Explosive Disclosures Validate HoB Experience with Oracle Audits
Nathan Biggs (@nathanbiggs), CEO
Over the past four years, House of Brick has seen tremendous growth in our license services line of business. Throughout this period, it has been our privilege to assist hundreds of clients worldwide reduce the claims that Oracle has levied against them, either before or as part of an actual audit, by literally billions of dollars. It is not happenstance that this demand for our expert services and innovative license management software has coincided with Oracle’s increasingly aggressive audit practices.
We have been following, with particular and invested interest, the progress of the various legal actions against Oracle or its management team that have been filed in federal court in the Northern District of California over the past several months. These lawsuits relate to Oracle’s well publicized practices of utilizing predatory audits of Oracle’s on-premises customers to sell its cloud product offerings, in order to artificially and misleadingly inflate the real customer demand that exists for Oracle cloud products . Plaintiffs in these lawsuits contend that Oracle could not compete on the basis of the quality of its products against industry standouts such as AWS and Microsoft, so it chose to adopt unsavory and illegal audit practices to force existing customers to buy Oracle cloud solutions. According to the Plaintiffs, Oracle then improperly reported these cloud sales to the market as being the result of organic customer demand, covering up the fact that they were actually the result of extortive audit tactics These lawsuits include the City of Sunrise Firefighters’ class action filing that was commented on by House of Brick’s CTO, Dave Welch, and a powerful dissection of Oracle’s recent motion to dismiss this action by Tactical Law Group’s Pam Fulmer. The Sunrise Firefighters’ case and other securities class actions have recently been related in front of Judge Freeman, and are now known collectively as In Re Oracle Securities Litigation. In addition, a new Verified Stockholder Derivative Complaint filed by Oracle shareholders, including the City of Providence, Rhode Island against Larry Ellison, Safra Catz, Mark Hurd, and former Oracle (now Google) cloud executive Thomas Kurian was also recently filed. Each filing deals primarily with Oracle’s aggressive tactics and assert that they inappropriately used the lever of their software audits to pry cloud and license revenue from their existing customers.
While reading each of these filings is incredibly fascinating, especially to those of us who deal with Oracle on a daily basis, I wanted to focus this article on the explosive quotes provided in the legal filings from former Oracle employees. House of Brick, and our partners, will be providing a series of articles on these filings over the coming weeks to help educate our readers regarding the gross overreach that Oracle displays in their business practices, as alleged in the lawsuits filed against Oracle.
Oracle Employees Validate What We (and Our Customers) Already Know
With the hundreds of clients that we have assisted with Oracle license compliance validation, optimization, and audit defense services, we have become accustomed to the shenanigans that Oracle’s sales and audit LMS teams display around the globe on a regular and predictable basis. I want to share some quotes contained in the legal filings, which were provided by former Oracle employees with direct knowledge of these tactics from the perspective of Oracle insiders. I will quote the text directly from the consolidated In Re Oracle Securities Litigation document. The following abbreviations are used in the quotes:
From the consolidated class action complaint, page 32 (emphasis added):
FE 1 confirmed that the sales teams and LMS closely coordinated to use audits in order to sell unwanted cloud subscriptions. FE 1 also stated that sales would direct LMS to target clients for audit. In particular, FE 1 stated that the sales team would “identify large clients they thought they could get more money out of and threaten them with audits,” instructing LMS to say the Company had suspicions that they were out of compliance. Indeed, FE 1 stated that the sales teams would actually write out the threatening audit letters and give them to LMS to then send to the client. FE 1 stated that frequently, neither sales nor LMS had real evidence that customers targeted for audits were noncompliant, but that the mere threat of an audit would put the customers under so much pressure, because of the enormity of the potential penalties, that customers had no choice but to agree to Oracle’s demands that the client purchase cloud products. FE 1 stated that once the cloud sale was complete, the sales team would tell LMS that the customer had trued up, and LMS would close the file without even following-up with the client (making clear that the audit was initiated as a mere pretext to push the cloud sale through). FE 1 stated that “any statements from Oracle that LMS was independent from sales are a lie.”
These comments from FE 1 are incredibly explosive, but completely align with our experience at House of Brick. It has almost been laughable when LMS people vehemently insist that they have had no collaboration with the sales team. FE 4, a former sales engineering VP at Oracle corroborated with his or her statement, also on page 32:
FE 4 independently corroborated reports by FE 1 about the close coordination between LMS and sales as part of the ABC scheme. FE 4 stated that the sales team would trigger audits, which LMS would run and then send back to the sales team for review. FE 4 explained that LMS would never send a letter to a customer without approval by the sales manager or account executive handling the customer.
The ABC scheme that is mentioned by FE 4 is described in the filing as follows: “…as numerous former Oracle employees, industry insiders, and even a government investigation have confirmed, Oracle generated a substantial volume of its cloud sales using a highly improper practice known as ‘Audit, Bargain, Close’ or ‘ABC.’” This description of the ABC scheme aligns with our experience at House of Brick; that to Oracle, audits are not really compliance verification exercises, but rather the lever that they use to demand additional (and many times grossly unjustified) revenue from their customers.
Even though we experience these tactics daily, the following disclosure from FE 6 still turns my stomach:
FE 6 stated that it was a “regular practice” for sales representatives to contact LMS to start an audit when the customer was not going to buy cloud product, and tell LMS “[t]hey’re not going to buy anything from me so let’s just audit them.” LMS would find a compliance violation, and the representative would start negotiating from there. FE 6 confirmed that these “extortive” tactics were a “common practice.”
House of Brick is Making a Difference
Our clients are consistently and effusively grateful for the assistance that we provide to them during the rigorous, and sometimes cantankerous, back-and-forth discussions in an Oracle audit. Even though that gratitude is validating enough, it is especially rewarding to see an Oracle employee acknowledge the results of our efforts in the following quote from page 50 of the consolidated complaint (emphasis added):
As FE 1 stated, cloud sales declined in late 2017 because customers were “becoming more knowledgeable and hiring consultants that helped them fight back” when the Company attempted to use audits to drive a cloud deal. FE 1 said his own teams experienced this, and that his colleagues reported seeing this as well.
While House of Brick is certainly not the only audit defense consultant in the industry, we have been exceedingly vocal in our writing, conference presentations, webinars, articles, and client meetings in calling out Oracle’s overreach and intimidating practices. Our hundreds of clients worldwide have become empowered to “fight back” because of the powerful tools and data that we give them, and because of the knowledge that we are there to support them through the full resolution of the audit.
If you are feeling intimidated by Oracle, let House of Brick help you. We have the experience and track record to ensure that you never pay more than is absolutely necessary in resolving your use of Oracle software products. We have your back!