Oracle Claims The Worst Is Over And Turns To KISS For A Boost Part 2: The Implications

Oracle Claims The Worst Is Over And Turns To KISS For A Boost

Part 2: The Implications
P.J. Jakovljevic - July 11, 2001

Event Summary 

In June Oracle Corporation (NASDAQ: ORCL), the largest database provider and one of the largest providers of software applications for e-business, unveiled a new suite of online services aimed at capturing the small business market. It also announced changes to appeal to its larger customers, as well as its quarterly financial results.

This is Part Two of a three-part article on recent Oracle announcements. Part One contained the details of the announcements.

Market Impact 

If one is to judge by the mere numbers depicting annual profit and growth, he or she could conclude that Oracle had a satisfactory year. Oracle indeed remains one of the largest and the most respected (or loved to be hated) software companies, with an unbroken profitability track and a strong balance sheet. However, it is apparent that the company is running out of steam, and to attribute it solely to the slowing economy, simply will not fly. Oracle must be feeling the effects of a 40% applications revenue decline in the essential North American market, while the competition, like SAP and PeopleSoft, reported significant growth (see SAP Remains One Of The Market's Beacons Of Hope and PeopleSoft: Giving Fervent Hope To The Market And Jitters To The Competition). Recent positive announcements of other companies that also compete in Oracle's areas of enterprise applications, like Siebel, Manugistics, IFS, and even resurrected Baan further add salt in the wound.

With the Internet likely maintaining the enterprise applications market's growth and given Oracle's international diversification (its applications software did grow 24% and 42% in the EMEA and Asia Pacific markets respectively), we expect Oracle Applications' prominence to continue. Still, its future also remains burdened with challenges. Oracle seems to have started to lose the perception war it had won a year ago - PeopleSoft seems to have stolen the Internet mantra, IBM and Microsoft have been disputing Oracle's invincibility in the database market and have forced it to rethink its pricing strategies, while there is continued mixed perception in regard to the 11i Applications suite.

In the past, Oracle has traditionally been able to deliver just enough product functionality in time to continue to sail the latest market waves. Oracle has a reputation of releasing unstable software to early adopters, relying on them to indicate the bugs and request patches afterwards, which would in turn provide for more reliable subsequent releases to other users. The 11i product release was no exception - over a few thousand patches were reportedly requested by early customers and subsequently released. Oracle deserves credit for sticking it out and for subsequently issuing fairly stable product releases, however, the latest product release, 11i.4, while apparently stable and much improved over its previous incarnations, may suffer from the bad timing of the release. Namely, the customers' weariness and wait-and-see attitude may have been exacerbated by both the economic slowdown and the bad publicity of early 11i installations/migrations.

Further, while Oracle may be able to provide the entire infrastructure for conducting e-business and while it may have rounded up a portfolio of applications for almost all aspects of e-business, it may also have overstretched itself by trying to be "all things to all people". "The lone warrior" stance has put it on a collision course with a number of formidable competitors, and brought it to almost a pariah status in the market. While Oracle remains adamant on its unitary 'one-stop-shop' tune, its competitors with currently well performing applications can also tout strength in supporting integration with other vendors or legacy systems on a wide range of platforms. Let's face it, these vendors also tout their product portfolio breadth and tight integration, and clandestinely wish to be the only vendor in the customer's organization.

To be fair, many vendors have also increasingly been encouraging their prospects to minimize modifications and implement their software out-of-the-box (in a 'plain vanilla' mode) regardless of the company size. Indeed, over last two decades, applications vendors have garnered ever more out-of-the-box functionality, which makes them suitable to satisfy the customer business requirements without serious modifications.

Major players including Oracle currently offer dozens of applications that cover a broad scope of business needs. They have also tailored their applications for a number of vertical industries/markets. But, none of them, except Oracle, will vocally advise their large corporate prospects to put up with sub-optimal functionality (70%-80% of out-of-the-box functionality) and to wait, possibly indefinitely, until the vendor can deliver needed enhancements. This conspicuously resembles SAP's arrogant attitude during its complacent period of the mid 1990s, which it publicly abandoned and renounced at its SAPPHIRE user conference, acknowledging its inappropriateness in the current market. As a result, SAP seems to have regained once stalled momentum and to have overturned the market's bad perception. SAP's new strategy was even publicly endorsed by former Oracle's president Ray Lane, who has always been trusted by the market and credited with Oracle Applications success in the past (see How Detrimental Can a 2nd-In-Charge's Departure Be?), and whose departure may partly be the reason for Oracle applications' recent dismal performance.

Recommendations for Oracle 

Thus, Oracle has to be willing to be more flexible and humble in terms of increasing its products' openness and of reducing module interdependencies if it is going to succeed in obtaining lucrative consulting projects. It should also attempt to be more accommodating towards potential large customers in terms of providing them with third-party and/or legacy applications integration and with certain a level of customization. While nobody disputes the attractiveness of simplicity, nobody can forsake flexibility at this stage when individual products are still far from satisfying all the business requirements of large global corporations. Also, large customers may take issue with Oracle's insistence on using cut-and-dried best practices.

This concludes Part Two of a three-part note analyzing recent Oracle announcements. Part One contained the announcements. Part Three continues with an analysis of the challenge of gaining competitive advantage and the User Recommendations.

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