Oracle Cloud at Customer Cost Optimization
Executive Summary:
This article targets enterprise technology leaders seeking to optimize costs with Oracle Cloud@Customer.
It explains how Cloud@Customer can potentially reduce long-term Oracle support expenses and hardware costs by shifting to a subscription model.
We examine strategies to maximize ROI, from choosing the right deployment option and scaling resources efficiently, to leveraging Oracle programs that convert support spend into cloud credits.
The goal is to help CIOs and CTOs make Cloud@Customer a financially prudent choice by lowering the total cost of ownership while delivering the required performance and control.
Read Oracle Cloud at Customer Licensing Best Practices: Compliance and Cost Optimization.
Assessing ROI: Cloud@Customer vs. Traditional On-Prem and Public Cloud
Before optimizing costs, it’s crucial to understand where savings (and expenses) come from in Oracle Cloud@Customer relative to other models:
- Traditional On-Premises: You purchase hardware, Oracle licenses, and pay annual support (typically ~22% of license cost) and hardware maintenance. Upfront capital expenses are high, and ongoing support costs tend to increase over time. Assets depreciate, and you bear refresh costs every 3-5 years.
- Oracle Cloud at Customer: You shift to a subscription model: Oracle provides hardware and cloud services for a recurring fee. Upfront capital expenses are minimal (aside from perhaps migration efforts). The trade-off is a committed operational expense. However, this includes hardware updates, support, and potentially better pricing for hardware and licenses at scale. Over a 4-year term, Cloud@Customer can be cost-effective if you would otherwise need to refresh hardware or pay hefty support fees for software; those are included in the subscription. Data sovereignty or performance needs are met without building your cloud.
- Public Cloud (OCI or others): A pure cloud service has no on-premises hardware, but if you have strict data residency needs, it may not be viable. Public OCI can be purely pay-per-use with no long-term commitment; however, per-unit costs may be higher, and you lose on-premises control. Cloud@Customer, by comparison, strikes a middle ground: offering cloud economics and flexibility, while providing dedicated capacity for your exclusive use. This can be more cost-efficient for steady workloads because you’re not paying the public cloud premium for elasticity you don’t need.
To determine ROI, consider a 5-year TCO for each scenario. Include all costs: for on-prem, that’s hardware, power, real estate, licenses, support, admin staff, etc.
For Cloud@Customer, include subscription fees, any BYOL support fees, and the value of reducing internal overhead (Oracle handles hardware ops).
Many enterprises find that when factoring in avoided hardware refresh and the ability to drop certain support contracts, Cloud@Customer’s TCO can break even or save money over the term, while also modernizing their environment.
Selecting the Right Cloud@Customer Configuration for Cost Efficiency
Oracle offers multiple Cloud@Customer flavors, primarily Exadata Cloud@Customer and Compute Cloud@Customer, as well as Dedicated Region Cloud@Customer for large-scale requirements.
Choosing the appropriate option is vital for cost optimization:
- Exadata Cloud@Customer Is Optimized for Oracle Database workloads and has a higher base cost due to its inclusion of powerful Exadata hardware. Suppose your primary need is to run many Oracle databases with high performance. In that case, the Exadata option can be cost-effective on a per-database basis (due to consolidation and included DBA automation). However, if you only have a couple of small databases, Exadata’s base fee (~$8K+ per month for a small system) might be overkill. In that case, consider alternatives.
- Compute Cloud@Customer: This brings Oracle’s general IaaS (compute, storage) on-premises at a lower base cost (e.g., approximately $4-5K per month for the base rack). It’s better suited if you have a variety of workloads (app servers, maybe some databases, middleware) and want to spread the cost across them. You can still run databases on Compute Cloud@Customer, but they won’t have Exadata’s specialized storage and performance. The cost per resource is similar to public cloud usage rates, with the benefit of a dedicated environment.
