What Recent (and Massive) Oracle Layoffs Might Mean for the Oracle Licensee

In early July of this year, just after its staggering $28 billion acquisition of electronic health records specialist Cerner, rumors began emerging that Oracle Corporation might be entertaining layoffs as part of an effort to reduce costs. The extent of the rumored layoffs was not inconsequential. It was surmised that thousands of Oracle employees—disproportionately impacting US and European Oracle workers—might lose their jobs beginning in August for potential savings of up to $1 billion.

Around the same time, it was further reported that Ariel Kelman and Juergen Lindner, two senior Oracle executives, would also be leaving the company. Interestingly, Kelman is a relatively new hire, having left AWS two years ago to lead the TikTok team at Oracle. (See here, here and here for our analysis regarding Oracle’s contorted efforts to take advantage of Tik Tok’s extensive cloud presence.)

In possible anticipation of Oracle’s first quarter earnings report for its 2023 fiscal year in September, the first layoffs were noted at the beginning of August. While the number of affected is unknown, an Oracle insider noted that this first round of layoffs would span Canada, India and parts of Europe in coming months.

In August, the layoffs began to hit. The Wall Street Journal reported that the first round of layoffs impacted the advertising and customer experience group:

Oracle Corp. laid off hundreds of employees this week as the business software provider prioritizes its healthcare IT services and cloud businesses, according to people familiar with the company’s actions.

The job cuts principally hit staff at Oracle’s advertising and customer experience group, the people said. The group sells services to help clients analyze data about their customers and target advertising to those customers.

Oracle staff reported their own layoffs across social media sites such as LinkedIn, Twitter and Thelayoff.com, with layoffs spanning a wide range of positions and with some teams entirely dropped. Bloomberg reported some notable online statements:

The company “decided to reorganize” the customer experience group “and move on,” a former senior manager of sales engineering, whose position was cut, wrote on LinkedIn. In a separate post, another fired manager cited the restructuring for the job reductions. Some marketing positions were also cut, according to LinkedIn posts by a former senior manager and group vice president. 

The job reductions come as Oracle looks to health care to spur the company’s effort in the competitive market for cloud technology. Earlier this year, Oracle completed a $28.3 billion purchase of digital medical records provider Cerner Corp., seeking customers in an industry that has been comparatively slow to adopt cloud database technology.

According to The Register, certain reports indicated that a broad range of targeted employees would be hit, with some speculating that the layoff numbers were “pushing 10,000”:

Affected employees spanned the gamut from recent hires to workers with over 20 years of service. Even some recently hired workers had verbal offers rescinded, with Oracle citing "current economic conditions and internal reorg."

"Hearing overall layoff numbers are pushing 10,000. That would roughly make sense if they want to save $1 billion overall," wrote one user on Thelayoff.

Unsurprisingly, some Oracle insiders described the delivery and impact of the layoffs as “complete chaos”, with one Oracle employees going viral on TikTok after claiming she discovered her firing via a calendar invite and social media. Some teams in marketing reportedly experienced losses between 30% and 50%, with another insider quoted as saying, "The common verb to describe [the Advertising and Customer Experience department] is that they were obliterated."

What to Expect

It should go without saying that when Oracle feels a financial pinch, its licensees should expect auditing and licensing pressure. In our best estimation, the same internal incentives that led to these mass firings will similarly cause an uptick in aggressive auditing and licensing tactics.

A few points to consider as Oracle responds to the current economic uncertainty:

• Audits are a tried-and-true revenue generator for Oracle. There is little doubt that software license audits can yield expensive true up payments and set in place much desired ongoing revenue streams in the form of annual technical support payments (the latter providing Oracle with an estimated 94% profit). After all, that is the purpose of an audit – determining whether, rightly or wrongly, a licensee should be paying more in licensing fees.
• Companies seeking cost savings in software fees may inadvertently trigger an audit. A licensee’s reduction in support payments is often listed as an audit trigger. With support fees rightly identified as Oracle’s “lifeblood,” a licensee can expect Oracle to jealously protect those revenue streams through license audits.
• History confirms that economic downturns yield an increase in software license audits. In 2008, an increase in audits was noted as vendors attempted to make up for shortfalls resulting from IT departments cutting back on expenses. Gartner reported an uptick in audits from 30% - 35% (prior to recession) to 54% - 63% (during the recession).
• Leveraging Intellectual Property (IP) is a tried-and-true way for companies to generate income during economic downturns. Though every economic cycle has its own character, and every company has its own tolerance for risk and conflict, many believe that economic downturns can give rise to patent litigation “as struggling companies look to turn existing patents into sources of revenue.” In fact, a downturn in spending on IP enforcement doesn’t mean the volume of IP enforcement activity is down. Instead, companies “look[] for the maximum return on their legal spend.”
• Software license audits are an inexpensive method for software vendors to find extra revenue. For IP holders, litigation is expensive and risky, while software license audits are cheap and safe. As we stated in an article about software license trolls, vendors can evade the “the cumbersome court process” and “need only initiate a low-cost, low-commitment audit against any one of its licensees to begin asserting shortfalls and demanding cash payment.” Oracle certainly abides by similar philosophy, engaging in only two litigations against licensees in the seven years since Mars v. Oracle (in which, as we never hesitate to remind our readers, the two Beeman & Muchmore principals were lead counsel for Mars).

Our best advice? Be prepared. It is never too early to involve counsel and never too late to put in place Software Asset Management (SAM) tools.

Published on 8/22/2022