Oracle Sails Despite Market's Low Tide; How Far Will It Go?
In December, Oracle Corporation, the largest database provider
and one of the largest providers of software applications for e-business,
announced that second quarter net income increased 62% to $623 million,
while revenue grew 14.5% to $2.7 billion. This compares to $2.3 billion
in revenue and $384 million in net income in Q2 last year. Applications
software sales increased 66% to $279 million, while database software
sales grew 19% to $775 million. Total software license revenue was up
25% to $1.1 billion, while total service revenue increased 9% to $1.5
billion for the quarter (See Figure 1).
applications business is strong and getting stronger," said Oracle CEO,
Larry Ellison. "Oracle's new e-business suite puts every aspect of a business
-- marketing, sales, service, procurement, supply chain, manufacturing,
accounting, human resources -- everything, on the Internet. All the applications
in our suite are designed and engineered to work together, so customers
buying the entire suite don't need to do any systems integration. Customers
buying a part of the suite are doing systems integration to connect our
applications with applications from other vendors. This quarter's results
prove that we're winning more and more of these best-of-breed battles
against Ariba, I2, Siebel and other niche specialists. And once a customer
uses one of our applications, it's just a matter of time before they move
to the entire suite. Systems integration is so complex and expensive that
nobody really wants to do it."
quarter's numbers are even more impressive when you factor out currency
fluctuations," said Oracle Chief Financial Officer, Jeff Henley. "The
proper way to measure our growth year over year is in constant dollars.
Using that measure, quarterly applications software sales were up 73%
while database software sales were up 26%. Total license growth increased
32%. That's stellar growth for a company our size. Add the fact that it
took us just two years to double operating margins and more than double
profits, and you have a measure of the strength of our business."
Corporation continues with its impressive growth and profitability track
and, for now, it seems unscathed by the economic slowdown affecting most
of the market. The blessing in disguise is the fact that enterprises have
still been designating somewhat limited IT budgets to create their e-business
infrastructure, including trading exchanges, e-Business and CRM systems,
where Oracle remains a major player.
e-business and the Internet currently boosting the enterprise applications
market's growth, we expect Oracle's further growth and optimistic position.
However, while it is a no-brainer that Oracle is the most improved applications
vendor within the last few years (the figures are invincible), its future
is burdened with challenges and uncertainties. Despite its sometimes incoherent
vision and a history of frequent product release delays, Oracle seems
to somehow deliver just enough in time to continue to sail the latest
market wave. One is to wonder whether and when that string of luck (or
deliberate success) is going to be broken.
the company may have an unparalleled portfolio for many aspects of e-business
through offering integrated sales force automation (SFA), customer service,
order fulfillment, and supplier relationship management, along with databases
and data warehousing, online exchanges, e-procurement applications, front-office
tools, business intelligence, ERP applications, and its own consulting
and outsourcing services, it is in danger of overstretching 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,
particularly in the promising e-business space, such as the duo of SAP
and Commerce One and the trio of i2 Technologies, IBM,
and Ariba, which have also seen strong demand for their products.
'one-stop' shop mantra is a compelling message, however other established
players have made every effort to deliver integrated hybrid bundles of
best-of-breed point solutions. It is unlikely that the high-end of market
is going to buy Oracle's integrated solution mantra; flexibility is the
word often associated with the New Economy. The fact remains that most
of Oracle's potential large customers have already invested in other solutions
for some parts of their overall business requirement. Even in an unlikely
scenario of these customers deciding to replace existing components with
Oracle's, Oracle would face a challenge of integrating with other vendors'
Oracle consultants do not have expertise in integrating Oracle applications
to other 3rd-party products, and Oracle does not encourage them to do
that kind of work. Oracle has to be willing to be more flexible and humble
in terms of its products' openness if it is going to succeed in obtaining
lucrative consulting projects. Further, while we endorse Oracle's vision
to deliver the majority of its applications via an ASP model, it should
also attempt to be more accommodating towards potential customers of its
hosted products in terms of providing them with 3rd-party applications
integration and with certain level of customization.
Oracle' offering still has not achieved the maturity and depth of more-established
niche CRM, SCM and e-business vendors such as Siebel, i2 and Ariba.
The same holds with providing a significant number of reference sites
where the notable range of 11i modules has been implemented. While
Oracle can effectively manage large human and financial resources functions,
that may not suffice; coordination and time constraints play a major role
too. Much of the best or most innovative software comes from more aggressive
and nimble software companies. Without working with these smaller companies,
a large vendor such as Oracle can and will lag months or years in terms
of innovation and leading edge products or ideas.
a summary, should 11i live up to its huge marketing hype during the last
12 months and should Oracle curb continued delays of its product releases
and improve relationships with system integrating and consulting partners,
Oracle's prospects will continue to be rosy. Time only will tell how tall
order it is going to be.
Potential and current Oracle users can rest assured about its viability
and market position. The company remains solid and will be around for
a long time to come. More important will be how well the Oracle sales
force can demonstrate the touted benefits to the prospect or customer,
and how its professional services are going to fulfill the promise.
diligence should always be paid to satisfying your unique requirements
as derived from your unique e-business strategy. While selecting a strategic
software partner is a challenging and risky undertaking, the positive
news is that there are more companies competing for your wallet. Nonetheless,
one would be hard pressed to find a case where Oracle should not be included
on at least an initial long list of vendors in a global enterprise application
selection. The depth and breadth of Oracle offerings are attractive and
compelling at first sight. However, an e-business provider must be able
to address all aspects of a company's business. Therefore, ask every vendor
to demonstrate its ability to deliver functionality within your business
environment, not in an ideal conference room world where everything works
well on the vendor's proprietary technology.
comprehensive recommendations for both current and potential Oracle users
can be found in Oracle
Applications - An Internet-Reinvented Feisty Challenger.