Oracle Corporation: Flying High for Being Jack-of-All-Trades and Master of Some

Event Summary

During the first four months of 2000, the market was inundated with a bonfire of announcements from Oracle Corporation. The climax was reached in the middle of March with the news that Oracle showed significant growth throughout its third quarter.

The applications business alone was up 35% on the same period for the previous year, exceeding the growth of database solutions, which went up 32%, for the first time in the company's history. This looks particularly impressive against the backdrop of a modest first quarter report from Oracle's biggest competitor in the business applications space - SAP.

Database software sales generated $778 million, but it was the applications part of the business that caused the real excitement. According to the company's reports, they brought in $199 million, allegedly driven in part by the booming sales experienced in the CRM space, Oracle claims. According to the company, CRM applications grew 179%, which is expected to at least give Siebel, IBM, and SAP pause. At the top of the list is the news that it has managed to acquire approximately 90 new customers to its CRM applications.

Oracle's bloated enthusiasm about its applications business is based on the allegation that it was the first to deliver true integration across both its core ERP system and, nowadays supposedly more remarkable and needed, CRM and e-business applications. Oracle's Applications Release 11i, the product that should tightly bundle previously loosely integrated functionality of Oracle's ERP, SCM, CRM, e-business, and business intelligence software, is scheduled to be available in the second calendar quarter of 2000 (during May, to be more precise) as it was announced at its annual user conference in Philadelphia at the end of April.

There was also a big focus on the e-commerce aspect of the solution, and the publicity was supported with some real products, including Internet Procurement and Oracle Order Management. Oracle has also made significant steps in developing Internet marketplaces. First is its involvement in AutoXchange, which will be developed in partnership with Ford, GM, and DaimlerChrysler. In the retail industry, Oracle has formed an alliance with Sears and Carrefour, as well as with Chevron and WalMart subsidiary McLane to create - the business-to-business convenience store and small business retailer network.

In addition to this, Oracle claimed it gained significant benefits from the cost cutting initiative that it launched last year and which entailed the company cutting costs and streamlining operations through the internal employment of own e-commerce and CRM products.

Ellison, the flamboyant Oracle CEO, said that the company had improved operating margins by more than 11%. He added that there are still a number of Internet improvement initiatives that should be made, which may result in further benefits in the next quarters' results. This looks even more upbeat against the backdrop of speculation of SAP's missed forthcoming quarterly numbers.

On a somewhat negative note, however, Oracle has also confirmed that it is refocusing its European applications division and has hinted that it may reduce the unit's workforce. The move is likely to affect the database supplier's consultancy business and follows the company's decision to lay off 60 U.K. consultants last August. This was seen as part of a drive to cut $1Billion a year from its costs. Mark Jarvis, Oracle's senior vice president of marketing, declined to comment on specific staff cuts, but he admitted that the company's skills mix needed to change as demand shifted from enterprise resource planning applications to customer relationship management (CRM) packages.

Market Impact

First comes the good news. Oracle is indisputably the most improved ERP vendor within the last 18 months. Oracle fortified its position as the 2nd largest ERP vendor during 1999 by increasing its ERP market share (up to ~14%) after being the only large ERP vendor to achieve significant growth in total revenue, license revenue and net income during the above-mentioned period.

The company has radically changed its product architecture within a short time bracket. Three years ago, it was struggling with its fat client architecture, and had a significant Y2K compliance issue. Today, Oracle has a head start on most of its competition pertaining to Internet applications (Web-enablement and self-service), and Oracle still leads the ERP pack both on product technology vision and execution. Recent announcements from Oracle have shown a consolidation of its strategy and products aimed at the Internet technology marketplace.

Oracle's functional scope has also been significantly increased across the board, particularly with its CRM suite that is envisioned to be integrated with the back-office. "We are a one-stop shop" or so is the motto continuously touted by Oracle, based on the alleged capabilities of the up and coming 11i applications release.

Consequently, Oracle offers its eBusiness Suite as a solution that could bundle necessary application components within a single integrated product, thereby avoiding the middleware porting and connectivity standards issues. A consistent database schema across the entire suite may avoid the data duplication required when implementing a multi-vendor best-of-breed solution. Avoiding the need for integration between disparate components reduces the cost and risk associated with implementation and maintenance and the product can be implemented more quickly. The approach can also lead to more effective customer relationship management since the customers should obtain the identical response from the business application regardless of which communication channel they use (Internet, call-center, direct mail, etc.).

Moreover, Oracle's large consulting resources provide it with a balanced revenue mix, which additionally contributes to enviable corporate viability. Oracle has been one of the first ERP vendors to acknowledge consultancy services as a major revenue contribution. Its consulting organization provides much more focused implementation than other ERP or CRM players. Oracle has also attempted to resolve the adversarial situation of competing with its external consulting and system integration partners that has often happened in the past. Oracle has been allegedly addressing this by downplaying its own system integration services and committing to working with a number of major system integration services vendors in a non-competitive way.

Finally, regardless of someone's (dis)approval of its products or strategies, Oracle indisputably knows how to win mind share and create hype. After all, Oracle has a large installed base of ERP users that will prefer Oracle to provide them with extended ERP solutions.

