Oracle plans alternative pricing for PeopleSoft apps

The move could mean lower prices for customers

Oracle Corp. is working on an alternative pricing model for its newly acquired PeopleSoft products, which could mean lower prices for PeopleSoft users.

The new pricing model is to be offered in addition to the existing PeopleSoft model and will be similar to the Oracle E-Business Suite pricing scheme, according to Jacqueline Woods, vice president for global pricing and licensing strategy at Oracle.

Oracle's E-Business Suite is priced per named user, and the company publishes pricing and licensing details on its Web site. By contrast, there are no published prices for PeopleSoft products. Instead, pricing is calculated per customer based on a set of variables including customer revenue, number of employees and industry, in a system PeopleSoft called value-based pricing.

"It is a black box," Woods said of PeopleSoft's license price calculator in an interview. "The only thing that customers liked about that is that, in the end, you get a price."

In the short term, PeopleSoft's pricing will be the only option for customers. But keeping with Oracle's policy of offering clear prices, Woods is working to simplify the PeopleSoft pricing model.

"I am working to rationalize it and am trying to map what PeopleSoft was doing to what we do so we can provide customers with an alternative," she said. PeopleSoft users who want to stick with the current pricing scheme can do so. "We are not upsetting the apple cart," she said.

There is no due date for the additional pricing option. The PeopleSoft calculator was proprietary, and Oracle got access to it only a few weeks ago, according to Woods. "We are just now getting under the covers," she said.

An Oracle-style pricing scheme for the PeopleSoft products not only gets Oracle on the path to a single pricing model, but it may also result in lower prices for current and new PeopleSoft users, said Joshua Greenbaum, a principal at Enterprise Applications Consulting in Berkeley, Calif.

"PeopleSoft pricing is very complicated," he said. "It is based in part on a company's revenue, which meant that as a company grows, they pay more. The licensing model punishes customers for growing and being more productive. If Jacqueline [Woods] does a good job, customers will get a better deal from Oracle."

A new licensing scheme for PeopleSoft products could benefit those buying new licenses as well as existing customers, according to Greenbaum. "There should be a benefit for everybody. One effect could be to actually lower licensing costs for some PeopleSoft customers who are on a fast growth path."

There is the potential for lower costs, but it will depend on customer circumstances and the applications used, said Paul Hamerman, a vice president at Forrester Research Inc. in Cambridge, Mass. "It is a complicated issue," he said.

The PeopleSoft pricing model also has its advantages, Hamerman said. For example, because applications aren't sold on a named-user basis, it doesn't cost a company any more to give the software to additional employees.

"If Oracle does offer more choice, that is a good thing. We need to watch for further developments in this area. It is still early in the process," Hamerman said.

After its acquisition of PeopleSoft, Oracle said it would continue to sell PeopleSoft products and offer support for them until 2013. However, if there is a brand new customer without a PeopleSoft, J.D. Edwards or Oracle implementation, the Oracle sales force will try to persuade that customer to pick Oracle's E-Business Suite.

Oracle bought PeopleSoft in December for $10.3 billion after an 18-month takeover battle that began with a hostile bid. The Redwood Shores, Calif.-based software maker this week laid out plans for a single enterprise applications suite that combines the Oracle, PeopleSoft and J.D. Edwards applications. The single suite, dubbed Fusion, is due out in 2008. PeopleSoft acquired J.D. Edwards before Oracle launched its bid for PeopleSoft.

The Fusion products will come with a new licensing scheme, one that will combine the best of the Oracle and PeopleSoft licensing programs, Woods said. "I want to make sure that we take the best and meld a go-forward pricing strategy that takes the best of both models," she said.

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