Exchange rate flaw in Oracle price hike exposed

IT departments could cushion the impact of Oracle's recent price hike by taking...

IT departments could cushion the impact of Oracle's recent price hike by taking advantage of the weak US dollar to negotiate software licences in dollars and then pay in sterling or euros.

Afer Oracle updated its product prices last month, some businesses face a rise in licence fees of as much as 20%. For example, the per processor licence fee for Oracle Standard One Edition has risen by $800, from $4,995 to $5,800. And the cost of application adapters for Oracle's Fusion middleware has gone from $15,000 to $17,500.

"Much of the increase is due to the devaluation of the US dollar," said Gartner research vice-president Jane Disbrow.

Oracle is one of the few major software companies that prices its products only in US dollars, so users can benefit by taking advantage of the weak US dollar.

Forrester principal analyst Ray Wang advised CIOs to negotiate the best deal they could with Oracle and then buy the product in euros.

"The price in euros is equivalent to 2006 levels, but the dollar price has been increased," he said.

Forrester said one Oracle user had made major savings this way on a global deal. "The company began its Oracle deal on two continents. It then secured approval to buy globally. From there, its EMEA subsidiary negotiated a $1m deal. In the course of four weeks during contracts, the dollar fell by 10% and the company saved $100,000 by paying in euros."

Wang urged users to focus on the final cost of a software licence, rather than the percentage discount typically offered by Oracle.

Removing unused products and services from an Oracle contract is another relatively easy way to lower costs.

IT directors can improvee their software licence management with remote licence monitoring tools such as AppVelocity.

David Mitchell, senior vice-president of IT research at Ovum, said businesses often licensed too much software or paid for products and services they would never use.

Firms weary of software licensing models >>

A necessary price rise?

Any price hike is unwelcome to Oracle users, but the increase may be essential to support Oracle's Fusion middleware strategy of building compatibility between Oracle's Siebel, Peoplesoft, JD Edwards and eBusiness Suite applications.

Ronan Miles, chairman of the UK Oracle User Group, said, "Oracle has never paid a dividend, so the profit has been reinvested into the company's growth."

Miles hoped the extra revenue Oracle would generate from the licence increase would be reinvested to accelerate the work on Fusion middleware.

"We should be looking at these price rises not as a cost to the customer base but an added investment by the customer base in the value future Oracle products will bring."

Never pay list price

Ray Wang's advice is to:

Consider using a European subsidiary to negotiate a global deal

Negotiate in dollars, pay in euros

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