Excellent story but it gets one thing fundamentally wrong - it wasn’t sales people manipulating things, it was oracle top management which desperately wanted to produce cloud revenues. Is this oracle already trying to shift blame?!
Check it out: businessinsider.com/insider-reveals-how-some-oracle-salespeople-were-really-selling-cloud-2018-8
Cart off the 3 stooges to jail and throw away the keys
whoever say top execs didn't know is mis-informed or lying.
OR, "whoever" ARE the top execs. It's all a blame game.
Deal approval workflow is the thrown of evidence needed in any lawsuit that looks to nail the 3 stooges, if it’s removed that’s pure destruction of evidence ordered by the 3 stooges - self-incriminating.
@UCQ8RF0-4igr : exactly.
whoever say top execs didn't know is mis-informed or lying.
whoever worked at one of these deals know that to get these kind of discounted support pricing you needed HQ approvals, i.e. MH and/or LE
everyone, and I mean EVERYONE from MH down to the regional VP was completely, totally, fully aware of what was going on.
I asked to be relocated in another org with lesser money for this exact reason. I didn't want to have anything to do with this. and I have done the right thing, even if maybe I lost some $$. at least I can see myself i the mirror in the morning without any disgust.
All of this discussion about executive management not being aware and riding in on a white horse to stop the rouge sales people from unethical behavior is complete B.S. anyone who has actually worked at Oracle knows that Executive Management has direct control over any deal that is not pure vanilla. This discussion is about to make my head explode. The compensation plan specifically supported this behavior the sleazy sales programs were not simply condoned, but they were trained on how to structure them. RG email is a joke. Purely an attempt to cover his own a--.
When I was at Oracle working for a POC in June 2017, at Verizon MH himself offered 50 cents on a dollar in support reduction to the SVP shutting down a data center to move to the cloud. The SVP at Verizon wanted a dollar for dollar reduction. MH said no and the deal vanished in a puff of hot gas.
A year later they signed a deal with Verizon. I don't know what the support reduction was but I do know it was at least .50 for every 1 dollar spent. And... that is what MH was prepared to offer... it was approved by executive management given to all sales people as a way to sell cloud back in 2016 - 2017.
A year ago, Oracle's massive salesforce received an email asking them to work with "integrity," setting out a long list of no-no's for salespeople.
An Oracle insider and a former Oracle vice president explained some of the tricky things salespeople were doing to sell more cloud and make big commissions.
It's hard to say what impact these deals had, if any, on Oracle's fast-growing cloud business, but the company did change its financial reporting in June to no longer break out cloud revenues.
The whole situation gives us a detailed, inside look at the enterprise software sausage factory.
In August, 2017, Oracle's massive salesforce received an email from Rich Geraffo, Oracle's executive vice president responsible for North American sales.
In it, he told the 35,000-strong sales team to essentially quit gaming the system in the way they were landing cloud sales, according to the email viewed by Business Insider.
He discussed "winning with integrity," and set out a long list of no-no's for salespeople. The items included things like only selling products and services that customers will really use, putting all terms in writing, and justifying discounts offered to customers.
Some 10 months later, in June, Oracle surprised the financial world by changing the way it reported cloud revenue, blending it into its traditional software sales, which essentially hid cloud revenue from view. Oracle didn't wait until the fiscal year ended. It made the change to the fourth quarter results, which ended in May. That meant it did not report the full year's final cloud performance, even though cloud has become critical to the company's future.
When concerned Wall Street analysts asked if this change was an attempt to hide problems in Oracle's cloud business, Mark Hurd, one of Oracle's CEOs, called the change a "nothing burger," and attributed the change to adopting new accounting standards.
However, an Oracle salesperson who's been with the company for several years told Business Insider that the change could reflect something else: that not all of the cloud revenue was from customers who were really using Oracle's cloud.
It's not clear that there's a connection between the email from Geraffo asking salespeople to only sell products and services that customers will really use and Oracle's decision to stop reporting cloud revenue separately.
But the change in reporting does give us a reason to explore the tricks of the trade that may have helped Oracle jump start its most important new business.
'Cancel and replace'
One of the ways Oracle's sales people beefed up cloud sales — and their own commissions, which were heavily tied to how much cloud they sold — was a tried-and-true method, according to the salesperson. It involved including cloud credits on a customer's contract even if the customer didn't want the cloud product, this person said.
The customer would get discounts on the products they did want for agreeing to buy the cloud products they didn't and save money overall.
That's a common practice. By bundling in products and making them essentially free to the customer, they get to try them with little risk and will maybe sign on later for real. And Oracle isn't the only enterprise company to do this for a cloud business.
