Will Oracle hike prices for Sun's software support?

Analysts expect increases over time but say Sun's open-source focus gives users options

Oracle Corp.'s pending acquisition of Sun Microsystems Inc. may not have an immediate effect on what Sun customers currently pay for software support, but changes are likely coming, analysts said this week.

With Sun focusing primarily on open-source software such as the MySQL database, much of its software revenue comes from customers buying maintenance contracts in order to get technical support from the vendor.

Oracle has ambitious profit goals for Sun: Safra Catz, one of Oracle's two presidents, said during a conference call about the planned acquisition that the software vendor thinks it can run Sun "at substantially higher margins" than the latter company has been able to achieve on its own.

But it's unlikely that Oracle will immediately ratchet up pricing for Sun's support contracts across the board, said RedMonk analyst Stephen O'Grady. "I would imagine that the pricing changes, if any, will happen on a product-by-product basis," he said. "Oracle is very good at understanding when it has the upper hand in terms of a product's importance."

Oracle, which declined to comment for this story, imposed software-license price increases of 15% to 20% last year, just as the global economic recession was escalating. "They can get away with that because it's going to be cheaper for customers to continue running [Oracle's software] than go through the pain of migration," O'Grady said.

In contrast, he added, Sun users may not have the "same level of dependence" on its software products, which also include the GlassFish application server, a set of identity management tools and the StarOffice desktop application suite as well as OpenOffice.org, its open-source cousin.

"With the exception of MySQL, none of the products are really popular enough where [Oracle] can dictate pricing to the market," O'Grady said.

Forrester Research Inc. analyst Ray Wang also doesn't expect Oracle to quickly raise software support prices, in part for the same reason — the fact that Sun customers have other options available to them. "If they do make changes, they're going to have to show more value," Wang said. "Someone else can provide open-source maintenance as well."

One such company is OpenLogic Inc., which provides support for a range of open-source software. OpenLogic's phones have been ringing steadily with calls from concerned customers since the Oracle-Sun deal was announced on Monday, said CEO Steven Grandchamp.

Grandchamp predicted that support price increases will eventually be in store for Sun customers. "What typically happens is that once the [contract] renewal notice goes out, the price tends to go up," he said.

Oracle's sales force may also influence the cost of support for Sun products that compete with Oracle's own offerings, claimed Kim Weins, senior vice president of marketing at OpenLogic.

For example, if salespeople are eventually asked to push both Oracle's flagship database and MySQL, some Oracle customers may want to save money by switching to the open-source software, Weins said. "When that happens," she added, "the sales force starts screaming." To compensate, Oracle could raise the support pricing on MySQL and other Sun products to make them less appealing, Weins said.

"What we find in practice is that Oracle likes to spend a few months after acquisitions letting the smoke clear a bit, and gives clients of [the acquired] software a false sense of security," said Eliot Arlo Colon, president of Miro Consulting, a Fords, N.J.-based firm that consults on Oracle license negotiations.

But soon, the "honeymoon period" ends, often in coordination with renewals of support contracts, Colon added, echoing Grandchamp's words.

Even if Oracle doesn't raise the list price of Sun's support services, users can expect it to be tougher on monitoring compliance, according to Colon. For example, customers who haven't bought a support contract for every system on which they're running MySQL may have to dig into their wallets.

"It's not a very well-kept secret that Sun has a very loosey-goosey audit practice, Colon said. "We find clients who are blatantly out of compliance. "Sales reps for Sun may even know it but figure that as long as [customers are] buying something, they'll leave it alone. I don't think you're going to see the same thing from Oracle."

In fact, users that have enjoyed Sun's customer-friendly approach "are going to be thrown to the lions," he predicted. But Colon sees a silver lining. "The fortunate thing is, it's well-known that Oracle is a negotiator," he said. "They're very strict, very tough, but also negotiate much more often and creatively than other companies of their size."

Copyright © 2009 IDG Communications, Inc.

It’s time to break the ChatGPT habit
Shop Tech Products at Amazon