Oracle Multicore Licensing Ignores Market Reality

Opinion: Oracle may eventually find that its stubborn adherence to per-core software licensing becomes a competitive liability at a time when the industry is moving away from even per-processor terms.

Oracle is only postponing the inevitable by stubbornly maintaining its policy of licensing its software on a per-core basis, especially as chip vendors prepare to release CPUs with an increasing number of cores running multiple threads.

Four-core and even eight-core chips will soon arrive on the market. Each of those cores will run two or more process threads so it will appear to the operating system as if the computer is running as many as eight to 32 processors.

This could make software licensing for multicore processors complicated as well as expensive for commercial software buyers.

While other major software vendors, including IBM, Sun Microsystems and Microsoft, are simplifying their licensing agreements for multicore processors, Oracle is a conspicuous holdout, saying it is only charging customers for the value it receives from the performance.

Under this policy, each core will be counted as three-quarters of a processor. The total number of cores is multiplied by 0.75 and then rounded off to the nearest whole number.

/zimages/3/28571.gifClick here to read the details about Oracles decision to offer a 25 percent discount on per-core license terms.

For Oracle to say it is going to give customer a break by counting each core as three-quarters of a processor is disingenuous at best.

While it may be a benchmark to start off purchase negotiations, Oracle has always been quite willing to discount heavily to win an important corporate account.

How firm that policy is clearly depends on the whether the customer is negotiating from a strong position. The number of cores wont likely count much for a customer who is prepared to spend several million dollars to buy Oracle databases and applications.

But the policy can be an expensive proposition for customers who are making continuing payments on existing licenses or those who are not high-volume buyers.

Or imagine the expense to a customer who might actually want to build a grid system running multiple instances of Oracle databases on multicore processors.

The customer would have to generate a lot of revenue or competitive advantage to justify the cost of such as system on a per-core basis.

Virtualization also shouldnt be an issue in the discussion of multicore processing, because as John Fowler, executive vice president with Suns Network Systems Group, says, virtualization "is not a customer value proposition. Its a technology."

The value of virtualization is that it enables people to run multiple applications on a multiprocessor computer system without having to buy, install and maintain multiple copies of an operating system.

Fowler says this is particularly important in a time when OS upgrades and security patch schedules make maintaining multiple OS copies an onerous chore.

Oracle is clearly bucking an industry trend when it continues to license per core when most of the rest of the industry is heading toward less-complicated licensing models.

In fact, a recent software industry study sponsored by Macrovision and the Software and Information Industry Associate showed that only 25 percent of software vendors were licensing their products on a per-processor basis.

/zimages/3/28571.gifClick here to read about Oracles rationale for maintaining per-core licensing.

The study didnt examine how many vendors are licensing on a per-core basis, but the number is likely to be small since the first multicore processors only arrived on the market a little more than a year ago.

Instead, 56 percent of vendors offer per-seat licensing, and 40 percent were offering concurrent user licensing.

In fact, the fastest-growing model was subscription licenses that the study predicted would grow to at least 17 percent of the market over the next two years.

While Oracle has massive market power in the relational database field and only slightly less power in the more diverse enterprise applications field, the company could find itself at a disadvantage in competition with vendors that offer more flexible terms.

Testimony in a 2004 antitrust trial, in which the federal government unsuccessfully attempted to block Oracles acquisition of PeopleSoft, showed just how much customers were willing to use hard-nosed negotiations to win the most advantageous deal from competing software vendors.

/zimages/3/28571.gifClick here to read more on why the advent of multicore processors is focusing attention software license terms and expenses.

Why should customers be forced to count processor cores when they can get per-seat licenses or even site licenses at a better price?

Its easy to dictate license terms when a company controls more than 30 percent of the relational database market as Oracle does.

But Oracle faces a lot of feisty competition in the enterprise applications field.

Oracle may soon find that its adherence to per-core licensing becomes a major bone of contention in many of those tense, protracted sales wherein the license terms can give a competitor the upper hand.

John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at

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John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...