Oracle Sails Despite Market’s Low Tide; How Far Will It Go?

Oracle Sails Despite Market's Low Tide; How Far Will It Go?
P.J. Jakovljevic - January 12, 2001

Event Summary

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).

Figure 1.

"Our 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."

"This 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."

Market Impact

Oracle 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.

With 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.

While 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.

Oracle's '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' software.

Many 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.

Further, 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.

As 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.

User Recommendations

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.

Due 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.

More comprehensive recommendations for both current and potential Oracle users can be found in Oracle Applications - An Internet-Reinvented Feisty Challenger.

comments powered by Disqus