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Damning evidence in support of Oracle cloud fraud

Oracle Cloud securities fraud

NYSE: ORCL – It is alleged that Oracle artificially inflated its cloud sales numbers by offloading cloud products to customers under the duress of audit or by offering heavy discounts to on-premises contracts.

Oracle Cloud Fraud – Supporting evidence

Anecdotes collated from ITAM Review readers provide damning evidence of Oracle artificially inflating their cloud sales through dodgy deals and spurious audit tactics.

It is alleged that Oracle artificially inflated its cloud sales numbers by offloading cloud products to customers under the duress of audit or by offering heavy discounts to on-premises contracts.

We contacted ITAM Review readers in December 2019 to share their experiences – the information gathered validates the case against Oracle suggesting they used improper tactics to falsify the success of their cloud products.

ORACLE CLOUD FRAUD SURVEY RESULTS

We asked ITAM Review readers two specific questions – firstly about audit tactics used to generate Oracle cloud revenue and secondly about discounts from on-premise software used to offload Oracle cloud products.

Question 1 

There have been many reports that, in order to coerce cloud-based “sales,” Oracle would audit a customer for violations of its on-premises software licenses.  When it found violations, Oracle would threaten to impose large penalties unless the customer agreed to purchase a short-term cloud subscription that the customer neither desired nor intended to use. Have you or your company ever been subject to this Oracle “sales” tactic? 

Anecdotes from ITAM Review readers:

  • “Settlement proposal: Given 40 percentage discount on list WITHOUT cloud credits. In addition, given option 2: 60 percentage discounts on same ‘shortfall’ products WITH £25k of cloud credits. Overall value settled at £180k. Pestered into numerous meetings, multiple requests to speak with more senior management. Numerous pitches to products on Oracle Cloud.”
  • “Yes, we experienced something like this. Oracle conducted an audit and found that we were out of compliance with regards to Database and some of the optional features.  They proposed two options.  The first was to true up at a certain discount.  The second was to true up at a greater discount but also sign up for a six figure one-year Oracle Cloud Credits contract.  We were not interested in this but looking at the 5-year TCO it saved us over $1M to sign up for the Cloud credits for 1 year.”
  • “Yes, upon renewal of ULA a few years ago. They mentioned we were at risk for an audit and deeply discounted the renewal but ‘forced’ us to buy their cloud PAAS services. Fast forward a few years and we’re not leveraging PAAS as much as they said we would and we’re on the hook for our annual commit whether we use it or not. In addition, if we want to terminate, we are subject to heavy termination fees.”
  • “Yes – we have been in an audit situation three years ago. Even though we had been licensed properly (in terms of numbers of licenses we were even over-licensed!) but due to mergers and acquisitions oracle figured out, that the licenses were not properly “transferred” to the new companies. Even if all those companies (the old and the new ones) belong to the same group. Oracle then threatened us with a fine of over 150,000 euros. They told us, that with the purchase of 50,000-euro oracle cloud licenses instead one would waive the penalty. We agreed to do so (We wasted so much time accompanying the audit and finally wanted to get rid of it) and fixed everything, got that certificate of compliance. We never used that oracle cloud because we did not need it and because that cloud was not technically effective”
  • “Yes, absolutely as licensing auditor I have work with Oracle LMS. The tactic describe above is the principal way to solve a gap found during an audit. With Oracle business suite, you can’t customize this product when installing it or you pay a penalty! But you can’t install this product without customising it! So, every customer using this product will have to pay after an audit.”
  • “This occurred before I joined the company. I have the documentation and spoke to our Oracle sales rep about it. This was not related to an Oracle audit, but an Oracle ULA assessment, an Oracle audit by another name.  Oracle conducted their ULA assessment and informed the company they would either have to renew the ULA or purchase licenses with a cost in the millions.  Oracle sales offered a dramatic ‘discount’ if the company purchased an Oracle Cloud Services subscription.  Oracle let the company purchase the on-prem licenses they wanted, not the inflated number from the ULA assessment as long as they purchased a 36-month OCS subscription. Since the cost of the OCS subscription was significantly less than ULA true-up amount, the company agreed. The company never intended to and did not implement OCS. When I spoke to the Oracle sales rep, they acknowledged if this was a true OCS purchase Oracle would have discussed or tried to sell implementation services, or at least provide an implementation plan which Oracle did not.  A way to determine if the OCS sale was legitimate is to look if the company implemented OCS.  Did Oracle provide a quote or information about OCS implementation services? Also, an indication of legitimate OCS sales would be what percentage of OCS subscriptions are renewed.  For the ones that are renewed, where they renewed at a higher cost. Most companies grow, so the license metric should increase, resulting in a higher renewal cost. If the OCS renewal cost is the same, I would think this would be a red flag”
  • “Yes – several times 2018 + 2019 No complaining, as the alternative would be much higher costs”
  • “Yes, this is correct. Remember Oracle has a rather aggressive salesforce. Anything a salesforce is asked to do is driven by the way their compensation plan is structured in any common year.  In general, the compensation plans do not change that often, but when a product is strategic, or growth is lagging behind, additional incentives are given to the sales teams, by means of additional and high incentives.  Cloud adoption has been struggling for years. And incentives to boost cloud sales have been very aggressive.  The tricks the account teams pulled, indeed was based on audits on traditional infrastructure sales. (mainly Database) The incompliance in Oracle DB for 4mio list price would be solved as follows.  Pay 5 million for incompliance or 2 million or DB and 2million in cloud credits.  The sales commissions on 2mio for Cloud credits would significantly outperform 5 million in DB in-compliance commissions.  Ask any former Oracle sales exec. for confirmation.  It was all drive by the compensation.  BTW: these cloud credits would not be leveraged by the clients and became shelf-ware.  Ask any Oracle Cloud sales or customer success representative that worked there from 2015-2017.  They will be able to tell, as it was impossible to make their numbers.”
  • “A couple years back, a product owner at one of my prior employers called Oracle technical support. Over the course of the call, the product owner shared an environment screen shot reflecting some misconfiguration. Oracle almost immediately called Sourcing and stated they could make the non-compliance go away if seven figures of Oracle cloud were procured: “You wouldn’t even have to use it!” The purchase was made; the cloud product went unused. Since this was a comparatively quick, easy fix, it was seen as a win.”