- Dedicated Region @ Customer: Essentially a full Oracle cloud region on-premises, this is a large commitment (often multi-million over 5 years). It’s only cost-justifiable for very large enterprise usage, where you want a private cloud that matches public cloud features for features. Oracle lowered the entry point, but it’s still a significant outlay. If your footprint is huge and diverse (including Oracle SaaS, multiple PaaS services, etc.), a Dedicated Region might maximize value by bundling everything; however, for most, Exadata or Compute Cloud@Customer suffices.
Cost Efficiency Tip: Right-size the configuration. Oracle sales might propose more capacity than you truly need (“headroom” for growth).
While future-proofing is important, remember you can often upgrade mid-term.
It’s usually more cost-efficient to start with a smaller system and add capacity later, rather than paying for an oversized system from day one.
Ensure the contract has provisions for expansion at predetermined rates, so you aren’t stuck paying list price later if you grow.
BYOL vs. License-Included: Cost Implications and Savings
Deciding between BYOL and license-included for each workload has a direct impact on cost optimization:
- Bring Your Own License (BYOL) Savings: If you have already invested in Oracle licenses, BYOL lets you avoid paying for those licenses again in your cloud fees. The cloud usage rate for BYOL is much lower. For example, Oracle Database Enterprise Edition on Exadata Cloud@Customer might be around $0.32 per OCPU-hour with BYOL (assuming you keep paying support on your licenses), versus around $1.34 per OCPU-hour if Oracle provides the license (license-included). That’s roughly a 4x difference. Over a month, a workload using 16 OCPUs continuously would cost approximately $3,700 with BYOL versus approximately $15,500 with license-included (at list prices) – a significant gap. So, BYOL can cut costs by 50% or more for those database workloads, if you already own licenses.
- License-Included Convenience vs. Cost: License-included is expensive, but it has advantages: you can terminate on-prem support, and you’re not carrying the asset on your books. If you did not own the license previously, it may be cheaper than purchasing a new perpetual license plus 4 years of support. The cost optimization approach here involves using the license-included features selectively. Perhaps you want to drop costly support on an old product – moving that workload to license-included cloud means you can stop paying that support (saving 22% annually on that license’s cost), funneling that budget into the cloud subscription instead. In some cases, Oracle might allow converting support fees into cloud credits (softening the blow of the higher hourly rate).
Maximizing Savings:
Many organizations use a hybrid approach: BYOL for steady-state, core systems (where they already have licenses in support), and license-included solutions for either transient needs or to replace licenses that are too expensive to maintain.
Review your support bill: Are there products you’d love to drop support on? If they can run on Cloud@Customer under a license-included model for the same or lower cost, that’s a win. You’ve effectively traded a perpetual license + support for a SaaS-like subscription that you can turn off if you no longer need it.
Strategies to Reduce Ongoing Cloud@Customer Costs
Operating Cloud@Customer efficiently on a day-to-day basis will determine whether you truly save money.
Here are strategies to minimize ongoing costs:
- Scale Resources to Actual Need: Take advantage of Cloud@Customer’s elastic nature. For databases on Exadata Cloud@Customer, you can scale OCPUs up or down for each VM cluster. If a dev/test environment is not in use after hours or on weekends, scale it down to 0 OCPUs during those times – you will incur no usage charges for compute when it’s stopped. Production systems might need to run 24/7, but perhaps can be scaled down during low-load periods (overnight) by a small percentage. Over months and years, these optimizations have significantly reduced usage costs.
- Shut Down Unused Services: Similar to above, but broader – if you spin up an Oracle middleware or analytics service for a project, shut it off (and delete it if not needed) as soon as the project is done. Cloud@Customer charges by the second for many services, so even a week of idle time is a waste of money. Implement governance so that all resources running in Cloud@Customer have an assigned owner and a defined expiration or review date.
