What is an Oracle License Audit?
- A formal review by Oracle to verify software license compliance.
- Oracle checks if your usage aligns with licensing agreements.
- Common triggers: hardware refresh, mergers, or expired ULAs.
- Audits can result in license purchases and backdated support fees.
- 60% of Oracle’s revenue is generated from license audits.
What is an Oracle License Audit?
An Oracle license audit is a formal process where Oracle verifies that your organization is using its software in compliance with the terms of your licensing agreements.
These audits serve a dual purpose for Oracle: they ensure compliance and are also a critical revenue stream.
60% of Oracle’s revenue is estimated to come from license audits. The primary focus of an Oracle audit is to uncover unlicensed usage, which often leads to additional license purchases and backdated support fees.
Why Oracle Audits Happen
Oracle audits don’t occur randomly. Several triggers can lead Oracle to initiate an audit. Some of the most common triggers include:
- Hardware refreshes: When you make significant changes to your hardware infrastructure, such as upgrading or adding servers, Oracle may audit your environment to ensure proper licensing of its software on the new hardware.
- Expired ULAs (Unlimited License Agreements): If your ULA is ending and Oracle suspects you may have over-deployed its products, you will likely face an audit.
- Mergers or acquisitions: Corporate changes like mergers or acquisitions often lead to audits, as Oracle seeks to ensure compliance across the new, combined entity.
- Sudden changes in Oracle spending: A dramatic reduction or increased spending on Oracle licenses or services can flag you for an audit. Oracle may suspect you’re either under-licensing or over-licensing and want to validate usage.
- Refusing Oracle Cloud services: Oracle is heavily pushing its cloud services, and refusing them might prompt an audit to ensure you’re not under-licensing Oracle software on your existing infrastructure.
The Role of Oracle LMS (GLAS)
Oracle’s audit process is managed by Oracle License Management Services (LMS), now rebranded as Global License Advisory Services (GLAS). The rebranding likely came as an attempt to soften the aggressive image Oracle LMS had developed over the years.
Oracle LMS (or GLAS) handles the audit from start to finish, from sending the audit notification to conducting the actual review.
While they often involve local teams to handle customer-facing activities like meetings and coordination, Oracle’s centralized team in Romania does most of the technical analysis.
LMS uses the Oracle LMSCollection Tool to gather data about your Oracle software deployments. This set of scripts helps Oracle identify your current and past usage of Oracle products.
Oracle’s Audit Methodology
Once an audit is initiated, Oracle will collect data on your software usage. This is done through their LMSCollection Tool, which requires running Oracle-provided scripts on your systems.
It is important to understand that Oracle will not come into your data center; they rely on you to execute the scripts and provide the results.
The LMS scripts cover various Oracle products, including:
- Oracle Databases
- Oracle Middleware
- Oracle E-Business Suite (EBS)
- Oracle Siebel
- Oracle JD Edwards
- Oracle Primavera
The results from these scripts are then sent to Oracle for analysis. Oracle is particularly interested in identifying unlicensed features or options you may use without realizing they require additional licensing.
One of the biggest risks here is accidental usage—for example, if someone in your organization has activated a database feature that wasn’t licensed, you’re still liable for it, even if the use was unintentional.
Common Audit Findings
Most Oracle license compliance issues stem from accidental or mistaken use rather than intentional non-compliance.
Some of the most common findings during Oracle audits include:
- Over-deployment of Oracle Databases: Organizations often deploy more instances of Oracle databases than they have licenses for. Poor tracking of these deployments is a major reason for non-compliance.
- Misuse of database options and management packs: Oracle databases come with various add-ons and management packs that require separate licenses. Many companies unknowingly use these features without proper licensing.
- Virtualization licensing issues: Oracle’s policies around virtualization, especially on platforms like VMware, are extremely strict. Oracle does not recognize sub-capacity licensing on VMware and requires you to license every physical server in a VMware cluster, even if Oracle software is only running on one of them.
- Incorrect user counts for Named User Plus (NUP) licenses: NUP licenses require a license for each user or device accessing the Oracle software. Many companies fail to track indirect access, leading to under-licensing.
- Unlicensed features in Oracle applications: Many organizations fail to end-date users who have left the company with Oracle applications like EBS or Siebel or grant access to applications they’re not licensed for.
Financial Implications of an Oracle Audit
The financial consequences of an Oracle audit can be staggering. Let’s take a typical example:
Example: Missing License for One Server
- Server configuration: One server with 32 cores equals 16 Oracle processors (due to Oracle’s core factor).
- License cost: Oracle Database Enterprise Edition costs $47,500 per processor.
Now, if a company has 20 servers with this configuration and is missing licenses for 1 server, the cost would be:
- 16 processors x $47,500 per processor = $760,000 in license costs.
- Backdated support fees (typically 22% of the license cost) for one year = $167,200.
In this case, the total cost for just one unlicensed server would be $927,200.
And this is just for one server. The numbers can quickly multiply, especially in larger environments where licensing issues might involve several servers or entire clusters.
The Role of Oracle Resellers in Audits
In some cases, Oracle uses resellers to conduct audits through a Joint Partner Engagement (JPE) program. These resellers act as auditors but do not pay Oracle through service fees. Instead, their compensation comes from reselling licenses to cover any shortfall they identified during the audit.
