“We’ve been caught, so we need to pay up” – The reality of software licensing audits

April 4, 2017
Abhishek Gupta


Abhishek Gupta

JAPAC Oracle Technology, Compliance , Commercial Asset & Storyteller at SoftwareONE

The quote from the title is direct from the City of Denver’s CIO of Denver Technology Services. who was recently discovered to be vastly non-compliant with its Oracle software licensing agreements. Denver’s contract with Oracle was roughly $1 million per year for software and services, but Oracle auditing contractors discovered the City has overused its Oracle resources by nearly $10 million. Oracle, however, agreed to settle the audit for $3 million, with a subsequent true-up  for a “new five-year contract bumping up Oracle’s compensation for 2017 to nearly $4 million, quadrupling the previous year’s compensation.”

What were the likely steps that brought the CIO in front of the Finance and Governance Committee? Assuming, over a period of six months a sequence of activities took place with this large Oracle customer:

  1. Oracle Audit initiated for total Oracle usage. Oracle LMS and Oracle Legal teams will be the spokesperson.
  2. A large Compliance gap of over $ 10 Million identified and submitted as a demand to Oracle Customer.
  3. A settlement initiated by Oracle Sales with two Financial figures – One with a Oracle Bill of Material (BOM) for on –premise licenses and another with same BOM along with Cloud Subscriptions.
  4. On average, the second quote is 30-40% less presented by Oracle Sales.

Talking more generally about Oracle compliance, the likely implications for customers to trigger the Oracle’s auditing red flags includes signing up for Cloud subscriptions without validating the need, the quantity and not the least “The Discount on Subscription”. The savings presented by Oracle does not include the year-on-year subscription fees, which will be a big IT spend or OPEX outflow.

Oracle is a technology giant and no questions on their capabilities around Cloud offering on SaaS, PaaS and IaaS. The approach is different with every opportunity. In many cases, for an existing Oracle Customers, we have observed that a “Stick & Carrot” method applies.

In order to avoid an equally challenging situation, we recommend the below steps as a regular “compliance hygiene”:

  1. Perform an Independent assessment of Oracle usage for Products, Infrastructure, User groups, Versions, Editions and Oracle Contracts.
  2. Prepare a roadmap for a transition towards Oracle Cloud journey or Hybrid Model.
  3. Make sure that IT budget is spend for real SaaS and not for “Shelfware as a Service”

If you would like further guidance on your current state of software compliance, then click the banner below to schedule an appointment with a SoftwareONE representative.

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