Innovation & Technology September 10, 2009, 5:00PM EST

Oracle Has Customers Over a Barrel

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Oracle has raised prices over the past couple of years, even as demand has softened along with the weak economy. The high-end edition of its database costs $950 for each person authorized to use it, up 19% from two years ago. The price for Oracle software to run Web sites is up 17% in the same period.

AGGRESSIVE AUDITS?

One sore point with customers is the company's audits. Most software companies audit their customers occasionally, checking through their offices and tech systems to make sure they're paying for all the software they use. But Oracle has a reputation for being unusually aggressive, says Jane Disbrow, an analyst at Gartner Research (IT). She says Oracle's policies can be confusing, and contracts with customers often don't clearly spell out their rights. As a result, some get presented with bills ranging from $200,000 to $4 million after they get audited. "It's easy to be out of compliance with Oracle licensing. They do nothing to help people stay in compliance," says Disbrow. "Then they audit you and hand you a big bill."

Some customers are fighting back. Sims, of Save Mart, says he could save 75% in annual maintenance fees if he were able to shift his computing systems to run on an open-source database provided by software company Ingres. But he feels he's stuck with Oracle for existing computing applications because it costs too much up front to switch technologies. Meanwhile, he's building all the new applications he can on the Ingres database.

The giant Japanese telecom provider Nippon Telegraph & Telephone (NTT) is going even further. It's replacing many of its Oracle databases with another open-source package, PostgreSQL. Takeshi Tachi, a senior manager in NTT's Open Source Software Center, says PostgreSQL is now good enough to be used in some of the company's most critical computing systems. He expects NTT will save $10 million a year with the switch. Ed Boyajian, CEO of EnterpriseDB, which sells PostgreSQL to NTT, says he's seen plenty of interest since Oracle said it was buying Sun and MySQL. "A lot of attention has shifted to us," he says.

Small and medium-sized software companies such as EnterpriseDB acknowledge they face major hurdles when they take on the giants, but they argue that they can play a vital counterbalancing role. "Technology purchasers are concerned that they'll be locked into a single vendor," says Sohaib Abbasi, chief executive of Informatica (INFA), a Redwood City (Calif.) company that sells software corporations use to manage their data. "We assure companies freedom of choice."

One trend that could increase the opportunity for software upstarts is the advent of so-called cloud computing. Over the long haul, experts believe many companies will shift from running computing tasks on their own servers to running them from remote server farms, or clouds, over the Internet. That shift may require software giants to sell their products in a new way, collecting fees over many months rather than pocketing huge checks up front as customers install the programs.

The change is also expected to make it easier for corporations to switch from one technology service provider to another. Oracle and the other software giants would have less power over customers. "Where the world is going and where Larry is going are in conflict," says Marc Benioff, chief executive of Salesforce.com (CRM), an Oracle competitor that delivers its software over the Net.

Still, corporate customers that feel squeezed by the giants may have to change their behavior if they really want more choice in the market. After the dot-com bust, corporations largely turned their backs on startups because some of them failed to deliver on their promises. To foster more innovation, customers may need to risk doing business with young companies again. "If they want to see new technology they'll have to be more open to the startups," says Marc Andreessen, the Internet pioneer who is now a venture capitalist. "They'll have to be more willing to experiment."

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Is Larry Replaceable?

Larry Ellison has long been synonymous with Oracle (ORCL), the software giant he co-founded and now leads as CEO. But is he irreplaceable? Forbes asks the question in a 2006 cover story that goes behind the scenes to examine how the company operates. Quick answer: He's not.

To read the story, go to http://bx.businessweek.com/enterprise-software/reference/

Hamm is a senior writer for BusinessWeek in New York and author of the Globespotting blog. Ricadela is a writer for BusinessWeek in Silicon Valley.