"Thousands of deals happens every week, where customers buy more than they need," the salesperson said.
But there was a second, more questionable tactic being done three and four years ago, according to the people familiar with it, which could have impacted Oracle's business in its fiscal 2018, which ended in May.
It's known as "cancel and replace," according to Craig Guarente, CEO of Palisade Compliance. Guarente is a former Oracle vice president who now works on the other side of the table, helping Oracle's customers negotiate contracts with the software giant.
"Cancel and replace" is essentially a grand bargain with customers that lets them out of paying a lot of money for a support contract on those unwanted products, if they agree to spend that money instead on Oracle's cloud even if they don't want and won't use the cloud, Guarente and the salesperson said.
Unwanted bills, unwanted products
To understand "cancel and replace," it's important to understand how Oracle makes its money.
The company makes three times more money on support contracts and on renewing licensing with existing customers than it makes on selling new products to customers.
And Oracle has become a master of locking customers into paying more and more for their support and renewals over time through tough contractual terms, Guarente said. Anything that lets them out of those contractual terms would make customers happy, but wouldn't be as good for Oracle's bottom line.
For instance, companies that want to use Oracle's database or its popular HR or financial software will get discounts on those products if they also agree to add products they don't want to their contracts, products Oracle wants them to try, and to pay for support for all the products on the contract. Support helps companies properly install and troubleshoot their software.
These are typically three-year contracts and, with discounts, it can cost them less overall to take all those products than to simply pay for the ones they want.
The second year, when the customers receive a hefty bill for support, they may tell Oracle they don't want to pay for support on products they don't use.
Oracle might tell them that if they cancel those products, their discounts are voided and the cost for just the products they want will cost them far more than to continue paying support.
The tactic of "cancel and replace" allowed customers to cancel their long-term, expensive support contracts and replace them with ones that had them paying for "cloud credits," aka hours of usage of Oracle's cloud, even if they never planned to use the cloud.
But it's what happened after those revised contracts expired that caused the salesperson we talked to concern.
What the salespeople were doing
Both the internal salesperson and Guarente described what the salespeople were doing.
Three and four years ago, some Oracle salespeople used the situation of customers wanting to get out of their support contracts to sell customers cloud credits, the salesperson said.
At first salespeople were offering a dollar-for-dollar trade, too, Guarente said. So if a customer was paying, say, $2 million annually in support, the salesperson would allow them to convert that to $2 million in cloud credits, even if they didn't want to use the cloud. And when the three-year contract was up, they could stop paying.
Then the salespeople upped the terms. They started requiring customers to agree to $2 of cloud credits for every $1 of support revenue they cancelled and replaced, Guarente said. At the end of three years, customers could stop paying, so it was still a good deal in the long term for customers.
The problem with these deals is that this cloud revenue could go away when the contract expired, if the customers didn't really want Oracle's cloud.
Sketchy business
Internally, these were considered sketchy deals, but tempting ones, the salesperson said. "I personally know people who made $500,000 to $1 million in commissions doing this," the salesperson said.
But, on a corporate level Oracle "hates" cancel-and-replace deals, for obvious reasons, Guarente said.
The top execs didn't know about, and weren't condoning these cancel-and-replace deals, the salesperson said. Some sales managers frowned on the practice. But others pressured their salespeople to risk their jobs and do such deals to make their quotas, the salesperson said.
And if a salesperson didn't go along with the team's plan for making numbers, "they'll make your life hell," said the salesperson. For instance, the manager could do everything from rejigger a territory to subject the person to a lot of nitpicking when trying to get deals approved, this person said.
While plenty of Oracle customers have legitimately signed up for Oracle's cloud and use it, ultimately, many of these deals for unwanted cloud credits didn't entice the customers to use the cloud, both the salesperson and Guarente said. They merely allowed them to stop paying big support bills when their three-year contracts expired.
Oracle saw the light sometime last year on this practice and stopped letting those types of deals get through, both the salesperson and Guarente said. And Geraffo's email drove the point home, the salesperson said.
While some customers have since successfully negotiated an exchange of support payments for cloud credits, Guarente said, they can no longer stop paying at the end of the contract. If they don't use the cloud and want to cancel it, they'll be billed for support instead, he said.
Oracle says the practice is forbidden. "Oracle has a policy not to reduce support payments in exchange for cloud credits," a spokesperson told us.
It's unclear what impact these deals had on Oracle's financial results, if any. But a good many of those three-year contracts were coming up for renewal over the past several months, the salesperson said, meaning those customers could simply stop paying for cloud if they weren't using it.
