Oracle lowers entry price for E-Business suite

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Oracle Corp. has once again altered the pricing terms for its E-Business application suite, this time with the hope of attracting more small and medium-sized businesses to the product.

Effective Monday the company eliminated a requirement that customers spend at least US$250,000 to be eligible to purchase the suite. It has also reduced from 20 percent to 10 percent the minimum proportion of a company's employees that must be licensed to use the software, said Jacqueline Woods, Oracle vice president for global practices.

At the same time, however, Oracle "streamlined" the core suite by eliminating from it certain applications. In general the applications that have been eliminated are "self service" applications such as Self Service HR. Customers who purchase the suite from Monday and who want those applications must now license them separately, Woods said.

The changes are embodied in a new version of the suite released Monday called Oracle E-Business Suite 2003. The name change primarily reflects the new pricing and configuration; aside from that, the software is largely unchanged, Woods said.

Existing customers can continue to use the E-Business Suite and purchase additional modules under the terms of their existing contracts. As before, customers still have the option of buying individual applications and modules rather than the entire suite.

The changes are intended to make the suite more attractive to small and medium-sized businesses that may have been put off by the minimum entry requirements, particularly at a time when IT spending budgets are tight, Woods said. She also argued that the new pricing model is simpler to understand.

"We did what everybody wanted, which was to consolidate the suite down to the core set of products people really want for ERP (enterprise resource planning) and CRM (customer relationship management), and the incremental functionality that's more specialized, like iSupplier Portal, that not everybody uses, you can buy separately," Woods said.

"It definitely is less products than the suite we were selling two days ago, but there's no change for people who had bought the suite already," she continued. "This is for customers who buy the suite going forward, and we think this is a more flexible option and should drive adoption. We think the threshold we had on the minimum number of users was more than the market could handle under the current economic conditions."

Analysts briefed on the changes Monday generally reacted favorably. The changes should help Oracle find new customers for its applications, particularly among customers who have ignored Oracle in the past because they considered its software too expensive, said Albert Pang, a research manager at IDC who is based in Mountain View, California. (IDC is a division of International Data Group Inc., the parent of IDG News Service.)

In general, customers should see a "small decline" in the amount they pay for the suite under the new pricing system, he said.

John VanDecker, an analyst with Meta Group Inc., agreed. Although the suite may include fewer applications than it did before, few businesses used all of those applications anyway, he said. "There's very few companies that use all that functionality. I think in most cases it's going to be cheaper."

Both analysts said the change is intended in part to make Oracle's software more competitive with that of PeopleSoft Inc., which they said has been gaining ground among customers.

Oracle offered two hypothetical examples intended to show how smaller business might pay less than under the previous terms. Oracle didn't provide an estimate of how much money the average customer might save.

In one example of a company with 1,000 employees, 100 might need to use the suite's Marketing, Purchasing, Project Costing and Human Resources applications; 250 might need Training Administration, a program for organizing employee training and development projects, and all 1,000 might need access to Self Service HR.

Under the previous system a business would have had to buy 100 professional user licenses at $4,000 each and 900 employee user licenses at $400 each, for a total of $760,000. Under the new system they need 100 professional user licenses at $3,995 each, 250 licenses for Training Administration at $30 each, and 1,000 licenses for the Self Service HR application at $35 per person, for a total of $442,000.

In the other example, a business with 200 employees cut its applications costs from $250,000 to $159,000. The savings came almost entirely from the elimination of the $250,000 minimum-entry requirement.

Oracle's pricing came under scrutiny early last year when it introduced a flat rate system for the E-Business Suite. Under that system, customers pay $4,000 per professional user and $400 per employee user. The terms caused confusion among some customers who were unsure what sort of license they needed.

With E-Business Suite 2003 the company has introduced yet another term: the "professional user external." They are people who are not employees, contractors or outsourced workers but are allowed to "manually enter orders directly into the programs," according to a page of frequently asked questions from Oracle.

The full pricing for E-Business Suite 2003 is as follows: A professional user license is $3,995 and a professional user external license is $995. Most of the self service applications are now sold separately from the suite under what Oracle calls an "employee user" license. Self Service HR, for example, is priced at $35 per user.

"I think in general this pricing change was meant to give small and medium-sized customers a better deal," said Joshua Greenbaum, principal analyst at Enterprise Applications Consulting, in Daly City, California. "In general, the large enterprises are going to get more of a volume discount kind of a deal anyway."

Oracle said customers can find more information at http://www.oracle.com/corporate/pricing.

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