There's no reason for anyone to be confused about Oracle's pricing policy.

Chief executive Larry Ellison has made it quite explicit on numerous occasions: there is one global price list, it's publicly available and there are no discounts or negotiations with anyone. Oh, and by the way, the moon is made of blue cheese.

In truth, Oracle's pricing and licensing policies have been the subject of both discussion and complaint among its users for years, and Ellison's latest pronouncements on the subject have merely fanned the flames rather than dousing them.

Analysts have warned customers that they face higher bills as a result of the company's latest thinking. And while many users have thanked them for the warning, they say they already have noticed the change.

In effect, Oracle has rewritten its sales manual after a quarter of a century of deal-making. Historically, it was ready to do a deal with anyone if it could close a contract, and from the earliest days, its sales force was sent out into the world with clear instructions to win market share at any cost.

This led to legendary tales of Oracle salespeople practically giving away software so they could chalk up another win and freeze out the competition. Although it's difficult to find anyone to talk on the record about these heady days, there are those who recall them with a mixture of amusement and vague embarrassment.

"We were basically told we could do anything we needed to do to close deals," recalls one Oracle veteran of the late 1980s.

"If that meant tearing up the price list, well, it was only ever there as a vague guideline anyway. Winning the deal was all that mattered. We could make money later, once we had secured the customer account for Oracle."

A sense of order
It took a lot of effort by former chief operating officer Ray Lane to bring order and a sense of respectability back to the Oracle sales team. Lane was also one of the main drivers behind the company's push towards globalisation, which resulted in the announcement of a global price list in 1999.

But while the supplier promised this would appear by the middle of this year, the reality appears to be somewhat different, with various exceptions still being made to the standard pricing policy. For example, when Oracle Launch Box was announced, Oracle introduced three licensing deals that were aimed at startups.

It's also clear that many existing customers have managed to hang on to their original discounts, although Oracle insists that every new customer signs up to a standard price list, with discounts based solely on order size.

But Ellison claims that the decision to impose standard pricing is logical on two fronts. First, it's a consequence of the company's decision to centralise and standardise all of its operational activities.

Second, Oracle was becoming a victim of its own reputation for negotiation. Potential customers delayed making purchasing decisions until the very last minute in a game of brinkmanship.

"We had chief executives phoning up with hours to go before the close of the quarter and asking for discounts," said Ellison. "They were looking for deals with up to 98 per cent discounts. Well, no thank you. We will never do any of that again. There's a price list and we stick to it."

That's the official party line. But rival vendors allege that old habits die hard and that Oracle sales people are still ready to cut a deal on occasions - although none could produce an example of customers who would be willing to bear witness to such claims.

Oracle under fire
Customers, on the whole, are more concerned about what they perceive to be Oracle's policy of ramping up its licence fees while appearing to reduce them. The criticism follows last year's change in Oracle's licensing structure from charging per concurrent user to charging based on the power of the hardware running the firm's software.

Such changes were made as customers increasingly started to use their databases as a backend to online applications, which made it difficult to calculate the number of users accessing them.

Some Oracle 8i customers have needed to install more powerful hardware to meet the needs of a growing number of web users, but claim they have experienced licence price hikes of up to 70 per cent as a result.

Oracle's 8i pricing is based on a so-called universal power unit (UPU) policy. The UPU is calculated by multiplying the number of processors by the processor speed. That number is then multiplied by the price per UPU, which, according to the list price, is currently $100. This means that software which will run on an eight-way machine based on 700Mhz Pentiums will cost $560,000.

Oracle's latest pricing also appears to dramatically reduce 8i's upfront licence costs. Oracle claims that its UPU strategy, combined with standardised discounting policy, will reduce the prices of 8i by an average of at least 25 per cent.

Hardware issues
But John Parker, an analyst at the Aberdeen Group, believes there is another aspect of Oracle's UPU pricing that should cause users some concern. Because UPU is based on the power levels of the processors in the box, users should be aware that, as they increase the capacity of their hardware, the prices of their Oracle licences could spike sharply upward.

"CPU speeds typically double every 18 to 24 months," Parker warned. "For example, HP, Sun, and IBM anticipate a 60 per cent or greater increase in server Mhz speeds in 2000. Applying this increase to Oracle's UPU pricing, a solution that seems to promise a 25 per cent price reduction may actually result in a 25 per cent price increase."

"History shows that processor power pricing can cause serious additional costs problems for users. Five years ago, Computer Associates' power-based pricing for its mainframe software resulted in user complaints that mainframe power increases led to significant licence fee increases for CA programs," he added.

Gartner Group goes further, however, warning that UPU will cause licence prices to increase uncontrollably. Its premise is that Oracle has changed its pricing structure because it wants to become an applications service provider (ASP) and managed service provider. In such markets, paying for the right to use software for a given period of time rather than indefinitely is common.

Mark Jarvis, Oracle's vice-president of global marketing, confirmed that the company would be only too happy if customers did not buy any more software, but rented it instead.

"People will not buy software in five years' time," he argued. "Within five years, half of the revenue of this company will come from rented software."

Quite where this leaves beleaguered Oracle customers is another matter. Are they being driven towards the ASP option in the shape of Oracle Business OnLine?

"It might be seen as all roads leading to Business OnLine," admitted James Governor, an analyst at Illuminata. "But it's not up to Oracle, it's up to the customer. Business OnLine has hardly been a widespread success."

But he offers one crumb of comfort. "Ellison says things that are black and white, but when they actually happen they happen in shades of grey," he said.

"He is actually a very flexible person, and Oracle is a flexible company. He says things one day, but he is willing to change."