Question 2

There have also been reports that, in order to generate cloud-based “sales,” Oracle would offer its on-premises customers a significant discount on their Oracle on-premises products that the customer wanted and needed, provided the customer also would “purchase” a short-term Oracle cloud subscription – even if the customer neither wanted nor intended to use the attached Oracle cloud product. Have you or your company ever been subject to this Oracle “sales” tactic? 

ITAM Review reader anecdotes:

  • “We purchased cloud credits, and requested they be reduced to a level that was acceptable to both parties. Circa 25k. We did not use them, we ignored calls from Oracle support ‘to setup and start using the universal cloud credits’. We did not renew these in November 2019.”
  • “We had in late 2016 an offer that included Oracle Cloud Services that would reduce a product purchase with almost 40% from the quote that did not include the offer on Oracle Cloud Service. There was also OK to place the Oracle Cloud Service in a separate CAS so that it could be cancelled the next coming year. We did notify our Oracle sales representative that we thought that it was a little bit annoying and that we had no use for that item. But if we wanted the price (that will reflect on future CAS-prices) we had to purchase the option that included Cloud Service.”
  • “Oracle offered this approach to settle an audit. We have seen this tactic with other vendors as well, specifically Micro Focus with SUSE.”
  • “YES. We got two offers for on-prem licences we needed: 1) on-prem licenses 2) same on-prem licenses as 1) + Oracle Cloud for 180.000 Eur Second offer was cheaper, despite adding Oracle Cloud we did not used.”
  • “Yes, for the past several ULA renewals prior to our last one. Oracle has always included cloud and we had never used it. We didn’t realize it was an option to remove cloud since Oracle always made it mandatory and thus did not complain after the fact.”
  • “Yes – in 2019 (description: Buy what you need plus some of what you don’t need, and you get the discount. it has always been like this, also for on premise licenses) Unwanted / shelf licenses for 4 million in recurring costs (2 years), so that we could get a total discount of 62% on other cloud licenses”
  • “In 2016 we were ‘offered’ a 30k Cloud purchase as part of a heavily discounted deal for on-premise licences. We took it, but subsequently cancelled the unused Cloud subscription after the first 12 months. In fairness, the discount was probably worth more than the Cloud sub, so we didn’t complain!”
  • “Yes, our company has been subject to this sale tactic to get a reduction on an important purchase. – Within the framework of our “Cloud contract”, we paid a “one-year Cloud subscription” for an amount of 78.000 €. – No, we didn’t complain to anyone. – After one year, we have terminated this contract, but we are curious to see the reaction of Oracle.

