Oracle focus of software pricing disputes

Lisa Baertlein

PALO ALTO: Database software giant Oracle Corp. is

"misinterpreting" existing contracts with certain users in an effort

to squeeze out more revenues, a META Group analyst said on Wednesday.

As many as nine Oracle customers have contacted the Stamford, Connecticut,

technology research and consulting firm to complain that representatives from

the No. 2 software company told them they are underpaying for certain

data-intensive transactions that involve several different software products,

META senior analyst Mark Shainman told Reuters.

"We think Oracle is misinterpreting these contracts ... and going out

there and trying to dig for revenue," Shainman said.

"The terms are being shifted and you're opening your pocketbook again.

All we really want is for Oracle to back down on this so our users aren't

impacted," he said.

Multiplexing dispute

At issue is the contractual definition of "multiplexing" -- which

traditionally has involved software that uses a shared pool of connections to

databases and other software products and masks the actual number of users

assigned those different products.

Such transactions involve the movement of large amounts of data but few

actual users.

Shainman said Oracle customers are complaining that the software giant is

attempting to expand the definition of multiplexing to include batch feeds from

non-Oracle applications -- such as rival databases or customer service software

-- that are fed into Oracle databases. Such a change would have a big impact on

customers that use Oracle's data warehouse product to generate reports from

various sources.

Many customers now pay for their Oracle data warehouse on a per-user basis.

Those that are complaining to META say Oracle is now attempting to charge for

all of the users associated with the software products tapped to create reports

out of its data warehouse. Alternatively, customers are being offered a

power-pricing model based on the number of processors used by their servers.

"I have reviewed hundreds of Oracle contracts in the last two-plus

years. None of them have contained provisions of this sort," Shainman said.

Under the disputed pricing policy, customers' data warehouse costs could be

up to five times what they currently pay and possibly result in millions of

dollars of additional software licensing fees, he said.

Oracle executives, via an e-mailed statement, are standing by the company's

actions.

"Oracle pricing and licensing policy, with respect to the treatment of

multiplexing and batch processing, has been consistent and in effect for several

years. The Meta Group note represents what we believe are a handful of

misunderstandings about the policy," the statement said.

Oracle under pressure

Debate aside, Oracle executives have publicly admitted that they are

grappling with the company's worst revenue performance in a decade.

In its recently reported fiscal third quarter, Oracle's new database sales

fell 26 percent from a year ago. Sales of the company's applications -- software

products that automate such things as accounting, selling and human resources --

were off 41 percent year-on-year.

Competition in its mainstay business has been fierce as tech giants

International Business Machines Corp. and Microsoft Corp. aggressively elbow for

a share of the database market ruled by Oracle, which last summer responded by

rolling out a low-price, stripped down version of its database in the United

States.

On the applications side, Oracle stumbled out of the gate in a sector

dominated by established players such as SAP AG, PeopleSoft Inc. and Siebel

Systems Inc. The company cut prices on its applications in January.

Wells Fargo Securities analyst Rob Tholemeier said he has been monitoring

Oracle's revenue-collecting practices. "The company said that it performs

customer audits as a normal function of Oracle's field force. That may be true,

but we are detecting a much more resentful customer base," Tholemeier wrote

in a recent note.

"Moreover, the customers are sensing, rightly or wrongly, that Oracle is

becoming a bit desperate for revenue. That could turn out to be a real problem

for the company," he said.

Corporate technology spending has been in a long drought and cash-strapped

customers are demanding more discounts as companies such as Oracle are

attempting to hold the line on prices.

"The tougher Oracle gets, the tougher its customers get,"

Tholemeier told Reuters.

"In some ways both sides are right. There's just no way Oracle and

customers are going to see eye to eye," he said.