When asked about these sales tactics, an Oracle spokesperson told us, "Our pricing is aligned with how our customers want to buy and consume cloud offerings."
The spokesperson added. "We allow our customers to bring their existing on-premise database licenses to the cloud so long as they continue to pay support for those licenses. We call this policy 'Bring Your Own Licenses' or BYOL. When the customer chooses BYOL, they pay an incremental monthly fee for the cloud infrastructure they use to run the database. We believe virtually all of our database customers will use BYOL to migrate their database workload to the cloud."
Oracle is not the only enterprise software company to grapple with salespeople using loopholes to make their cloud numbers. Several years ago Microsoft faced similar issues, Business Insider reported at the time.
Are you an insider at an enterprise tech company with insight to share? We want to hear it! jbort@businessinsider.com or @Julie188.
SEE ALSO: Oracle is trying an 'unusual' tactic to calm investors, according to an executive compensation expert
The primary purpose for most all Oracle training (ethics, harassment, security, etc) is entirely CYA. What's needed is some strong evidence that the executive team gave explicit direction to encourage audits and push cloud credits as a solution to audit issues.
These courses are fooling nobody. If one employees does something unethical, it’s on the employees; with tons of cloud washing deals it’s on the 3 stooges - they rigged and failed to supervise the system. Slam dunk!
Those online employee conduct classes that we had to take at O. were purely for CYA reasons in case an employee did something wrong individually (criminally or ethically ) and got dragged into court. Then Oracle could whip out the employee's course completion certificate, throw up their hands, and tell the judge "See, we did our part in training this rogue employee". Not sure this would work for highly questionable auditing/sales techniques being pushed across the whole force.
Time for a classic roll up investigation by the SEC/ private investors - sales people to implicate Regional Managers, to implicate VPs/SVPs to implicate EVPs like RG to implicate the 3 stooges. Easy as 123
Someone in my LinkedIn network posted the article. When I was at O, we had to complete the mandatory ethics training every year or at least 18 months. I guess that stuff was all bull dung, at least for the sales mgmt people. I am simply aghast about how little integrity there in left in big tech companies. From IBM now connoting being cast aside at age 50 to Oracle becoming the poster child for rank financial manipulation, and don’t even get me started on the mega social media companies. WTF??!
the "cloud" strategy has been planned long time ago. everyone in US, and also someone in EMEA/APAC, know the story.
formally and in the clear ask the salesforce to behave ethically.
practically and in the dark force the salesforce to sell unwanted, unneeded and unusable cloud credits to every customer.
they knew a legal action from investors was unavoidable, and they have prepared everything to have the salesforce be held responsible for all the unethical behaviour.
the 4 elders are just trying to survive no matter what, and even this gambling is acceptable for them if it can gain another year of stock vesting
Step 1 - Incent the sales team by having a 10X multiplier for selling Cloud credits
Step 2 - Reinforce the behavior by mandating that every deal must have Cloud credits attached
Step 3 - Tell Wall Street about all the "Cloud" revenue coming in
Step 4 - Worry that Wall Street will begin asking about actual consumption of Cloud credits
Step 5 - Stop reporting separate Cloud numbers
Step 6 - Issue email about the sales team "gaming the system"
Step 7 - Hope that the blameshifting works and that you don't get fired or prosecuted for fraud
Paywalled
Steve Jobs may have been a power freak, but he understood the importance of keeping customers satisfied. I'll bet most of Oracle's customers feel locked in and would like to bail at the first real opportunity. IMO that's as critical to Oracle's future success as the failing cloud story. Oracle has lost the cloud battle but it's database products continue face more competitive options everyday. Companies like AMZN will be more than happy to help companies eliminate their needs for Oracle database licenses.
News about Miami-Vice style license audits by Oracle and funny-money cloud credits have been trickling out for years, looks like it is mainstream now. But it's funny, nobody minded LE's strongarm tactics when things were going well. Instead it was "Larry will be Larry", "that's the way you get things done" in the harsh Silicon Valley culture", "Steve Jobs was a power freak too", "you can't argue with a billionaire", blah, blah. Should be an interesting Q1.
Clearly the 3 stooges are looking to blame others, just like a certain resident of a White House somewhere in the east coast, they have no intention of taking any responsibility of the fraud they have orchestrated at oracle. Shame!
Exactly!
The salespeople didn’t do this. This was the DIRECTIVE by the cSuite and GMs . The rank & file just follow orders.
Oracle Culture is like the Roman Army. You do as you’re told & you don’t break ranks.
That’s ALL you ever need to KNOW to understand who’s in charge at oracle .