Confirming that Windows NT is not yet achieving significant impact at the enterprise level, Morgan Stanley’s most recent scrutiny of Oracle Corp numbers concludes that for the database company NT hasn’t translated into a change in deal size or discounting levels from a year ago. Oracle, it says, has responded to NT’s pricing in departmental deals by matching Microsoft SQL Server pricing on a per seat basis with Oracle Workgroup, while selling its higher priced Enterprise product for applications that demand more power. The workgroup product is a subset of the enterprise product with no replication, parallel server option or other power and scalability enhancements. The workgroup product isn’t available on Unix, although it once was, but there was little demand. An enterprise product for NT is supposedly scheduled to be released on DEC Alpha machines shortly. Morgan Stanley’s concern lies with how much of the market can be addressed by the cheaper workgroup product and how many customers need the full enterprise product. It thinks half the market needs the enterprise product (in dollar terms), 20% could go either way but may prefer enterprise because of growth considerations or existing expertise, and 30% are fine with the workgroup product. So far, it believes, customers see added value in the enterprise features absent in the workgroup product and Oracle can charge a premium for them. Moreover, the enterprise product has additional options available such as the parallel server option, which costs $600 per user.
Other pricing issues the bank has examined are sales related to Oracle’s applications, which also tend to carry significantly lower discounts since the applications only run on Oracle. It estimates Oracle sold about $750m of database licenses as a result of its applications sales over the last twelve months in addition to $466m in applications-related consulting. Oracle believes most of its NT revenue has been upsizing business; customers moving up from Microsoft Access, Gupta, Btrieve, flat files, and other workgroup or desktop databases. Consequently, the amount of cannibalization of the enterprise product by the workgroup product hasn’t been a significant factor to date. Morgan Stanley estimates the company’s total NT sales including tools represented $70m last quarter while database server sales on NT were around $60m. Server license revenues were up 35% in the US, 49% in Asia Pacific, but flat in Europe. NT has been a bigger factor for Oracle in the US and Asia Pacific, yet those regions outpaced Europe significantly in the latest quarter and the latest year.
Morgan Stanley’s also concerned with the impact of the web and three tiered applications on pricing. Databases that serve data to users through a web server are becoming more common, but it’s impossible to tell how many users are accessing a database if they are coming in through the web server, the bank notes. Unlike client/server connections, there is no one-to-one connection with a fixed number of named or concurrent users to drive pricing. New pricing metrics are evolving to fill the void with machine size pricing emerging as the leading contender for a web pricing methodology. The market moved away from per machine pricing four or five years ago to per user since users complained that their servers were used for multiple applications and not just the database. As machine prices have fallen, customers are more likely to buy separate, specialized servers for each application so machine size may be workable and it avoids the headache of tracking users and auditing usage. The same issues apply to databases serving data through three-tier applications, it believes.