Oracle revamps its software pricing

Oracle has switched to a new method of charging for its software, responding to growing criticism from customers that the sector has been slow to adapt to technologies that are changing the face of corporate computing.

The US software maker has announced a new price list for customers that run its database software on computers using multi-core processors – chips that combine a number of separate processing units, or “brains”. All the big chipmakers either produce or are planning to make such chips, reflecting a shift away from the race for ever-faster computer processors towards more flexible machines that combine multiple processors to handle a number of tasks simultaneously.

“The pace of change in [software] pricing models is accelerating,” said Dave Edwards, chief information officer of UPS, the US logistics group. “A lot of software companies are still trying to figure out how to do multi-core processors . . .  and still get the same level of profitability they had before.”

Oracle has drawn criticism in recent months for continuing to base its software pricing on the number of processing cores used by a computer. That has pushed up software costs for companies that buy the newer machines.

“Technology is going to shift – the megahertz war is over with,” said Mr Edwards. “It’s shifting towards other technology and part of it is cores on chip – and it’s not just two, it’s multiple cores. If software companies do not change their pricing structures, the software cost rises faster than the hardware [cost and] defeats the concept.”

Oracle said that, under its new plan, it would continue to charge by the core – but that it would give discounts for computers using multi-core processors. Sun Microsystems’ new eight-core chip, for instance, will attract a discount of 75 per cent, meaning that customers will need to buy only two Oracle software licences for each processor.

Sun welcomed the new Oracle pricing approach, which it predicted would also be adopted by other companies. “They tend to set the trend” for other software companies, said Larry Singer, Sun senior vice-president.

Software companies are also struggling with how to set the balance between fees for new licences – their traditional source of revenue – and maintenance and support, which have grown to represent the majority of income at most companies.