This arrangement creates an inherent conflict of interest. Resellers are incentivized to find licensing gaps to drive sales.
Because Oracle licensing rules can be interpreted differently, resellers may apply more aggressive interpretations that inflate the compliance gap.
Navigating Oracle Licensing Rules
One key challenge in an Oracle audit is interpreting Oracle’s licensing rules. These rules are not always straightforward, and there is often room for interpretation.
- Soft partitioning vs. hard partitioning: In virtualized environments, Oracle differentiates between soft partitioning (e.g., VMware) and hard partitioning. Soft partitioning requires licensing the entire server or cluster, while hard partitioning allows for sub-capacity licensing. Understanding and configuring your virtualized environments according to Oracle’s partitioning policy is critical to avoiding massive compliance gaps.
- Named User Plus (NUP): It’s important to accurately count users for NUP licenses, especially regarding indirect access or third-party applications that touch the Oracle environment.
- Database options and packs: Many organizations accidentally enable Oracle’s database options or packs, such as Oracle Diagnostics Pack or Oracle Tuning Pack, without realizing they require separate licenses.
Audit Negotiation Tactics
Once the audit is complete, the real battle begins: negotiating the findings. Oracle’s audit report will almost always assume worst-case licensing scenarios.
However, if you have an expert, you can argue for best-case interpretations of the licensing rules, significantly reducing the cost.
Some key negotiation tactics include:
- Challenge the findings: Make sure the audit report is accurate. If you find errors, use them to question other findings and leverage a higher discount.
- Know Oracle’s licensing rules: Understanding Oracle’s licensing policies is essential. Many compliance issues can be interpreted in your favor if you know the rules deeply.
- Benchmark the settlement: It’s important to understand what other companies pay for similar audit findings. This helps ensure you’re not overpaying.
- Leverage Oracle’s fiscal deadlines: Oracle is known to be more flexible with discounts as quarter-end or year-end approaches. Timing your negotiations around these deadlines can yield better results.
Preparing for an Oracle Audit
The best defense against an Oracle audit is preparation. This includes conducting internal audits before Oracle sends the audit notification.
Run the Oracle LMS scripts and have an independent licensing expert analyze the findings. This will allow you to identify and remediate any compliance gaps before Oracle can officially audit you.
Cleaning up your environment—removing unused database options, reassigning users, and optimizing deployments—is critical to minimizing risk.
FAQ on Oracle License Audits
What is an Oracle License Audit?
An Oracle license audit is a formal process where Oracle checks whether a company is using its software according to its licensing agreements. It’s designed to ensure compliance and can lead to additional costs if non-compliance is found.
Why does Oracle conduct license audits?
Oracle conducts audits to verify that customers are using their products within the limits of their license agreements. Audits also help Oracle generate revenue from unlicensed use or under-licensed deployments.
How often does Oracle audit its customers?
Oracle typically audits customers every 3-4 years. However, this frequency can vary based on various triggers, such as hardware changes, mergers, or expired ULAs.
What triggers an Oracle license audit?
Common triggers include hardware upgrades, expired Unlimited License Agreements (ULAs), mergers or acquisitions, and a sudden drop in spending on Oracle products.
What is Oracle LMS, and what role does it play in an audit?
Oracle License Management Services (LMS), now called Global License Advisory Services (GLAS), is responsible for conducting audits. They analyze your usage and determine if you’re compliant.
What is the risk of non-compliance in an Oracle audit?
Non-compliance can lead to significant financial penalties. You may need to purchase additional licenses, pay backdated support fees, and face future audit risks.
Can I refuse an Oracle license audit?
You cannot refuse an Oracle license audit if it is part of your licensing agreement. Your contract will usually contain an audit clause requiring you to cooperate.
Should I negotiate with Oracle before an audit starts?
Yes, you can request more time to prepare for the audit or negotiate the scope of the audit. It is highly recommended that you engage an Oracle licensing expert before the audit.
How can I prepare for an Oracle audit?
Perform an internal audit, run Oracle LMS scripts, and review your licensing agreements. Engaging a licensing expert can help ensure you’re prepared and compliant before Oracle reviews your data.
What are the most common compliance issues found in Oracle audits?
Common issues include over-deployment of Oracle databases, incorrect licensing in virtualized environments, and misuse of database options or management packs that require additional licensing.
Can Oracle audit my virtualized environments?
Oracle has strict licensing rules for virtualized environments, especially on platforms like VMware. If you don’t follow their guidelines, you may need to license the entire server or cluster.
What happens if I am found non-compliant?
You may be required to purchase additional licenses and pay backdated support fees. Depending on the severity of the non-compliance, the financial impact could be substantial.
Can I negotiate the findings of an Oracle audit?
Yes, negotiation is crucial. Understanding Oracle licensing rules and challenging errors in the audit report can help reduce the penalties or required purchases. An expert’s assistance with negotiations is advised.
What is Oracle’s audit process?
Oracle will first request that you run their LMSCollection Tool on your systems to gather data. They analyze the results and issue a preliminary report. You’ll have the chance to review and respond before finalizing the audit.
How can I avoid future Oracle audits?
Maintaining compliance through regular internal audits, reviewing your contracts, and working with licensing experts can minimize the risk of future audits.
Read more about our Oracle Audit Defense Service.
