Perverse Incentives

I am sure others have beaten this horse before, but I just have to take a whack at it.

Oracle, ESRI and others license their server-side technology on the basis of dollars-per-processing-unit, usually in the form of Constant * NumberOfCores * Price. For example, the base price for Oracle Enterprise (which you need to do high-end processing, like, say, computing a buffer (snort)) is 0.5 * NumberOfCore * $40,000.

OK, time for the quiz-show section of our show: Let’s say you buy yourself some Oracle, and start using it. You find a particular use case that is slow, but important to you. You call up your Oracle representative, what will his answer be: (a) we’ll make it faster or (b) you need more processing power. Remember, this is not a trick question, and he does earn commissions on sales.

Take it up a level. From a strategic financial point of view, all R&D dollars spent on on performance improvements actually constitute a double cost: the cost of doing the development; and, the cost of lost revenue due to fewer upgrades. If I am the CEO, do I encourage my managers to spend money on performance tweaks, which will reduce upgrade revenue, or on new features, which will drive new sales?