- Maximize Utilization of the Base Infrastructure: You’re paying a fixed monthly infrastructure fee whether you use 10% or 100% of the capacity. To get the best value, aim to keep the environment utilized. This might mean consolidating additional workloads onto Cloud@Customer. For instance, if you initially moved databases, consider also moving some application servers or other Oracle software onto the platform to consume the spare compute capacity, especially with Compute Cloud@Customer, which is quite flexible. Idle capacity is lost money. One metric to watch is the cost per OCPU: As you deploy more workloads up to the system’s limits, your effective cost per OCPU or transaction decreases. Conversely, if you only use a tiny fraction of a large system, each unit of work is extremely expensive.
- Optimize Storage and Backup Costs: Cloud@Customer storage is typically charged per TB per month (similar to OCI pricing). Keep an eye on database sizes, old backups, and logs. Use Oracle’s compression features to reduce storage footprint (Advanced Compression can cut database size significantly, although note if it’s an extra-cost feature, ensure you’re licensed or use the Basic compression that’s free). Archive or delete data you don’t need. If you have a lot of infrequently accessed data, consider offloading it to a cheaper storage tier if available (Oracle Cloud@Customer might allow object storage on-prem or easy transfer to Oracle Cloud Infrastructure object storage). Align retention policies with cost in mind.
- Monitor and Right-Size VMs: In Compute Cloud@Customer, you create VMs for various apps. Regularly review VM utilization – if some are oversized (i.e., have low CPU or memory usage relative to their allocation), resize them to a smaller size to free up capacity for others. This way, you can potentially avoid provisioning new hardware for new workloads because you have made existing ones more efficient. Oracle’s cloud monitoring can help identify underutilized instances.
- Leverage Committed Use Discounts: If you initially started with a low commitment and your usage has grown, consider negotiating a higher commitment in exchange for larger discounts. Oracle allows adjusting contracts – if you know you will consistently use a higher amount of resources, locking in a bigger annual commit could yield 5-15% additional discount on those resources. Just be sure the increased commitment will truly be used; otherwise, it will backfire into wasted spending.
These operational practices ensure that, once you have Cloud@Customer in place, you maximize the value of every dollar (or krona, euro, etc.) spent on the subscription.
Reducing Oracle Support Costs through Cloud@Customer
One of the compelling financial angles of Cloud@Customer is the opportunity to reduce or eliminate certain Oracle support fees:
- Terminating On-Prem Support: If you migrate an Oracle database to Cloud@Customer and use the license-included model, you can terminate the support contract for that database’s on-prem license (assuming you no longer use it on-prem). That support money can be reallocated to the Cloud@Customer subscription. You haven’t exactly eliminated the cost, but you’ve traded it for a more flexible service. The advantage is that you can potentially reduce the scope of support you pay for if you retire enough on-prem licenses. For example, an organization with dozens of databases that require high support might consolidate them into a few Exadata Cloud@Customer systems. They could then terminate support on many of those database licenses, retaining only a handful for BYOL needs and converting the others to cloud subscriptions. The net support savings can be substantial in the IT budget.
- Support Indexing and ULA Expiry: Oracle has a practice of “indexing” support costs upwards annually (usually ~4% increase each year). Over 5 years, support bills can increase by roughly 20% without any new purchases. Moving to Cloud@Customer can help avoid some of that increase – Oracle cloud contracts often lock pricing for the term. So, while you pay subscription fees, you might avoid the automatic support inflation on the licenses you dropped. Additionally, if you are coming off an Unlimited License Agreement (ULA), sometimes support costs spike after certification (because you lock in a high number of licenses). Transitioning those deployments to Cloud@Customer license-included can help circumvent the need to pay support for the high number of certified licenses.
- Third-Party Support vs. Cloud: Some companies consider third-party support (TPS) as a cost-effective alternative to Oracle support. However, Oracle does not allow using TPS for licenses that you bring to Oracle Cloud services – you must have Oracle support active. Therefore, if you were planning to cut support via TPS, that path is not compatible with Cloud@Customer BYOL. Instead, moving to Cloud@Customer with license-included could be seen as Oracle’s “approved” way to drop Oracle support (since you’re now paying Oracle differently). It’s a strategic consideration: rather than paying a third party for limited support on static systems, you pay Oracle for a cloud service that includes full support and updates. It might cost more than TPS, but you get an updated platform and cloud benefits along with it.
