Navigating their audit alone left this organization in a poor negotiation position
When this organization originally received an Oracle audit notice, they had contacted LicenseFortress for assistance but decided to navigate the audit independently with the help of their internal law department. They recognized they had some compliance issues, planned to make things right with Oracle, and pay a reasonable fee. However, Oracle’s audit strategy is to perform the audit, tell the customer that it owes exorbitant back-license fees, bargain to reach a lower but still high price, negotiate to include an upgrade and/or a longer-term contract, and close the deal. However, this customer made a vital pivot when Oracle attempted to run its audit playbook.
Oracle’s Auditing Strategy: Audit, Bargain, Close
The insurer’s IT infrastructure was complex and included Oracle databases, Oracle Fusion Middleware, WebLogic® servers, and a virtualized VMware® environment, including numerous VMware clusters. This insurer faced many challenges along the way, including:
- Large audit bill findings after cooperating with Oracle on their own
- Hostile negotiations after the audit dealings had gone sour between Oracle and the customer
- VMware Exception Rule
- Determining the customer’s contractual obligations from vendor policies
Oracle stated that the insurer owed $400-500 million in unpaid license fees. After several months of negotiations, the insurer realized it could not negotiate a reasonable settlement with Oracle independently.
Oracle then offered the insurer a bargain price of $10 million to settle the audit and make the insurer compliant. Oracle also introduced the VMware exception clause into the contract, positioning the clause as an advantage for the insurer.
The relationships between the insurer and Oracle started to turn hostile as the insurer was unwilling to pay the $10 million. Instead, the insurer engaged LicenseFortress to represent its interests and continue negotiations going forward.
Breaking down Oracle’s VMware exception rule
LicenseFortress first reviewed the Oracle contract and discussed some of the subtleties that had huge implications on how the contract was interpreted. While the insurer’s law firm consisted of excellent lawyers, they had little experience dealing with the nuances of Oracle’s contracts and audit policies.
Once the contract review was completed, LicenseFortress performed a complete audit of the insurer’s IT infrastructure and determined that it owed $700,000 in back-license fees. The difference is, when it comes to licensing on VMware clusters, Oracle’s policy is that running Oracle on those nodes. So, according to Oracle, if you have five nodes running in a cluster and Oracle is running on only one node, you still pay Oracle licenses for five. Following this policy can add up if you have multiple, complex VMware clusters.
$2.3M in concessions were made because of early audit missteps
At this point in the audit, both sides were eager to reach an agreement. Early in the process, the customer made a few missteps acting in good faith and exposed additional compliance issues not covered in the original scope of the audit. As a result, the customer had to concede on some negotiation points, including the VMware exception. LicenseFortress rarely recommends customers accept these amendments, as it has the potential to create issues for organizations with growing and evolving business needs — however, in this case, it was a strategic compromise to move towards a resolution.
LicenseFortress was able to reduce the $10 million audit bill down to $3 million — a savings of 70 percent. Had LicenseFortress been brought in earlier in the audit discussions, an additional $2.3 million in fees could have been mitigated. This project cost the customer approximately $72,000, resulting in a 9,722% ROI.
The Customer Today
The customer continued to work with LicenseFortress after the audit close
After the audit, the insurer engaged LicenseFortress to perform a ULA review to evaluate if they should renew or certify their Unlimited Licensing Agreement (ULA). After reviewing their requirements, the LicenseFortress team developed four scenarios of reconfiguring two large environments into smaller clusters to reduce licensing — some of which were more complex than others, but each resulted in cost savings. Ultimately, this exercise helped the insurer decide that certifying the ULA was the best option — resulting in a reduction of support costs moving forward, totaling over $2M and counting.
Today, they are an ArxProtect customer. This ensures they are always in compliance and will be protected from the moment they receive an audit notice.
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This case study is based on a customer of LicenseFortress. LicenseFortress takes steps to properly safeguard sensitive and personal information by removing all direct identifiers – e.g., name, location, CSI numbers, etc. This step is taken to protect the identity of our customers.