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Oracle Succumbs to User-Based Pricing

Oracle on Tuesday laid a path to lead its customers toward using its outsourcing tools and services in their enterprise.

The Redwood Shores, Calif., business software maker is now offering user-based pricing, letting companies license its software as a managed option on a per-user basis. In the past, some have complained that Oracle's licensing fees were too expensive and its terms too long. In reality, the company's previous model only lumped a 5 percent hosting fee into the cost of a software licensing fee for applications like Oracle's E-Business Suite.

Now, Oracle customers will have a simplified model to work with, says vice president of global pricing and licensing strategy Jacqueline Woods. The company is offering one or multi-year contracts with a 30-day cancellation, choice in hardware location, and outsourcing offerings that include its entire product line. The model lets customers better forecast how to allocate an IT budget throughout the year, Woods said.

"This is similar to companies that outsourced their HR services back in the 80s and 90s where the work was sent to a separate company who could do it at a more cost-effective rate," she told internetnews.com. "It's not really a shift in our current pricing model, but more of a realigning of the pricing that will be more flexible for our customers that purchase outsourcing solutions from us."

Woods said more will be included in a reduced price. Previously, customers needing to modify the database and/or the applications would pay 5 percent for the list license fees and 5 percent for the hosting fee. The new model is one price based on the number of users.

Option one is that the software and the hardware are hosted at one of Oracle's data centers. The fees range from $150 per month for the Professional Application User; $20 per month for a Self-Service Application User; and $50 per month for an External Application User.

If the customer wants to use its own site to host the application and only license Oracle's software, the per-month fees are reduced as much as $20. The company is also offering additional discounts for high-volume accounts.

"The first decision you make is purchasing your software, what kinds of software do you need. This is where you buy your license," Woods said. "The second decision you make is whether or not to run it yourself or have someone host it and run it for you."

If a simplified pricing structure for outsourced services and software seems familiar, that's because it's all the rage in IT.

Oracle is following large-scale vendors like Microsoft , with its Office Software Accelerator platform and Sun Microsystems and its Java Enterprise System (formerly known as Project Orion). Then there are the low-to mid-tier business models like those from Salesforce.com, NetLedger and Employeez.

Giga research director Paul Hamerman said the trend of outsourcing applications bodes well for Oracle.

"One thing that has held (Oracle) back is a limited adoption at the high-end," Hamerman told internetnews.com. "I think Oracle is moving in the right direction and this will enable them to move down market and attract customers that don't have a lot of users."

Yankee Group program manager Jon Derome says the aspect of Oracle's new pricing structure to watch is the customer-hosted model and pricing for external application users.

"There has been a debate on how to charge customers who use their own hardware and build portals to access software through a Web site," Derome said. "For example, if I'm company 'A' and I use Oracle software to run E-Business Suite and I build a Web site for partners or customers to check their orders, the problem was -- are they my customers or are they Oracle customers?"

"If Oracle is simplifying their pricing models, that might accelerate the number of people wanting to use their software and hosting. Oracle would be responsible for the infrastructure and to add additional users would be easy," he added.

In related news, Oracle released new outsourcing services as part of its E-Business Suite. The company said its new Outsourcing Automation Platform is a management console based on its existing Enterprise Manager that taps into processes like monitoring availability, security and performance.