Will Oracle Cut Deals to Boost Earnings?

A head of a consulting firm that helps Oracle customers cut licensing deals with the enterprise software giant said Friday that fallout around Oracle's recent earnings announcement could help clients out at the bargaining table.

"If Oracle is posting fantastic numbers and growth, they tend to play hardball," said Ed Ramirez, president of Software Licensing Consultants, a San Ramon, California, firm. "If earnings are weak, perception is weak, that's good for end users and customers."

Oracle said Wednesday that its third-quarter revenues were up 21 percent to US$5.3 billion compared to the same quarter last year. On the surface, the numbers looked strong, especially in light of the widespread malaise in the U.S. economy, but Oracle still fell slightly short of analysts' estimates and its stock dropped in subsequent days this week.

But Eliot Arlo Colon, president and chief operating officer of Miro Consulting, an Oracle license consulting firm in Fords, New Jersey, didn't go quite as far as Ramirez. "It provides notice to clients that there's a weakness with Oracle," he said. "It gets them excited that maybe there's a possibility for a bigger discount. I don't know if that will play to getting huge concessions from them. It's still a case-by-case basis."

For its part, Oracle downplayed the results and said investors could expect a stronger fourth quarter. During a conference call Wednesday, the company president, Charles Phillips, said "a lot of people have annual buying cycles around our Q4. Customers think they're going to get a better deal if they wait until Q4."

But will they? The answer isn't clear-cut, according to Ramirez and Colon.

For example, while there might be a rush of discounting at the end of the fiscal year, it's difficult to predict how much, Ramirez said: "Everything is triggered by sales people not hitting their quota. In turn, their management doesn't hit their number. That is what triggers it -- it's not necessarily that Oracle as a corporation says, 'We need to do this.' It's a trickle-up effect."

Ramirez, who worked as an area sales manager at Oracle, added that the company can make concessions to customers beyond discounts, such as on various terms and conditions.

Colon offered a different caution, saying that there's far more competition for discounts during such rush periods.

"It's becoming more public that Oracle only has so much bandwidth to process larger deals at the end of the year. The message coming from Oracle field reps now is, 'Don't wait until the end of May, because I won't be able to get you the aggressive discounts.'"

"Once one big deal closes, a sales team may have hit their number and [other customers] get kicked to the second tier," he added. It might be wiser, he said, to "be the first in line, have a good story and play to the weakness of Oracle, which is that they have so many people waiting until the end of the year."

Nailing down a huge influx of complicated licensing deals can be overwhelming, even for a company the size of Oracle, Colon said. "For the first time this year, I was seeing six-figure deals missing the quarter because there wasn't enough time. That never happened in the past."

However, Oracle's sales representatives on the whole have been hard bargainers recently, Ramirez said.

"With all the acquisitions [Oracle has made] a lot of times they realize, 'Where is the customer going to go? What are their options? Before, there was a lot more competition. That's the attitude. 'Where are you going to go? We've got you.'"

Colon agreed that Oracle's buying spree has changed the landscape, but from a different perspective. His firm is now seeing clients order nothing for several months, but then buying up a slew of products at once.

"I've never seen that take off as much as it has in the last six months," Colon said. "The positioning from Oracle from all these acquisitions is, 'Now is the time to bundle and get all these things together.'"

On the flip side, customers are being emboldened, he said. "I'm seeing people asking for higher discounts and an overall lower price because they're dealing with one vendor."

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