 9, 2008:
The fine folks at Sun's financial services group have provided some clarity on the two RMDS benchmark announcements.
We should have articulated more clearly the differences between the two benchmark results. If we used the exact same configuration for the old benchmark, we have actually broken 3.05 million-messages-per second. This information was buried in the bullet points in our press release.
Our new benchmark with the one-million-messages-per second result was actually based on a different product--Source Distributor--that is under the same RMDS product suite. Sun and Intel was actually the first platform to have broken the one-million-messages-per second benchmark for the Source Distributor product. This information was also buried in the bullet points in our press release.
Oracle raised the prices for a number of its products this week, by as much as twenty percent in many cases. While on the surface this seems silly in a down economy the truth is that it's actually a very smart move.
First of all, Oracle sets the pricing for the database market (and now possibly the app server market too) and therefore should always be looking for ways to increase their prices. The other important aspect is the fact that Oracle discounts heavily off list price. With a large increase (say 20%) they stand to even their loss on the list vs. actual price. It's deviously ingenious.
Do I think this is good for Oracle customers? No. But, once again I have to marvel at the economic prowess that Oracle continues to display. Meanwhile, just go get some MySQL.
