Oracle Co. - Internet Paradigm Boosts Applications Growth

Vendor Summary

Founded in 1977 and headquartered in Redwood City, CA, Oracle Corporation is the No.1 database software vendor with approx. 50% market share, and is the world's second largest independent software company (after Microsoft). Oracle is also the second largest ERP vendor (after SAP) with $2.1 billion revenue in 1998 (approx. 12% of global ERP market), and 6000 installations worldwide. It maintains a presence in 145 countries, with more than 50% of its revenue derived from the international market. The Company's revenues increased from $3 billion in 1995 to $8.9 billion for fiscal 1999 (See Oracle Corporation Annual Results Chart). The Company's software products can be categorized into three primary product families: Server Technologies, Application Development and Business Intelligence Tools, and Business Applications. The Server Technologies family of products consists of distributed database servers, connectivity products and gateways. Application Development Tools consist of software products capable of building database applications for deployment in both client-server and web environments. Business Applications consist of over 45 software modules for financial management, supply chain management, manufacturing, project systems, human resources and front office applications. Business applications are available in more than 30 languages and run on a wide range of hardware and operating systems. Oracle is one of the first software companies to implement the Internet computing model for developing and deploying enterprise software across its entire product line. The Company went public in 1986 and currently trades on NASDAQ.

Fig. 1

Vendor Strengths

  • Outstanding ERP market position (28% license growth in last quarter), excellent financial situation ($1.3 billion net profit, $2.3 billion cash balance), sustained investment in R&D (11% of revenue, 13% of workforce), strong management team and direct sales force, large predictable service business (See enclosed charts).

  • Trendsetter in pioneering the notion within ERP of tapping into complex corporate information through Web browser; recently launched Oracle Business OnLine applications leasing initiative.

  • Very competitive in ERP functionality and in price/performance ratio; its very broad product portfolio has been attained both through strategic acquisitions and internal product development.

Fig. 2

Vendor Challenges

  • The Company has a history of management decisions that have earned it the reputation of "vaporware" leader (See Hoover's Online Company Profile). Recent failure of Network Computer (NC) initiative and Satellite Training initiative might be a forewarning of recidivism.

  • Product portfolio, achieved through a number of recent acquisitions (Datalogix, TSC, Geodan, Tinoway, Versatility, Concentra) may see delays and costs resulting from resolving integration issues.

  • Bitter and relentless competition on concurrent fronts against the other software giants, some of them still formally partners (Microsoft, SAP, Siebel) may lead to a lack of focus on execution in ERP applications.

  • Regarded as late entrant in ERP arena, still trailing main competitors in HR functionality (SAP, PeopleSoft) and in manufacturing functionality (SAP, Baan, J.D. Edwards); projected release of new enhanced supply chain suite for the end of 1999 could be significantly late to market (70% probability).

Fig. 3

Vendor Predictions

  • Steady annual Oracle applications growth (20%-30%) in 1999, higher than those of main competitors, however, toppling SAP's ERP market share remains very tall order (10% probability within 5 years time).

  • CRM and strategic procurement will be significant contributors to Oracle Applications sales revenue (up to 35% within next 3 years), overthrowing Siebel in CRM arena may be achievable within 3 years time (55% probability).

  • Oracle Business OnLine has a potential of reaching 15%-25% of total Oracle applications sales revenue within next 5 years (70% probability).

Vendor Recommendations

  • Target Small-to-Medium Enterprises (SME) market segment with the entire product portfolio of component applications, mainly through Oracle Business OnLine option and through distributors' channel.

  • Use direct sales force to expand business in existing customer base, by offering enterprise applications beyond traditional ERP solutions (Front-Office, Business Intelligence, Supply Chain, E-Commerce) and Vertical Industry-Specific products.

  • Remain committed to speedy new product introductions, particularly to enhanced supply chain suite, by maintaining R&D budget for next year on at least 10% of sales revenue.

  • Exercise sales, marketing and administrative cost cutting by 10%-15%, in order to maintain profit margin expansion; Improve sales force efficiency (particularly in terms of pre-sales client scripted scenario system demonstrations quality) to bring revenue per sales employee in line with the rest of ERP market (See ERP Vendors Revenue per Sales Employee Chart).

User Recommendations

  • Worth considering in vast majority of business applications - attractive product portfolio, with outstanding global service and support.

  • Very strong contender in enterprise applications within following industries: utilities, service providers, financial institutions, public sector, flow manufacturing.

  • If Oracle is the final choice, the following are some useful suggestions for future clients:

    • Provide for future incorporation of new applications components by bundling them into contract now at negotiated license fees.

    • If Oracle Business OnLine seems attractive as a low-cost solution now, negotiate the possibility of switching to conventional consulting and support, in case the remote outsourcing option is unsuccessful.

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