Known for its aggressive, high-pressure, Oracle decided last year to discontinue certain incentives, including steep end-of-quarter discounts and higher fourth-quarter commissions, that encouraged customers and salespeople to cram deal-making into the final days of the quarter.
"We think that's a healthy change," Ellison said during the company's fourth-quarter conference call Tuesday.
"What is high-pressure selling? It's nothing more than discounting a lot," said Ellison. "There's no need to engage in that. It's not good for the company, and it's not good for the customer. We no longer engage in that."
Those tactics failed this year when a $95 million deal with the state of California--signed late at night on the last day of the fiscal year--became the subject of a scathing state audit and investigative hearings led by state lawmakers.
California state officials havethat they rushed to sign the contract without a thorough evaluation because the terms of the deal--including steep discounts--expired on May 31, the final day of Oracle's 2001 fiscal year. The state and Oracle are now working to the deal.
Although Oracle had already decided to tone down such maneuvering when the California debacle became public, analysts say the company's decision may be a way to protect its reputation.
"Oracle was legendary for high-pressure sales tactics, and this is an effort to address that problem, lower discounts, and smooth out the (financial) results in a fashion consistent with underlying demand," said Charles Phillips, an analyst at Morgan Stanley.
But for Oracle, the change in sales practices is not without risks. Financial analysts hope the new practices will lead to a more steady, predictable business and cut down on revenue-draining discounts. But it may de-motivate the sales force and have short-term impacts on revenue.
Analyst are anxious about the effect the changes--particularly the "one-rate" commission plan--will have on Oracle's first quarter as it extends the new rules to the rest of its worldwide sales force. The rules applied only to salespeople in the United States during the 2002 fiscal year, which ended May 31.
"In the short term it removes a stimulus that was used to juice short-term revenue," said Phillips. "The danger is that it smoothes out the year too quickly and we get a disappointing forth quarter, or (maybe) Europe knew it was coming and pulled in business as much as possible, and we'll get a disappointing first quarter in Europe."
Europe was a stronghold for the company in its tough fourth quarter.
However, analysts agree Oracle is wise to make reforms to reverse problems like those encountered in the ill-fated contract with the state of California.
"(California) is a prime example of someone who didn't know all the intricacies of buying software from Oracle," said Patrick Walravens, an analyst at Jolson Merchant Partners. "There is a whole cottage industry of consultants that has popped up to teach people how to do it. It's a waste of everyone's time."
But now that customers expect discounts from Oracle, the company says it's going to take time turn the ship.
"We're really trying to change our behavior," said Ellison. "But it is really difficult because there are consultants out there that train people (about) how to buy from Oracle. That is old training. That doesn't work."
Ellison didn't spell out why Oracle made the change to the sales commissions, but the company has made changes before in response to problems. Even so, actual business practices have changed little in the past decade.
Ellison adopted a regretful posture in the late 1980s and early 1990s--the last time the company faced tough times. Many of the company's problems stemmed from sales representatives' attempts to lure big customers with extended payment terms, which ultimately turned into uncollectible debts.
In 1990, Oracle took a $12.4 million loss and laid off 400 employees, or 10 percent of the work force, largely because of its accounting errors. Oracle also had to restate earnings twice, and in 1992 it paid the last related accounting charge of $50 million.
At the time, Ellison fired Chief Financial Officer Jeffrey Walker, who bore the brunt of blame for the accounting errors. Ellison also admitted to journalists in 1992 that the company made "an incredible business mistake." Despite tightening accounting under the new CFO, Jeff Henley, Oracle did little to change its aggressive sales pushes.
But in the wake of the latest scandal with California, Ellison has shownof humility. In April, for instance, he was almost contrite in his appeals to customers at the annual AppsWorld conference in San Diego.
"We're trying to establish a relationship with our customers where we not only take the time to help you understand how to use our software, but how you're running your business," Ellison told a packed hall.