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Understanding Oracle Proprietary Application Hosting Rights and the PAHRF in 2015

It’s been over two years since Oracle eliminated “Generic Hosting Rights”, the ability for business to license Oracle database products as a way to provide third party software applications (i.e. Applications that are not proprietary to the hosting provider) as a service utilizing Oracle database or middleware back end. Customers can still license Oracle database to support heir own proprietary applications offered as a service, also known as Proprietary Application Hosting Rights, SaaS, and Cloud Applications. This requires the application provider to seek special language on their Oracle order document to allow for this and the completion of a Proprietary Application Hosting Rights Form (PAHRF). There are scores of customers that are offering SaaS with an Oracle database back end who never were aware they needed this right that are ripe for Oracle audits. These customers are likely candidates for audits from Oracle’s License Management Services (LMS) division.

I’ve worked with dozens of customers who provide SaaS or Cloud based solutions that utilize Oracle DB on the back end. In general, these customers are surprised that Oracle has a different policy for them than their other customers (i.e. internal use, outward facing website, ecommerce, etc), since the SaaS providers have done the right thing and licensed their production and DR databases with the Processor metric, which allows for unlimited users.

Oracle counters that their standard license agreement only allows for use of their SW for a customer’s internal business processes, and special language is required to process third parties’ data. This special licensing is subject to a different (lower)  discount schedule. Oracle’s justification for lower discounting for these scenarios is that for every customer who chooses to use the SaaS provider’s application, that’s one less customer that is going to build their own database infrastructure to run “Application X” internally and purchase Oracle Database licenses for that implementation. If the SaaS provider has 1,000 customers, that’s 1,000 less Oracle database transactions for Oracle. For anyone who has purchased Oracle database licensing, it’s easy to see how that can add up in the lost sales column for Oracle, especially as the ranks ISVs providing their product as a Cloud Service and startup SaaS providers grows.

As one of Oracle’s largest national resellers, Cintra has developed a specialization for helping SAAS and Cloud application service providers negotiate the best possible terms and pricing for the underlying Oracle Database and Middleware licensing that supports their proprietary applications. We’ve been providing expert Oracle license guidance to our clients since 1996, helping them navigate the tricky world of Oracle pricing and contract negotiation. For more information on Cintra’s licensing services for SaaS/Cloud and traditional deployment scenarios, please contact Seth Feeley sfeeley@cintra.com.

Here’s our original article from 2012, which followed the announcement of the end of Generic Hosting from Oracle.

In a move that underscores the growing threat of competitive Cloud based services to Oracle’s traditional perpetual license business model, Oracle announced in October that they are no longer providing Generic Hosting Rights for Oracle Database  and they are raising prices for database licensing for SaaS/Cloud Services providers. This move will effectively remove any potential competitors to Oracle’s own database or Platform as a service offerings (Generic Hosting), and increase the Oracle database license costs for SaaS/Cloud companies that provide their proprietary applications as a service (Proprietary Application Hosting Rights).

Oracle’s standard license agreement only allows customers to use their software for the customer’s internal business operations and  prohibits to use the software for a third party’s business operations. In order to gain this right, special hosting language must be added to the license agreement. Prior to the elimination of Generic Hosting Oracle had broken hosting into two categories: Proprietary Application Hosting Rights and Generic Hosting Rights.

Proprietary Application Hosting Rights

Proprietary Application Hosting Rights covers situations where the customer has developed their own proprietary application (for example, a vertical specific supply chain application) that is provided in a SaaS or Cloud model to multiple end users and uses Oracle database on the back end.

In this situation, Oracle reserves the right to provide hosting rights but limit the use of the database to that specific application or applications as defined in the non-standard contract. The customer must complete a document called the “Proprietary Application Hosting Registration Form” (PAHRF) that outlines the specifics of their service offering, target market, and specific application modules.  Upon approval, Oracle will add special language to the order document that provides Internet Hosting Rights. There is significant downward momentum on the discount levels Oracle is willing to provide for this type of licensing. The October announcement defined additional reductions in the discounts that Oracle will provide for this type of licensing, which is Oracle’s way of raising the price for this type of licensing. The message from Oracle is clear that customers who require Proprietary Application Hosting Rights are going to pay more for these rights, regardless of their established discount history.

Oracle’s justification for lower discounting for these scenarios is that for every customer who chooses to use the SaaS provider’s application, that’s one less customer that is going to build their own database infrastructure to run “Application X” internally and purchase Oracle Database licenses for that implementation. If the SaaS provider has 1,000 customers, that’s 1,000 less Oracle database transactions for Oracle. For anyone who has purchased Oracle database licensing, it’s easy to see how that can add up in the lost sales column for Oracle, especially as the ranks ISVs providing their product as a Cloud Service and startup SaaS providers grows.

Another area of significant concern for many of our customers is that the existing license contracts for many SaaS/Cloud providers do not include the special language and expose the customer to Oracle license compliance issues with their existing database licensing investments. Cintra has worked with several of our costomers to remedy this situation with existing license contracts to have Proprietary Application Hosting Rights added to existing license contracts. It’s always best to remedy these situations prior to an Oracle audit to maintain a positive negotiating position. We’ve helped several SaaS providers proactively amend their existing Oracle contracts to allow for Proprietary Application Hosting Rights and we know how to get the most favorable terms for our clients. The key to achieving the best possible pricing and terms is to have a solid strategy and the right information prior to contacting Oracle. This will result in less frustration and more importantly, a lower cost. Please check the additional articles on Proprietary Application Hosting Rights for Oracle Database on the Cintra BLOG.

Generic Hosting Rights
Oracle defined Generic Hosting as an additional license right grant that allowed the end user to use the Oracle database as part of a SaaS offering for third party software. An example would be Company A decides they are going to provide company B’s application as a service to their customers. Company A does not own the intellectual property rights to company B’s software, they are simply licensing their application to provide to their customers. If they are using Oracle database on the back end, this would be a Generic Hosting scenario. Oracle’s decision to no longer provide this type of licensing coincides with the announcement of Oracle’s new Cloud offerings, such as platform as a service.

As one of Oracle’s largest national resellers, Cintra has developed a specialization for helping SAAS and Cloud application service providers negotiate the best possible terms and pricing for the underlying Oracle Database and Middleware licensing that supports their proprietary applications. We’ve been providing expert Oracle license guidance to our clients since 1996, helping them navigate the tricky world of Oracle pricing and contract negotiation. For more information on Cintra’s licensing services for SaaS/Cloud and traditional deployment scenarios, please contact Seth Feeley sfeeley@cintra.com 212-481-6501.

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