In summary, Cloud@Customer can be a catalyst for rebalancing or reducing your Oracle support spend. The savings might not be linear (you may end up paying Oracle in subscriptions what you saved in support).
Still, you are getting more value for your money – modern infrastructure, cloud flexibility, and potentially lower overall costs over time.
Recommendations
- Perform a TCO Analysis: Before and after deployment, calculate the total cost of ownership. Include all factors (facility costs, admin effort, etc.) to truly measure Cloud@Customer’s value against your previous environment.
- Target High Support Cost Systems: Identify systems where Oracle support fees are highest (often older database deployments with many options). Prioritize moving those to Cloud@Customer to eliminate hefty support bills – either by BYOL (if you keep support) or license-included (and drop support completely for that product).
- Optimize Capacity Commitment: Avoid over-provisioning. Start with a smaller configuration and ramp up only when needed. Every unused OCPU or TB of storage in your contract represents wasted money. Negotiate the ability to expand later rather than lock in excess capacity now.
- Use BYOL When Economical: If you have underutilized licenses that you’re paying support on, use them in Cloud@Customer to get more bang for your buck. Conversely, if you have licenses you aren’t using at all and don’t plan to, consider ending support on them (at contract renewal time) to cut costs – but only if you won’t need them for BYOL.
- Leverage Oracle Programs: Discuss programs like Support Rewards or Oracle Universal Credits promotions with Oracle. Oracle has offered credits for cloud usage based on on-prem support spend (e.g., Oracle Support Rewards give cloud credits equal to a percentage of your support spend when using Oracle Cloud). Ensure you claim any such benefits to effectively lower net costs.
- Monitor Billing Reports: Treat the Cloud@Customer bill like a utility bill. Have someone responsible for reviewing it on a monthly basis. Look for anomalies or upward trends in usage that could drive cost beyond projections. Early detection of a cost spike (maybe a team accidentally left a test system running at full capacity) allows quick correction.
- Continuous Workload Right-sizing: Establish a quarterly practice to review workload sizing on Cloud@Customer. Shut down obsolete workloads, downsize those running under capacity, and consolidate where feasible. This proactive management keeps the environment lean in terms of cost.
- Renewal Planning: As your contract term nears its end (or even in the middle of the term), plan for renewal negotiations early. Use the data collected on usage and costs to negotiate a renewal that reflects reality (maybe you need less, or maybe you deserve a bigger discount because you grew usage). Don’t let the contract auto-renew at potentially higher rates without renegotiation.
- Compare Against Public Cloud Periodically: Even if Cloud@Customer is chosen for strategic reasons, periodically compare its cost and performance with those of public cloud or other solutions. This ensures it remains the optimal solution. If public cloud prices drop significantly or Oracle’s competitors offer better deals, you might use that info at renewal time to get Oracle to adjust pricing.
- Invest in Cloud Financial Management (FinOps): Just as companies apply FinOps principles to public cloud, apply those same principles to Cloud@Customer. Track usage, attribute costs to business units, and create accountability for optimizing those costs. An internal chargeback or showback model can incentivize application owners to use only what they need, further reducing waste.
- Use All the Features You’re Paying For: Ensure you utilize the included features of Cloud@Customer that can save you money elsewhere. For example, if Cloud@Customer provides built-in monitoring, management tools, or security features, use them instead of paying for third-party tools. You’re already paying Oracle, so maximize the value by using the platform fully.
FAQ
Q1: Will Oracle Cloud at Customer save us money immediately, or is it more of a long-term play?
