CodeFutures News & Industry Commentary Blog

Oracle appeared to demonstrate market dominance in the past few weeks with huge list price increases for much of its product range; annual revenue increases of 25%, helped by over $20 billion in acquisitions (including BEA, which has boosted Oracle to the number two position in the middleware market); and an IDC report that shows Oracle leading the database market and even increasing market share.

However, all three indications of Oracle’s market dominance are someone misleading.

Oracle has increased the starting list price of its flagship Oracle 11g database to a seemingly outrageous $47,500 per CPU. For new database development projects, Oracle is under huge price pressure from Sun MySQL, Postgres, and Ingres. These open source databases will have the same market impact as JBoss had in the J2EE application server market – no up front license fees and annual subscriptions for support and maintenance. This trend will be accelerated in the database market by Sun’s decision to aggressively price MySQL and provide generous licensing terms – unlimited CPU use for a very low fixed annual subscription.

So why would Oracle increase list prices in a competitive market?

Apart from the obvious ‘make higher profits’ reason for price increases, there has been speculation about the negative impact on Oracle of the fall in dollar exchange rates. However, industry commentary tends to ignore a key factor in the list price increases: while many analysts mention that most customers do not pay list price for new licenses so the higher prices are just written off as ‘discount, they fail to understand that the real commercial effect will be in annual support and maintenance renewals. Oracle has a huge customer base that automatically pays annual support renewals as a percentage of the current list price for its deployments. So increasing the list price has a significant impact on this revenue stream. It’s effectively a pay rise for doing nothing.

The license fee increases are also interesting because they go against industry trends like subscription pricing rather than up-front license fees, open source software development, and Software as a Service.

Oracle’s financial results are incredibly impressive – net income for the year was $5.5 billion, up 29 percent on revenue of $22.4 billion, up 25 percent. This great news for Oracle shareholders and confirms Oracle’s reputation for commercial acumen. However, it means that Oracle’s customers are paying premium prices and contributing to exceptional profits.

The database market share figures published last week by IDC are somewhat misleading because IDC does not include data on database usage by developers (a good indicator of future deployment trends) or even current live database deployments. The IDC survey is purely based on revenue estimates. This seriously underestimates the market penetration of open source databases, and MySQL in particular, which now has over 50,000 downloads per day.

So while June’s headlines give the impression of Oracle market domination, the stories overlook factors such as the unhappy experience of Oracle customers paying over the odds to contribute to bumper profits and the likely impact of Sun’s aggressive database pricing since its recent takeover of MySQL.

Labels: Industry News