What Is Necessary for Managing an Oracle Audit for Software Buyers?

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Executive Summary

This article addresses one of the most critical factors for managing an Oracle audit.

Introduction

It is crucial to consider the problems or issues in dealing with an Oracle audit.

Issue #1: How Oracle Takes Advantage of Setting Customers Off-Balance With the Oracle Audit

Audits effectively put customers in a disadvantageous situation because Oracle begins with an information advantage. Oracle has an audit team that specializes in audits, whereas Oracle customers typically do not have a specialized team that works to defend against audits. And this means that to fight an audit, the customer needs to allocate people who are nearly always working full time to cover the audit response partially.

Issue #2: The Short Timeline Imposed by the Oracle Audit

Oracle customers find audit letters very threatening, and Oracle takes advantage of this and heightens the tension by placing tight deadlines, which are often a month or less on the Oracle customer. There is no other reason for this timeline except to pressure the customer. However, when asked why the deadline is so restrictive, the only answer that you can expect is that it is “standard.” Standard is a term often used by Oracle where no logical reason can be given.

This condensed decision-making requires the company to make several decisions under time duress.

Issue #3: The Oracle Audit as a Way of X Raying the Customer’s Oracle Environment

Oracle audits have several purposes. Naturally, they are always motivated to make more money from Oracle, but their actual intent is not the same as their declared intent. Audits are about the assigned sales rep getting more information about the account. Audits are a perfect cover story to obtain this information. The presented intent is innocent, Oracle is..

“Only trying to make sure there is no underlicensing.”

The Benefits to Oracle are the Following

Oracle does not have to say that they want information they can use to sell more Oracle products.
Oracle does not have to admit they are unhappy with the revenues from the account.
Audits are the ultimate cloaked passive-aggressive move against the customer.

Issue #4: The Oracle Audit as a Way of Oracle Using a Stick Instead of the Carrot

This is one reason why audits are more common for customers that fall into the following categories.

Customers that are viewed as not sufficiently open to the sales rep.
Customers who are not buying the number of Oracle products and licenses the sales rep expects them to (given the company’s size, the experience of the sales rep, and other factors). Oracle obviously knows how much has been sold to the account by date. Sales reps can query the database to see which customers are behind in expected revenue.
Customers that are not responsive to sales reps attempt to contact the customer. We have even heard sales reps declaring that a company had come under an audit when they had not, simply to get the customer back to the sales rep.

Oracle accounts run a spectrum of those with good relationships with Oracle to those with bad relations. Audits are far more common for those customers towards the bad end of the Oracle relationship spectrum. An Oracle audit communicates to the customer that as the carrot approach to making more software sales has not born fruit, that Oracle is moving towards the stick. For example, audits are far more likely if the Oracle customer has not renewed their Oracle support and either brought support internal or gone with a third-party support provider. If audits are merely an attempt to determine if there is under licensing, then why do audits so frequently follow nonrenewals of support? Oracle sales reps have a particular distaste for customers dropping support for the following reasons.

Oracle receives over a 90% margin on support. Therefore Oracle support sales are a type of “free money” for Oracle.
When support is severed, Oracle stops receiving information about the account that can be used by sales.
It is viewed as a sign of disloyalty to Oracle. Oracle sales very aggressively push Oracle support, and so the action of not renewing support illustrates to Oracle that the customer is beginning to get wise to their game.

This is why audits cannot be thought of as what software vendors say they are, which is an attempt to determine whether there is under-licensing.

Issue #5: The Oracle Audits As a Combination of Intimidation and Information Gathering

The intent is most certainly to intimidate the account. Still, in addition to this, the Oracle sales rep is not only looking to know the license situation of the account that is under audit but to gain information about the customer that they could not obtain without the audit. This information will subsequently be used to sell more Oracle products into the account, and this is generally not acknowledged in the official definitions of a software audit. Let us look at an example.

See this explanation of a software audit in the following quotation.

The primary benefits a corporation receives from performing a software licensing audit are greater control and various forms of cost savings. The audit is used both as an efficiency mechanism to improve software distribution within an organisation and as a preventative mechanism to avoid copyright infringement prosecution by software companies. Software licensing audits are an important part of software asset management, but also serve as a method of corporate reputation management by ensuring that the company is operating within legal and ethical guidelines. – Wikipedia

And this quotation.

A software audit is an internal or external review of a software program to check its quality, progress or adherence to plans, standards and regulations. The process is conducted by either internal teams or by one or more independent auditors.