A1: It depends on your starting point. Some organizations experience immediate savings, especially if they were about to make a big capital investment (buying new hardware, renewing costly support). By shifting to Cloud@Customer, they avoid that capital expenditure and may also reduce some support costs. Others might initially pay a bit more in the first year or two (due to the overlap of old and new costs during transition), but see savings over the 4-5 year term through consolidation and stable pricing. The value is often more than pure dollars – you’re also getting an upgraded environment, which might improve performance and productivity. So, it’s often justified as a long-term strategic investment with a positive ROI when viewed over several years, even if it doesn’t yield a quick cost cut in month one.
Q2: How can we ensure we’re not paying for Cloud@Customer resources that we don’t use?
A2: The key is vigilant capacity management. When negotiating, don’t let Oracle set your configuration at a size much larger than necessary. Within the environment, use the elasticity principle: if something is not in use, turn it off. The platform allows granular control – for example, if you have an unused database, you can deallocate its OCPUs and stop incurring charges for those. Also, structure your contract to avoid large upfront prepayments for usage you might not consume. If you must commit to a specific level, try to commit to a level you’re already certain to use (based on current workloads), and reserve additional expected growth as on-demand (or in a smaller commit step later).
Q3: What about hidden costs like electricity or data center space for Cloud@Customer hardware?
A3: Remember, Cloud@Customer gear sits in your data center, so you do bear facility costs (power, cooling, physical security). These aren’t part of Oracle’s bill, but they are part of the overall cost. In many cases, when retiring a large number of existing equipment by moving to Cloud@Customer, you may reduce power and space usage – one Exadata rack can replace several older racks of servers and storage. It’s good practice to estimate these costs: how many kilowatts will the Cloud@Customer rack draw, and what’s that electricity cost in your location? Usually, this is relatively minor in the IT budget, but it’s not zero. The hardware Oracle provides is modern and often more power-efficient per workload than older gear, which can mitigate some facility cost concerns.
Q4: Can we adjust our Cloud@Customer subscription if our business needs change (either increase or decrease)?
A4: Increasing is generally easier than decreasing. If you need more capacity, Oracle will be happy to add more (usually at pre-negotiated rates, provided you have planned for this). If you need to decrease due to downsizing or efficiency gains, it’s trickier – you’re under contract for a specific term. However, you could negotiate an amendment or restructuring. Oracle might allow a trade-off, such as extending the term in exchange for reducing the monthly spend, or reallocating some of the investment to other Oracle Cloud services. These negotiations would depend on your relationship and the reasons. It’s not guaranteed, so ideally structure the original deal with flexibility (for example, a smaller base system with options to upgrade, rather than a huge fixed system that might become too large if you optimize). When renewal comes, that’s the time you can right-size for the next term based on actual usage data.
Q5: Are there any financing or payment options available to help offset the cost?
A5: Yes, Oracle and its partners can offer various financing structures. For example, you might negotiate annual payments instead of quarterly or upfront, to align with your budgeting. Oracle occasionally offers promotions, such as deferred payment for a few months or cloud credits, which effectively provide free usage initially. If capital expense is an issue, Oracle Cloud@Customer is already an OpEx model, which many CFOs prefer. In some cases, Oracle has even allowed ramp-up structures (paying less in year 1 and more in later years as usage grows) – although that might require strong justification. Always ask about the commercial programs available; Oracle’s cloud sales team often has the flexibility to structure deals creatively to make the economics work for customers.
Q6: How do support rewards or similar programs apply to Cloud@Customer?
A6: Oracle’s “Support Rewards” program (as of recent years) gives credits for Oracle Cloud when you have existing Oracle support spend. Specifically, for every $1 of support on eligible on-prem licenses, you earn $0.25 (25¢) in cloud credits (or $0.33 if you’re a MyOracleSupport Premier customer) when using Oracle Cloud Infrastructure. Cloud@Customer is part of Oracle Cloud, so it should qualify. That means if you are paying, say, $1 million per year in Oracle support and you start using Cloud@Customer, you could earn $ 250,000 in cloud credits to offset your Cloud@Customer bill. This is a significant cost reduction lever! Ensure you enroll or discuss applying Support Rewards with Oracle. It effectively turns your existing support dollars into a discount on the new service. The caveat is that you only receive the credits as long as you maintain support on those licenses and consume the cloud services – it’s an incentive to encourage cloud adoption, which you are doing. Leverage it fully.