Oracle Revenue points to increasing reliance on cloud subscriptions

Why is Oracle Cloud revenue so important? ITAM Review Analyst AJ Witt provides insight:

“Oracle revenue is increasingly underpinned by just two product categories – perpetual license maintenance & cloud subscriptions. Their other categories – services, hardware, and new license sales have fallen by 39% since 2013. In 2013 new licenses accounted for over $10bn in revenue – in 2019 it was just under $6bn.

Cloud subscriptions and perpetual license maintenance contributed 67% of revenue in 2019, compared to just 41% in 2011. And with overall revenue growth of just 11% since 2011 that means that cloud subscriptions are vital to Oracle keeping investors happy. This is compounded by the fall in new license sales (down 37% since 2011) because if Oracle aren’t selling as many new licenses then they’re not opening new lines of perpetual license maintenance revenue.

Oracle may well say that this is healthy – because undoubtedly the future for enterprise software publishers lies in selling SaaS & IaaS, not perpetual licenses. However, the key issue for Oracle with these numbers is that they are relying on a product that’s a mere footnote in many competitive tenders, if it’s even considered at all. Oracle Cloud was excluded from the tendering process for the Department of Defense JEDI contract because it failed to clear basic qualification criteria around resilience and scalability. AWS & Azure continue to win and win big – with the JEDI contract currently in the hands of Microsoft, subject to yet another court case.

All this means that it is vital for Oracle, in the absence of trailblazing new innovations, that their Cloud starts winning big contracts both in enterprise and government. The question is, when did you last hear of Oracle winning against Microsoft, Amazon, or Google in boardrooms rather than in court? Perhaps it’s not surprising that since 2018 Oracle have hidden their cloud numbers away from direct comparison by bundling them in with perpetual license maintenance revenue.” ~ AJ Witt


Conclusions – Oracle cloud fraud

This isn’t news for most IT Asset Managers, for Oracle or any other vendor. Creative selling to get customers to experiment with new products is not new, but trying to impress share holders with cloud growth that doesn’t exist is securities fraud.

Information in our survey, from ITAM practitioners around the world, provides damning evidence to support Oracle artificially inflating cloud numbers to impress shareholders.

Who is to know how much of Oracle’s cloud is actually being used? Perhaps 10%? The only true way for the court to find out would be if Oracle opened its records to public scrutiny and published genuine consumption reports.

In the meantime, customers continue to plan to migrate away from this flagging publisher. Who could plan a long term technology strategy with a publisher acting so desperate to remain relevant to the stock market?

Further reading:

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About Martin Thompson

Martin is owner and founder of The ITAM Review, an online resource for worldwide ITAM professionals. The ITAM Review is best known for its weekly newsletter of all the latest industry updates, LISA training platform, Excellence Awards and conferences in UK, USA and Australia.

Martin is also the founder of ITAM Forum, a not-for-profit trade body for the ITAM industry created to raise the profile of the profession and bring an organisational certification to market. On a voluntary basis Martin is a contributor to ISO WG21 which develops the ITAM International Standard ISO/IEC 19770.

He is also the author of the book "Practical ITAM - The essential guide for IT Asset Managers", a book that describes how to get started and make a difference in the field of IT Asset Management. In addition, Martin developed the PITAM training course and certification.

Prior to founding the ITAM Review in 2008 Martin worked for Centennial Software (Ivanti), Silicon Graphics, CA Technologies and Computer 2000 (Tech Data).

When not working, Martin likes to Ski, Hike, Motorbike and spend time with his young family.

Connect with Martin on LinkedIn.

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