Oracle eyes outcome-based pricing: Does it stand a chance?

Oracle is moving toward outcome-based pricing as a model to complement its existing enterprise contracts. The big question is whether Oracle and its customers can deliver the outcomes.

Speaking during Oracle's fourth quarter earnings call, Co-CEO Mike Sicilia said the company is looking to roll out outcome-based pricing models as enterprises worry about AI budgets.

"Outcome-based pricing is not entirely new for us. This is something we've been doing in our construction business for construction value under management and general contractor and subcontractor cash flow and payments," said Sicilia.

Earlier Sicilia noted Oracle is looking to address AI budget pain points and outcome based pricing is part of the mix.

Enterprise models include AI that's built into applications as well as outcome based models on deck, said Sicilia.

"We are working with our customers to deliver quick ROI within their AI budgets. To do so, we are simplifying how customers consume and pay for agented capabilities. Our new agented pricing aligns with customer value. Now, much of our AI innovation in our core applications continues to be included at no extra charge. However, customers can also purchase additional agentic capacity in a simple, predictable way by purchasing bundles of tokens that can be used across their application suites. We're also introducing outcome-based commercial models that align pricing directly to the value derived. For example, interview agents that are priced based on the number of candidates interviewed and hospitality upsell agents are priced on the percentage of end consumer upsell transactions."

Healthcare agents are also priced per outcome where you can measure and price based on patient throughput, said Sicilia.

Now this outcome based pricing theme on the surface looks like a win for the vendor and buyer, but expect some friction. Nevertheless, enterprises need more value and tokenomics is a cruel joke. Vendors are looking to cook up various metrics to show value, but the math is fuzzy. Oracle, which runs a full stack, may be able to pull off outcome based pricing because it has multiple cost levers to pull. Hyperscalers, which have thrived off consumption based models, could do something similar with outcome based pricing, but for now it'll be SaaS players trying to show value if only to monetize better.

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Today, enterprise software is more about licensing plus consumption. Outcomes are new territory and Oracle’s chat landed a day after Pegasystems made a similar argument.

Here are the sticking points of outcome based models:

• What's the outcome? Both parties need to agree on the outcome and metrics.
• How do you personalize that outcome for each enterprise?
• Who audits the value?
• Who bears the risk of costs to deliver the outcome?

In many respects, systems integrators may have a better shot of landing outcome based models. SaaS may turn out to be too mushy to overcome the hurdles.

See: How Cognizant aims to bridge the AI value gap

Sicilia added that Oracle is adding outcome-based models throughout the portfolio. The main mission is to deliver value in the first place. He said:

"The sort of difficult thing is, if you're not creating the outcome in the first place, that's a tricky thing, a tricky thing to press in. But since we've made this full stack investment, and since we're able to very easily take, you know, the best of the output from the large language models to our customers, pair that with our both our horizontal applications and our industry applications, we have a very easy way to measure outcomes for our customers, and as I mentioned, you know, one of the things we're increasingly hearing from customers is how much am I going to spend on AI, and how do I get ROI very quickly? So, I think we have a very unique advantage since we're in the infrastructure business, are we have large lines, well, large along vendors training on there. We've got, we've got all of our application systems, both horizontal and vertical businesses. We are naturally generating these outcomes for customers, and it really gives us the ability to help them understand their own AI budgets, as well as align that to the value again."

The big takeaway is that Oracle is looking to price its offerings in multiple ways. Sicilia said:

"I also mentioned the token bundles. A lot of what we're doing with our Fusion applications, our industry applications, is included with no additional charge. If customers want access to advanced reasoning, they buy more tokens. We have prepackaged bundles to allow them to do that, so we're allowing as much flexibility and as much aligned with the value in our pricing models across our applications."