Q7: Can moving to Cloud@Customer help us avoid future hardware upgrade costs?
A7: Absolutely. One of the key benefits of Cloud@Customer is that Oracle manages the hardware lifecycle. For instance, if you start on Exadata X8M and during your term, Oracle releases X10M, they may, in some cases, upgrade customers or ensure you receive equivalent performance improvements. At minimum, when your term is up, you can negotiate renewal with the latest hardware rather than having to buy it yourself. You won’t be stuck with aging equipment; Oracle will either update components (especially in dedicated region scenarios) or replace the machine at the next contract. So you avoid the classic cycle of a big capital purchase every few years. Those costs (and the risk of outdated equipment) are transferred to Oracle. You might include language in the contract about technology refresh—Oracle might not automatically upgrade you mid-term. Still, you could negotiate an upgrade at a certain point or a guarantee of a certain performance level that indirectly forces an upgrade if new tech is needed to meet it.
Q8: What’s the typical break-even point for Cloud@Customer investments?
A8: It varies, but CIOs often look at a 3-5 year window. For example, if moving to Cloud@Customer costs $X over four years, compare that to the sum of continuing on-premises costs (including an assumed hardware refresh) over the same four years. Many find that by year 3 or 4, the Cloud@Customer model is cheaper or roughly equal, with the added benefit that you don’t have to spend capital upfront and gain better capabilities throughout. If Cloud@Customer is more expensive on paper, even in that 5-year TCO, you then have to justify it with intangible benefits (regulatory compliance, performance gains, etc.). A good rule of thumb: if your current environment is due for a refresh or you’re paying a lot in support and facilities, Cloud@Customer often shows immediate or near-term financial benefits. If you have recently invested in hardware and your support costs are relatively low, you might not see pure cost savings until a few years in – yet some still make the move for strategic reasons.
Q9: How can we maximize value from Oracle in the Cloud@Customer deal beyond just the infrastructure?
A9: Consider everything Oracle can bundle. For instance, you might negotiate some included training credits for your staff to learn OCI (useful for operating Cloud@Customer). Oracle could also bundle cloud advisory services or include additional cloud credits for use in Oracle’s public cloud (for things you don’t need on-prem). Sometimes, Oracle can provide universal credits that can be used on either Cloud@Customer or OCI, offering you more flexibility. Additionally, push for software features: if you’re paying for Exadata Cloud@Customer, ensure you’re enabled to use all the database options you need – perhaps Oracle can include certain options at no extra license cost if they’re included in the license. The idea is to get not just the bare minimum, but any extras that increase the solution’s value without increasing your cost.
Q10: If we’ve optimized everything on Cloud@Customer and still find the cost too high, what are our options?
A10: First, identify why it feels too high. Is usage much lower than anticipated (leading to wasted capacity)? If so, engage Oracle – they might allow downsizing the environment or applying the unused portion toward other Oracle services. If the issue is that workloads were more expensive than planned, consider architectural changes: for example, maybe not all applications need to run on Exadata – some could be rehosted on cheaper infrastructure (even potentially a different Cloud@Customer configuration or a different vendor for those). Also, ensure you’ve tapped all programs, such as Support Rewards. In a worst-case scenario, if Cloud@Customer isn’t delivering the expected value, you may decide not to renew at the end of the term and revert to an on-premises solution or another alternative. The contract commitment protects both sides for the term, but you’re not obligated beyond it. Use the experience to negotiate a better deal or architecture in the next round. However, most often, some tweaks and negotiations can be made during the term. Oracle wants to keep you as a customer, so communicate your concerns to them and see if they offer cost optimization assistance (they have cloud economists and architects who might help identify savings).
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