In the 1Q10 conference call(http://seekingalpha.com/article/211786-oracle-corporation-f4q10-qtr-end-05-31-10-earnings-call-transcript), Oracle President Sara Catz said that "...our plans for Sun is based on a more profit aware model as we said a number of times. We are no longer selling products at a loss as Sun did. We are now compensating our sales teams on margin, not just revenue, and this has the effect of changing the sales mix from systems were Sun lost money to value-added systems where Sun’s differentiation is clear to our customer. These changes are allowing us to form a base line for our hardware revenues and profitability at a level from which they can grow".
Considering that the IPR model based software industry(licensing revenues led) is frontloaded(most lifecycle costs incurred upfront) with sunk costs, conventional economic theory may demand revenue maximization to maximize contribution.
However, this strategy works best with predictable life cycles. With shrinking lifecycles, more verisons etc, it makes best sense to get the profit in the short term itself. Hence maybe, Oracle has decided to do so.
This strategy success(compensation on margin based) will work best if the margin calculation is transparent & fair to all concerned. If this suceeds, it may prove a model to the rest of the software industry
