Established software vendors face a difficult balancing act between meeting customer demands for pay-per-usage cloud pricing models while guarding against revenue erosion on traditionally priced offerings. If Amazon’s price for Oracle Database on RDS becomes the norm for price discrimination between traditional and per-per-usage licenses, IT buyers could find themselves paying over a 100 percent premium for the flexibility of pay-per-usage pricing.

Note, I am only using Oracle as an example here because the pricing of Amazon RDS for Oracle Database is public. This post intends to make no judgments on Amazon or Oracle’s price points whatsoever.

Pay-per-use software pricing limited to entry level product
Amazon RDS for Oracle Database offers two price models, “License Included” or “Bring Your Own License (BYOL)”. The License Included metric is fancy terminology for pay-per-usage, and includes the cost of the software, including Oracle Database, underlying hardware resources and Amazon RDS management.

Three editions of Oracle Database are offered by Amazon, Standard Edition One (SE1), Standard Edition (SE) and Enterprise Edition (EE), listed in order of lowest to highest functionality.

It’s important to note that pay-per-use pricing is only offered on the lowest function edition, namely, Oracle Database SE1. This should not be a surprise as Oracle, like other established vendors, is still experimenting with pay-per-usage pricing models. Customers can also run Standard Edition One using a BYOL model. This fact, along with Oracle’s list pricing, helps us do some quick and interesting calculations.

Oracle Database SE1 software price-per-hour ranges between $0.05 to $0.80
The License Included and BYOL prices both include the cost of the underlying hardware resources, OS and Amazon RDS management. The only difference between the two options is the price of the Oracle Database software license.

This allows us to calculate the per hour cost of Oracle Database Standard Edition One as follows:

The Oracle list price for Oracle Database SE1 is $5,800 plus 22 percent, or $1,276 for software update, support and maintenance. Like most enterprise software, customers could expect a discount between 25 to 85 percent. For lower priced software like Oracle Database SE1, let’s assume a 50 percent discount. Although, most customers buying Oracle software are encouraged to enter into Unlimited License Agreements (ULAs) which frequently offer discounts at the higher end of the spectrum.

All told, Oracle Database SE1 after a 50 percent discount would cost a customer $3,538 (($5,800 + $1,276) x 50%) for 1 year or $4,814 ($5,800 + $1,276 + $1,276 + $1,276) x 50%) for 3 years on a single socket quad core machine like this low end Dell server. Note that Oracle doesn’t use their typical processor core factor pricing methodology for products identified as Standard Edition or Standard Edition One as they are targeted at lower performance servers.

A single socket quad core machine would offer the performance of somewhere between the Amazon “Double Extra Large DB Instance” and the “Quadruple Extra Large DB Instance”.

Consider the long term costs of per-per-usage

Using “Double Extra Large DB Instance” pricing, with our calculated cost an Oracle Database SE1 software license on Amazon of $0.40/hr, we can calculate a 1 year cost of $3,504 and a 3 year cost of $10,512. These figures represent a 1 percent lower and 118 % higher cost of using Amazon’s per-per-usage offering versus licensing Oracle Database SE1 through Oracle for on premises deployment or a BYOL for deployment on Amazon RDS.

There are obviously multiple caveats to consider, like the ability to get lower or higher discounts from Oracle, or comparing with the “Quadruple Extra Large DB Instance” price point.

A customer that is unable to get a 50 percent discount from Oracle could save licensing costs by using Amazon’s pay-per-usage offering for Oracle Database SE1. For instance, with only a 25 percent discount from Oracle, the customer could save up to 34 percent on a 1 year basis, but stands to pay an extra 46 percent a 3 year basis.

Comparing the cost of Oracle Database SE1 using traditional licensing on premises with Amazon’s pricing through RDS, it appears that customers should look hard at Amazon’s per-per-usage offering for up to a 1 year term, but stick with Oracle’s traditional pricing model if the software is going to be used for the typical 3 to 5 year period that companies like to amortize costs over.

The obvious rebuttal to the above calculations would be that a customer electing for a pay-per-usage model would not necessarily run for 24 hours a day for a full year. While this is true, buyers should understand the long term cost implications before making short term decisions.

Originally published on rand($thoughts);