Software audits may be conducted for many reasons, including the following:

to track and report software use, including frequency and who is using the software;
to verify licensing compliance;
to monitor for quality assurance (QA);
to comply with industry standards; and
to meet legal requirements. – TechTarget

Notice that in both explanations of software audits there is no discussion of any other topic but the interest of the software vendor in determining license compliance. These explanations are what software vendors would like software buyers to think is the extent of the purpose of an audit. Notice there is also no discussion around the coordination between sales and the audit team in this quote.

And that is the critical thing to understand — audit teams share everything with the sales rep, which is not discussed with the account, and the Oracle license audit team maintains a pretense of independence from sales. However, Oracle audits are fundamentally part of the sales process.

Issue #6: How Oracle Will Undermine the Principle Customer Audit Contact

During the initial purchase negotiation, the Oracle audit team and sales team do not want to deal with experienced negotiators or with those experienced with Oracle audits. Oracle‘s way around this is to go over the heads of the person assigned to manage the audit. If they can do this, they can undermine this person’s position. The executives, who are not in a position of domain expertise to manage an Oracle license audit defense, will be in the position to do so. Oracle knows that the more the executives get involved, the more reactive the audit becomes, and the more Oracle can benefit from the audit.

Therefore, Oracle audits are a battle between Oracle, which is trying to negotiate directly with the executives, and the Oracle customer, which is trying to have people with expertise in the topic defend the audit. However, many executives cannot resist the bait put out by Oracle. This is particularly true if the Oracle audit team or Oracle sales rep can successfully undermine the person assigned to manage the audit or scare the executive into thinking they need to get personally involved.

Issue #7: Oracle‘s Bluff Information Requests

During the audit, Oracle will request information that the customer is not obligated to provide. However, the way the request is made makes it appear as if it is.

These are bluffs Oracle will do because either a majority or a sufficiently high percentage of the customers they try this with will provide them with the information. We have said that a primary purpose of any Oracle license audit is information acquisition, not just determining how much, if any, the amount that Oracle is owed. Many Oracle reps are satisfied to walk away with no extra revenue from an audit, only to return to the customer months later (after an appropriate amount of time has passed to remove the connection to the audit and the information provided by the audit) and then being a new sales initiative at the account.

Issue #8: The Discrepancy in Audit Experience Between Oracle and the Customer

The Oracle license audit team audits companies for a living. The Oracle sales rep will typically have participated in a number of audits already.

This means that they both are good at putting the screws on customers and manipulating the audit to the best possible outcomes for Oracle. Before the audit, the Oracle sales rep would have shared a lot of information about the customer before the customer ever meets the audit team. Furthermore, the consulting partner constantly shares information with the sales rep without informing their client that they are doing so. Even if the sales rep has not been on site for a year or more, in many cases, the Oracle consulting partner has been there every workday. All of this means that the audit team knows the internal political environment of the customer while they pretend only to carry forward a technical audit.

The customer, on the other hand, only occasionally deals with audits.

Reasons Oracle Customers Should Not Go it Alone With Audits

IT departments are configured and staffed to “keep the lights on,” not to manage audits.
This is why it usually is not a good idea for Oracle customers to deal with audits independently without availing themselves of support from those with far more experience in the area.

Now that we have discussed some of the major issues with Oracle audits, lets move to a discussion of the two major stages of an Oracle license audit.

Stage One: About The Oracle Software License Usage Analysis

One topic is what software to use to record the usage of the Oracle systems, and the other is what support to bring in to help defend the audit. Another is using the usage diagnostic transactions that are within Oracle.

In addition to areas where the company may be under-licensed, there are invariably areas of purchased license that are over-licensed.

The determination of usage versus licensing is only one part of an effective audit defense.

Option #1: No Shortfall is Found

In some cases, there is no licensing shortfall, and Oracle has no leverage to force a purchase and leaves with a large cache of information they did not previously have.

Option #2: Under licensing is Discovered

However, in cases where there is under licensing, the typical result will be for the Oracle customer to buy a product. The Oracle sales rep, who has been in contact with the auditing team throughout the audit, will press for the Oracle customer to purchase an Oracle product, particularly one pushed by their sales management. And this gets into the topic of whether the customer will actually be implementing this product or only buying the product to satisfy the current under licensing. This is another important topic that must be analyzed.

Stage Two: The Negotiation

Once the state of license usage has been ascertained and agreed upon by the Oracle customer and Oracle, the following process is all about negotiating the outcome.

At this point, many customers are depleted. They have spent so much time worrying about the implications of being under-licensed, combined with consolidating the information about system licensing and usage — and of course, under time duress, that they are often unprepared for what is perhaps an essential part of the audit process — which is the negotiation on remediation.