Managing Oracle Cloud renewal costs

Following our popular webinar on Oracle licensing challenges, we’re continuing our series of blogs providing practical guidance on important Oracle Fusion Cloud contract clauses. In this instalment, we cover the Discount Hold for Renewal Clause.

With that in mind, this is Blog 3: Discount Hold for Renewal Clause.

Organisations make significant investments in costs, time, and effort when choosing an ERP solution. These choices are typically intended to last longer than the usual initial contract term, requiring the renewal of the initial contract. Failing to renew the subscription contract would result in stopping the use of the ERP solution immediately and would require new investments to replace the solution.

From Oracle’s perspective, transforming a customer to its Fusion Cloud solution is very important and, as such, typically results in them offering a substantial discount on the initial purchase. However, once you are committed to the solution, your negotiating power diminishes significantly, and Oracle may be inclined to increase prices at the time of contract renewal.

In recent years, there have been instances of price increases of up to 30%.

To maintain control over costs, organisations should think about including a Discount Hold for Renewal clause in their Oracle Fusion Cloud contracts. This clause helps manage expenses in future years.

In this blog, we explore the meaning of the Discount Hold for Renewal clause, its potential benefits, and how to maximise its value within Oracle Fusion Cloud contracts.

This clause offers several advantages for organisations using Oracle Fusion Cloud.

• Cost predictability: It allows organisations to lock in pricing increases, enabling them to know in advance how much their solution will cost for the defined renewal duration. This helps avoid the risk of significant and unplanned price increases driven by Oracle's commercial policy when the initial contract expires.
• Ease of renewal: Renewal is a key moment in the life of a contract. It is often the time to adjust, negotiate new elements, or change terms. Having the increase in the contract amount predefined simplifies this process, making renewals smoother and more straightforward.
• Cost efficiency: Oracle has typically applied an 8% increase for on-premise support and 10% increase for its subscriptions in recent years. For Oracle Fusion, significant discounts are often given to new customers, leading to potentially higher price increases at the first renewal. Negotiating this clause with a lower percentage increase before signing, while you are still able to negotiate, can result in substantial savings over the years.

Considerations and best practices

• Scope of the renewal: Oracle typically requires the entire quantity of cloud services specified in the contract to be renewed to maintain the fixed rate. Additionally, the total fees must be equal to or greater than those in the initial order. Any expansion orders added later will contribute to the minimum scope that needs to be renewed.
• Duration and number of renewals: Typically, organisations can secure a maximum increase rate for renewals over a defined period (e.g., no more than a 2% increase for a 12 or 24-month renewal period). This can be done a certain number of times (e.g., up to four consecutive renewals of 12 or 24 months at a given increase rate). Some customers even obtain different options with varying durations and increase rates. Having a clear vision of the cloud service roadmap in your organisation will help you determine the most relevant options.
• Timeframe for renewal: The renewal at the set increase rate must be executed before the end of the initial service period. Monitoring and planning are essential to avoid missing the deadline.
• Availability of products: Oracle protects itself by specifying that this renewal applies to cloud services available at the time of renewal. If the specific service you are using changes (e.g. no longer sold as a standalone service, included in a package, or rebranded with additional functionalities), you may not be able to renew it.
• Auto-renewal: According to the Oracle Cloud Service Agreement (CSA), certain cloud services will be automatically renewed (as specified in the Service Specification document) for the same duration as the initial contract. To terminate these contracts, customers must provide Oracle with written notice no later than 30 days before the contract's end date. Including a non-auto renewal clause in your contract can help avoid potential issues and costs if the written notice requirement or deadline is not met.

The Discount Hold for Renewal clause is essential for organisations utilising Oracle Fusion Cloud. By incorporating this clause, organisations can achieve cost predictability, ease the renewal process, and enhance cost efficiency. Understanding and negotiating the terms of this clause before signing the initial contract can lead to significant savings and a more manageable financial outlook over the years. As with any contractual agreement, careful planning and consideration of the organisation's long-term cloud service roadmap are essential to maximise the benefits of this clause and ensure a smooth renewal process.