Oracle Capacity on Demand (aka Infrastructure as a Service), Part 1

taxi-meterThe most important take-away regarding Oracle’s new CoD offering is that Oracle still sells software separately. All the traditional licensing and technical support policies apply, which means that CoD is another delivery mechanism for perpetual software support fees. Its a brilliant step forward in securing more high margin cash flow. And just when you thought Oracle had it mastered.

Let’s dissect the pricing example outlined in Oracle’s IaaS data sheet:

As an example, a traditional purchase of an Oracle Exadata X3-2 Engineered System that is priced at $1,000,000 would cost a total of $1,360,000 over three years when hardware support costs (12% per year) are included. Most of these costs would be incurred at the time of system acquisition. Under Oracle IaaS, the same system would cost $1,080,000 over three years if no CoD CPUs are used, and would be paid monthly instead of all upfront. Over 3 years, this provides a 20% savings even without including the time value of money. If CoD CPUs are used in the last month of each quarter (four months per year) to speed up quarter close jobs, the Oracle IaaS cost over three years is $1,320,000 which is still lower than the purchase fee (again ignoring the additional time value of money benefits).

First, the aforementioned system is an X3-2 Full Rack discounted at 9%. Negotiate a reasonable 25% discount on the same system and your TCO is the same without the limitation on compute capacity. If you don’t want to part with the cash, then consider what may be a better TCO from Oracle Financing Services. The value of PlatinumPlus services–only available through IaaS–is money down the drain if you prefer to monitor and manage yourself.

But the real kicker not mentioned in the example is that IaaS requires expensive Enterprise Edition and options, 128 cores and 168 disk drives worth of which rings up to $2.9M in licensing and $640k in annual software support, assuming a 65% discount. To be clear, that $640k lives on in annual perpetuity long after your IaaS payments end. Leaving this out doesn’t fairly represent that Oracle field sales will use CoD to sell RAC and ULAs, both of which have been covered extensively in previous posts as problematic from a long-term financial perspective.

As I mentioned here, Oracle should be giving its engineered systems hardware away for free, and CoD feels like a step in that direction, except that you have to send the machine back after three years. Like cell phone consumers, most companies would opt for short-term capital savings over long or even medium-term operational savings and flexibility. Eventually, however, all IT organizations are asked to save money on annual operations and face the consequences or Oracle’s sharp-teethed technical support policies.

In any case, I can sort of understand the value proposition of CoD if all three of the following are true: 1) you drank the RAC kool-aid long ago and targeted applications would irreversibly break without it, 2) incremental usage is covered via an existing ELA or ULA and 3) you’ve vetted Oracle’s remote management against more customer-service oriented third-party providers.

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  1. Oracle Capacity on Demand (aka Infrastructure as a Service), Part 2 » Oracle Optimization

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