In a move designed to shield itself from new competition from IBM, Microsoft
and others, Oracle has slashed prices on its database software, some by nearly
50 per cent. Oracle's current pricing structure is based on a formula that
increases the monthly fee it charges customers as they enhance the performance
of their hardware systems by adding more processors in complex multi-node CPUs.
Customers who currently pay $325,000 a month will see their bill cut to just
$160,000.
Oracle has seen IBM and Microsoft compete more effectively by offering lower
prices for similar database services recently. Many companies with budget under
pressure from the economic downturn are looking for less costly alternatives.
"This is the right thing for Oracle to do. It moves Oracle into a better
position with its customers,'' said industry analyst Betsy Burton of the Gartner
Group's Dataquest unit. She added that Oracle holds a 33.8 per cent share of the
database market, followed by IBM at 30.8 per cent and Microsoft at 14.9 per
cent.
In justifying the price cuts, Oracle chief Larry Ellison said because Oracle
offered better technology, its databases would run more efficiently, and thus
less expensive than competing solution. "We think IBM and Microsoft will
cease to be important components in the marketplace.''
Ellison added that a typical IBM database would cost 65 per cent more than
Oracle's competing product under the new pricing formula. IBM quickly responded
saying Ellison's mathematics was incorrect. Instead Oracle's database was three
to five times more expensive than the IBM counterpart.
"This stuff about having lower prices is all wishful thinking on Larry's
part,'' said Jeff Jones, director of marketing for IBM's database division.
Oracle customers will pay $40,000 per processor to license the company's latest
"9i" database system, compared to $22,500 per processor for the IBM
product.
Industry analysts said that while Oracle probably didn't have much choice but
to cut prices, the move did present a new concern over the firm's future
revenues and earnings. Nearly 70 per cent of Oracle's sales are generated by
database software. Ellison countered that the lower prices would stimulate sales
and make up the difference.
The price cut comes as Oracle announced that fiscal fourth-quarter profits
fell 8 per cent along with a 3.2 per cent drop in sales to $3.26 billion from
$3.37 billion a year ago. But Oracle's CFO Jeff Henley said sales appeared to be
recovering after sluggish performance in the past six months. ''We hope that the
worst is over. We can't be certain yet. In the US people do feel like things are
going to be better.''
But a trouble spot in Oracle's most recent quarter is sales of application
software where Oracle competes directly with PeopleSoft, Siebel Systems and SAP.
The company continues to cut costs -- as it has in the past several quarters --
and has managed to put up flat per-share earnings, Ellison said he was
optimistic that the new 9i database and application server products and
e-business software suite would pick up steam this year. ''Our technical
accomplishments this year position us for accelerating sales next year,''
Ellison said.