Nevertheless, Oracle faces a number of notable challenges. The number of acquisitions over the last two years has created the clutter of many different technologies and applications that require true integration. The delay in launching the product speaks in that regard. It should have been made available by the end of 1999, which did not happen and which suggests that there have been problems with integrating the diverse software packages.

It is apparent that Oracle's overly ambitious and visionary R&D program is wearing its new product delivery capabilities thin. Yet another CRM product suite delivery delay would all but annihilate the Company's highly publicized hopes of a success in its rivalry against CRM market leader Siebel. Also, the Company would significantly squander its current time-to-market advantage over its ERP competitors, particularly SAP and PeopleSoft, in its quest for CRM market share.

Presumably, a lot of the time has gone into upgrading the existing products to ensure compatibility within the entire suite. How good the integration is remains to be seen. Moreover, if one should judge the past, it is to expect product quality problems with its immature product release as well as uneven functionality across the functional breadth. Oracle's modest results in the European market, with much more cautious buyers ('seeing is believing' attitude) speak for that.

It is also uncertain how the market is going to absorb Oracle's integrated solution mantra. The fact remains that most of Oracle's potential customers will have already invested in other solutions for some parts of their overall business requirement. Even in an unlikely scenario of these customers jumping on replacing existing components with the Oracle's, Oracle would face a challenge of integrating with other vendors' software.

Meanwhile SAP has changed its strategy of developing CRM solution in-house and signed a reseller agreement with Nortel/Clarify. Expecting these customers to replace SAP's endorsed solution with Oracle in droves, based on their loyalty to SAP, is unrealistic. Oracle may respond that its individual components are based on open standards so that integration would not be an issue whatsoever.

While some may see contradiction in a proposition that attempts to cover the integrated solution and best of breed religion at the same time, we would support Oracle's open systems intentions if that were the case.

Oracle is openly anti-Microsoft and not overly friendly to the IBM standards either, which is not exactly the ideal attitude for interconnectivity. As a matter of fact, we believe that showing some humility and willingness to compete on a component by component merit basis against Siebel, SAP, PeopleSoft or any other competitor instead of its current 'product totalitarian' approach should not hurt Oracle unless there is a significant lack of functionality.

While the sole source message may strike a chord with a number of CIOs tired of integrating multiple technologies, there are also a number of savvy users who know that not all CRM components have to be necessarily tightly integrated with the back-office; the functionality is what matters much more in some instances.

The fact remains that Oracle 11i seems to be a robust product suite and Oracle appears to be very well positioned to provide the needed service & support for such a package, particularly considering its data warehousing knowledge. However, an integrated suite of this nature may raise the proprietary software issue, which more and more companies are trying not to get locked into. This could indeed be a difficult long-term obstacle for Oracle to surmount.

Moreover, Oracle functionality is still very horizontal except for in its traditionally strong verticals like telecommunications, U.S. federal government, and energy. Oracle did, notwithstanding, deliver a number of business models for its CRM product in the hope of streamlining the implementation process. These particular Oracle Business Models (OBM) are focused on what Oracle regards as four core customer facing activities, namely: Customer Interaction Management, Customer Service Management, Sales Management and Marketing Management. We consider this somewhat insufficient. Although these OBM's will provide some help to implementation, Oracle should have focused on vertical industries, like Siebel, and SAP typically do, rather than task specific, horizontal functionality. It is unlikely that for example a discount retailer and a stock market broker require the same CRM functionality and business processes.

Last but not least, while Oracle has been addressing the improvement of relationships with its systems integration and technology partners, some of those remain spotty and at arm's length. The company has extended its operations to provide an immense toolset and application suite that brings it into direct competition with its traditional partners. The market has recently witnessed a very public disagreement of Oracle with both SAP and Siebel, which have consequently chosen IBM as their preferred database partner. We have duly reported on these events in our news analyses at the time.

User Recommendations

We generally recommend including Oracle in an enterprise application selection long list within the following industries: telecommunications, utilities, service providers, financial institutions, public sector, manufacturing, and energy. Oracle remains the No. 2 ERP player, and its strong resources give it the ability to overcome current obstacles much sooner than most of its competitors in a similar situation.

However, existing and potential users currently evaluating Oracle products, particularly its CRM suite of products, will have to decide between brand loyalty (which means integrated suite and possibly sub-optimal functionality) and considering disparate but fully functional products from other vendors.

Users are also advised to consider both the maturity and the functionality of the product in their evaluations and make comparisons to competitive offerings. Any organization evaluating Oracle Applications should only consider existing functionality.

Future clients are also advised to request the Company's written commitment to promised functionality, length of implementation, and seamless future upgrades, particularly for the recently released products and the products whose release dates are due shortly. Users should be wary of the marketing hype and anticipate application integration problems, particularly in the case where a broad group of disparate applications are bundled together.

Moreover, companies within industries for which Oracle has not developed vertical solutions may want to inquire about impending customization ramifications.

On a more general note, we would strongly advise anyone considering a CRM product to define the requirement very meticulously before making any decision. While this advice may sound very worn out, it is worth reemphasizing as CRM product lines have emerged within a much shorter time period than ERP packages (and even then, how many ERP implementations have gone awry?). Each CRM component should be put through its paces using a well-documented set of requirements, scripted scenario demonstrations, and rigorous reference checking.


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