How to Negotiate Oracle Cloud at Customer Contracts
Negotiating an Oracle Cloud at Customer contract requires careful planning and a firm grasp of both the hardware and cloud service components.
This hybrid offering brings Oracle’s cloud capabilities into your data center, but it comes with multi-year commitments and complex terms.
This advisory outlines how CIOs and IT sourcing leaders can secure the best deal – minimizing costs, avoiding overcommitment, and ensuring flexibility – all while meeting enterprise needs.
Understanding Oracle Cloud at Customer Contracts
Oracle Cloud at Customer is a hybrid cloud model: Oracle installs cloud infrastructure (like Exadata or OCI compute racks) at your premises, and you subscribe to it as a service.
Unlike public cloud, where you pay-as-you-go, Cloud at Customer deals typically involve a multi-year subscription that covers both on-premises hardware and cloud services:
- Term Commitment: Commonly a 4-year minimum term for the infrastructure. Oracle provides and manages the hardware on-site, so they seek a long-term commitment.
- Base Infrastructure Fee: A fixed monthly or annual fee for the Oracle-supplied hardware and its maintenance. This cost is incurred regardless of usage.
- Cloud Service Usage: Variable charges for the cloud resources you consume (database OCPUs, storage, etc.), measured via Oracle Universal Cloud Credits. You commit to a certain annual spend or capacity. If you bring your own software licenses (BYOL), the usage fees are lower. If you choose license-included services, the cloud usage rates are higher because they include Oracle software licensing in the price.
Understanding these components helps you identify negotiation levers.
For example, hardware fees might be fixed in structure but negotiable in price; cloud usage commitments can be adjusted and discounted; and term lengths, while largely set, can include flexibility clauses if negotiated properly.
Preparing Your Requirements and Avoiding Overbuying
Before talking numbers with Oracle, do your homework internally:
- Independent Needs Analysis: Determine exactly what workloads you will run on Cloud at Customer and what capacity they truly require. For example, if you only need 50 OCPUs now, don’t agree to 100 OCPUs just because Oracle shows a better discount – you’ll pay for unused capacity. Avoid overbuying by starting with what you need and planning to expand later if necessary.
- Migration Timeline Alignment: Map out when each application will move onto the new environment. If migrating workloads will take several months, start with a smaller Year 1 cloud commit. Increase your commitment as systems go live, so you don’t pay for unused cloud capacity early on.
- Global Deployment Strategy: For multinational enterprises, Oracle may propose a single large deal to cover multiple regions. Don’t commit to a full global rollout on day one if it’s not needed. It’s often better to start with one region or a pilot, then expand later – this phased approach lets you adjust terms as you grow, rather than locking into an oversized deal upfront.
Pricing and Cost Drivers in Cloud at Customer
Oracle Cloud at Customer pricing has multiple components, each of which can be negotiated. Below are the key cost drivers and how to approach them:
| Cost Component | Description | Negotiation Tip |
|---|---|---|
| Base Infrastructure Fee | Fixed on-prem hardware subscription fee. | Negotiate this down; ensure hardware sizing is right (no oversized capacity). |
| Cloud Usage Commitment | Annual cloud services spend commitment. | Start with a conservative commit and scale later. Secure tiered discounts and avoid paying for unused credits. |
| License Model (BYOL vs Included) | Whether you use existing licenses or Oracle’s licenses. | BYOL drastically lowers fees if you have licenses; license-included costs more but is simpler. Use BYOL where possible to save. |
By focusing on these cost elements, you can significantly reduce the total cost of your Cloud at Customer deal.
Key Contract Terms to Negotiate
Price is only one aspect of the deal. Equally important are the contract terms governing your flexibility and risk.
Focus on negotiating the following clauses in your Oracle Cloud at Customer contract:
- Term Length & Renewal: Aim for the shortest term that meets your needs. If Oracle insists on a four-year term, consider pushing for some flexibility (e.g., an option to exit after three years with a penalty) instead of being completely locked in. Also, avoid automatic renewals – you should renegotiate at the end of the term. Set a cap on any price increases at renewal to avoid a steep jump in costs.
- Scaling & Flexibility: Ensure you can scale usage both up and down. Your agreement should allow you to scale to zero usage during idle periods (only paying the base fee). Also, pre-negotiate how you can expand later (for example, adding an extra rack at the same discounted rate) so any mid-term growth doesn’t force a new, costly contract.
- Minimum Commit & True-up: If a minimum spend is required, make it annual (not monthly) to allow flexibility. Try to include a clause to carry over unused credits within the term, so you don’t lose value if consumption ramps up slowly.
- Exit and Termination: Clarify what happens if you need to exit early. Oracle may not allow a full termination for convenience. Still, you can push for an early termination clause with a reduced penalty (maybe paying part of the remaining fees instead of all). Also, define the end-of-term process clearly: you should have a window to retrieve your data, and Oracle must remove its equipment from your site. Negotiate SLAs for uptime, performance, and support response. Include remedies like service credits if SLAs are missed. This holds Oracle accountable, just as it would in its public cloud, and protects you if the service underperforms.
