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Pumping it dry: $200 a barrel and $25,000 per CPU

When Oracle acquired BEA systems, I and others noted the significance of the loss of the only independent Java middleware vendor. With Oracle's recent announcement of a price hike for their products, including WebLogic Server, this is no longer a theoretical issue. They have the oil, and they think they have existing customers over a barrel. The need for alternatives is now even more painfully clear.

In fairness, Oracle's move is partly driven by the weakness of the US dollar, but the increases in WebLogic pricing are far greater than those affecting other products.

Some applications previously priced at $3,995 are now listed at $4,595 – up 13.1 percent – while database software prices increased 18.75 percent from $40,000 to $47,500 per CPU. Other prices increased approximately 15 percent, according to Wang’s report. The price for BEA’s WebLogic application server is now $25,000 per CPU, up 47.1 percent from its $17,000-per-CPU price prior to Oracle’s $6.7 billion acquisition of the middleware software vendor in April.

This decision probably indicates two things: that Oracle justified the high cost of acquiring BEA (actually, over $8 bn) through its belief that it can make more money from BEA customers by raising prices; and Oracle's expectation that, with no independent vendor left, there is not enough competition left in the Java EE application server market for customers to resist such a price hike. From the same article:
Some industry observers have worried that the acquisitions could give Oracle a near-monopoly in some markets. The Forrester report says the price increase for BEA WebLogic could reflect Oracle’s dominant position in the application server market.

In a two-horse race in the legacy app server market between Oracle and IBM, both vendors might well take that view, effectively creating the OPEC of application server vendors. IBM Senior Vice President and Software Group General Manager Steve Mills recently commented that he is “not particularly concerned with competition" in this space, “particularly from open source offerings.”

Fortunately, for customers, however, Oracle's assessment is probably wrong. It seems dangerous to hike the price of a Java EE application server at a time when it's clear that the market is moving to alternatives to the bloated traditional Java EE application servers. Unlike the hydrocarbon economy, alternatives to poor and expensive solutions can be created in years, not decades. In fact, many WebLogic customers are already migrating to next-generation infrastructures. Now the TCO argument has also become 47% more compelling to migrate from a legacy platform sooner, rather than later.
Maybe this is the right move for Oracle financially. Sell it for $200 a barrel and make the most out of the last gasp of the WebLogic revenue machine.

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