Oracle's new pricing targets Net users

Oracle currently charges its customers two ways: named users, where the databases are licensed to specific users' machines; and concurrent users, where the database can be accessed by a set number of users, no matter who they are.

The database giant plans to offer a third pricing option for customers, based on the size and power of server processors, an Oracle spokeswoman said.

Analysts say the current per-user license plan hasn't worked for Web sites because Oracle and Internet-based businesses do not know how many people will hit the database, though Web servers, at any given time.

The new pricing model--based on processor power, or Millions of Instructions Per Second (MIPS)--is a better way to gauge usage and will help Oracle make more money from Internet customers, analysts say.

An Oracle spokeswoman doesn't know if the new pricing option will mean companies will save money or have to pay more, but analysts believe Oracle will rake in more profits from the new model. "Every time you upgrade the machine with more power, Oracle can charge more for it," said analyst Mike Sun, of Giga Information Group.

The new strategy also goes hand-in-hand with Oracle's overall Internet push. The company has Web-enabled all its products, from the new 8i database to enterprise resource planning (ERP) applications.

"With the advent of the Web, there's really no way to count how many users will hit a database. It's difficult to track because you have peaks and valleys. Do you take an average number? The high or low value? Customers aren't going to stand for it," said Giga's Sun. "With the MIPS-based model, Oracle is saying the bigger your hardware, the more users you handle. Therefore, we'll charge you more."

Analyst Carl Olofson, of International Data Corporation, agrees. "There's an underlying assumption the reason you need more MIPS is the need for more scalability. That the database is working harder for you," he said. "If you're getting more value from the database, you should pay more for it."

Olofson believes the current per-user licensing fees may be scaring away potential customers because of the wild fluctuations of visitors to Web sites. "People who would be inclined to use Oracle for their Internet database could be discouraged because it could be very expensive," he said.

But Sun believes Oracle has worked out flat-fee pricing deals for Internet-based companies. Oracle denied that's the case.

Oracle has worked on the new pricing plan for several months and it may take another several months before it's rolled out, the spokeswoman said.

Sun said it may be taking a while to figure out the plan because MIPS-based pricing is complicated. "You don't want to rip off your customers because they will revolt," he said. "If you're paying $10,000 per server and your Sun server now generates 1,000 MIPS, and the new pricing model charges you $20,000, you're going to say, 'wait a minute.'"

Analysts said they believe IBM is the only other database vendor who licenses its database using a per-MIPS policy.