- Service Levels and Contract Terms: Ensure the contract covers service quality and fair terms. Include SLA guarantees (for uptime, support response) with service credits for any breaches. Additionally, have your legal team remove one-sided clauses (such as audit clauses or hidden auto-renewals) and document all promises in writing.
A contract that’s balanced on terms will give you the freedom to adapt over time. Without negotiating these points, even a good price can turn bad if inflexible terms handcuff you.
Recommendations
- Develop a Clear Usage Plan: Define the workloads and resource needs you’ll run on Oracle Cloud at Customer.
- Commit Small, Expand Later: Negotiate the minimum feasible term length and cloud usage commitment. It’s easier to scale up the contract later than to shrink an overcommitted deal.
- Negotiate Both Hardware and Cloud Costs: Seek discounts on the base infrastructure fee and the cloud usage rates. Don’t focus on one and ignore the other – both add up over time.
- Ensure Renewal Protection: Include terms that cap price increases at renewal or give you the right to renegotiate. Avoid a scenario where your costs jump drastically after the initial term.
- Secure Exit Provisions: Agree on a reasonable exit strategy. For example, a reduced fee for early termination or Oracle’s assistance with migration if you choose not to renew.
- Get Everything in Writing: Any promises from Oracle (including future upgrades, free training credits, and flexible terms) must be written into the contract. Verbal assurances are not enforceable later.
- Involve All Stakeholders: Bring in legal, technical, and financial stakeholders to review the deal before signing. They can catch risks – whether technical constraints or unfavorable language – that you might miss.
- Benchmark the Deal: Compare Oracle’s proposal to other cloud or hybrid solutions. Even if you plan to stick with Oracle, demonstrating a benchmark helps keep Oracle’s pricing transparent.
Checklist: 5 Actions to Take
- Assess and Plan: Inventory your applications and licenses, forecast the needed capacity, and decide which Oracle workloads are suitable for Cloud at Customer.
- Build Your Deal Team: Get IT, Finance, Procurement, and Legal on the same page. Set a clear budget, identify must-have terms (and red lines you won’t accept).
- Solicit a Proposal (and Alternatives): Ask Oracle for a detailed Cloud at Customer proposal, but also gather information on alternatives (Oracle public cloud, AWS Outposts, etc.).
- Negotiate Key Terms: Enter negotiations armed with your data. Tackle pricing and discounts first, then contract terms like commitment period, usage flexibility, and exit clauses. Push back on any attempts to oversize the solution to fit actual needs.
- Finalize and Review: Before signing, do a final review of the contract with all stakeholders. Ensure every commitment (discounts, services, future flexibility) is documented. Double-check there are no unwanted auto-renewals or hidden fees.
FAQ
Q1: How is Oracle Cloud at Customer different from Oracle’s public cloud?
A: Cloud at Customer gives you Oracle’s cloud services on dedicated hardware in your data center. Unlike Oracle’s public cloud (OCI), which is pay-as-you-go and off-premises, Cloud at Customer requires a multi-year subscription with a fixed on-site infrastructure fee plus committed usage. You’re essentially trading some flexibility for on-premise control and data residency.
Q2: Can we negotiate a shorter term or exit early if needed?
A: Oracle usually requires a four-year minimum term for Cloud at Customer. It’s challenging to secure a shorter initial term, but you may be able to negotiate an opt-out clause (for example, the option to terminate after 3 years with notice or a fee). At a minimum, avoid any auto-renewal – ensure you have the right to renegotiate or end the contract when the initial period is over.
Q3: What kind of discounts can we expect on an Oracle Cloud at Customer deal?
A: Large enterprises can often secure substantial discounts. It’s not unusual to receive 20–30% off the list price of the base system, as well as similar concessions on cloud usage rates (especially with large commitments). Oracle may also offer additional incentives, such as free credits or services, to win your business. The key is to negotiate each component (hardware and cloud) and use any competitive pressure to improve the offer.
Q4: Can we use our existing Oracle licenses with Cloud at Customer?
A: Yes. Oracle Cloud at Customer fully supports Bring Your Own License (BYOL). If you have Oracle licenses (with active support) for products such as the Database, you can deploy them on the Cloud at Customer platform. This means your cloud fees will be lower, since you’re not paying for those licenses again (although you continue to pay support on them). If you lack certain licenses, you can opt for Oracle’s license-included subscription (Oracle provides the licenses as part of the service), which is more expensive but simpler.
Q5: How can we avoid getting locked in with Oracle long-term?
A: Build flexibility and exit options into the contract. For example, ensure you have the rights to all your data and a plan in place for Oracle to help you export or migrate it if the contract ends. Avoid clauses that automatically extend the term without your approval, and seek the ability to reduce or terminate at renewal time if needed. Also, don’t commit all your systems exclusively to Oracle’s platform – keep some alternatives or parallel environments.
Read about our Oracle Contract Negotiation Service.
