Oracle: Takeaways on AI value, outcome pricing, managing AI spend

Oracle CEO Mike Sicilia riffed on AI spending, open models, finding enterprise value and outcome-based pricing in a recent talk. Sicilia's comments are worth noting since much of Oracle's upcoming first quarter earnings call will revolve around infrastructure.

Sicilia spoke at a Deutsche Bank investment conference last week and riffed on the applications business he oversees. Here's a look at the takeaways.

Here are the takeaways from Sicilia's talk:

AI is good for SaaS. Not surprisingly, Sicilia said that AI will disrupt SaaS in a good way. "We're able to disrupt ourselves and become so productive because we have decades of experience with building and delivering mission-critical applications," he said. "And we understand the domain; we understand the regulatory constraints. We understand all the things you need to do to be able to deliver that as a turnkey service to customers. And when you have that domain expertise, you can just get a lot more done more quickly with a lot of the tooling."

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Customers looking for value. Sicilia said CEOs and customers are looking for value and a lot of those returns will come from traditional blocking and tackling. "How do I get value from it? How do I understand the cost around it? And how much of a disruptive factor do I have to put into my organization? What's the change management? Where is the low-hanging fruit? Where is the midterm return? And what should I be thinking about from a longer perspective? So that's become the nature of these conversations," said Sicilia.

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Value will come from context. Sicilia said the gap in large language model advances and enterprise value is context. "From a contextual standpoint, these models don't know anything about private data, government data and all the enterprises and governments that we serve on a daily basis," said Sicilia. "The intersection or union of those two things is the value unlock as we go forward."

He cited a series of HCM use cases where context and AI can drive returns.

How Oracle is managing AI spend. Sicilia repeatedly mentioned Oracle's infrastructure knowhow as a competitive advantage and enabler of controlling AI costs. When asked about AI spending, Sicilia talked about the dreaded token bill.

"We're leveraging AI internally at Oracle, and I had some salespeople run up some token bills.

And I said, what are you actually doing with Codex in a sales function? And actually, it was fairly compelling what they're doing. That said, we had to tamp down the token throttle a little bit here because you don't want people just run away. That's kind of been the early stumbling block is that you've got a bunch of people out there with their credit card or the equivalent thereof, kind of buying things for a science project.

And I think having that governance over top of it and having the ability to sort of marshal all these different consumption models and outcome models is going to be the key differentiator that enterprise, particularly enterprises and governments as well are looking for."

He added that Oracle is also arbitraging open models to bring down costs. "If there's a good enough result from the model that results in a high-quality answer for customers, we're by no means opposed to leveraging that and keeping our costs low as a result," said Sicilia.

Outcome pricing. Sicilia said outcome-based pricing is becoming more popular. Part of the appeal is based on ROI, but token bundling also has its appear. "Give me a certain amount of tokens and then tell me when I'm getting close to that. But by the same token, help measure the ROI for what's been consumed. How do I measure the ROI for what's been consumed for the consumption of those tokens?" he said.

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AI as UI. Sicilia said that AI agents will essentially become the interface for software. "The user interface is really almost gone," said Sicilia, who was referring to Oracle Health apps.

Industry-focused AI. "When you want to talk about how you get value from AI, it's both an IT conversation, of course, but also increasingly a business conversation. And it's one that CEOs are increasingly involved in our customer situations. We've always been selling to the CEO in that industry perspective," said Sicilia.