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Oracle Gets Tough with Customers to Prod Them to the Cloud

By Mae Kowalke, TMCnet Contributor

It looks like Oracle (News - Alert) CEO, Larry Ellison, might be taking a page from his late friend, Apple co-founder Steve Jobs.

Jobs and Apple were famous for forcing users to upgrade to new technologies when they felt the old technologies not longer made sense. Now it appears the Ellison and Oracle are doing the same thing when it comes to moving from on-premises software licensing system to subscription-based software-as-a-service offerings. Oracle is using what many call the “nuclear option” to push businesses away from perpetual licenses and toward the new subscription model.

Oracle has begun breaching out of contracts with enterprises that do not get cloud licensing over the on-premise, according to Digital Journal and many other sources. Even companies that employ a hybrid licensing model are being compelled to renegotiate their agreements with Oracle and move toward the cloud-based subscription model or face the disastrous possibility that they would need to stop using Oracle software.

To further prod its sales teams into pushing the subscription licensing model, Oracle is also tying bonuses and commissions directly to the new strategy of pushing subscription licensing.

There is a very good reason that Oracle wants its users to move from perpetual licensing to subscription licensing. It has been reported that every million in cloud sales for Oracle will translate into $10 million over a lifecycle of the service for each customer. This contrasts with the $3 million that typically comes from perpetual licensing with on-premise Oracle software.

Subscription-based licensing obviously is the future for most software pricing schemes, and it is only a matter of time before businesses move away from perpetual licenses since the advantages of the subscription model is reduced capital expense and support costs. Subscription licensing also is good for software developers, as the economics at Oracle show.

Yet, forcing businesses to move from their current licensing schemes to the subscription model likely will be a big headache for enterprise customers, and it won’t win Oracle any love. Some businesses might even choose to take the opportunity to look elsewhere since their current contracts already are being uprooted.

By forcing customers to move to the cloud, Oracle also will be hastening this inevitable move toward subscription licensing. Just as Apple (News - Alert) advanced the computing industry by forcing its user base to adopt new technologies, Oracle’s firm hand also should speed up the inevitable move toward subscription-based licensing.