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 MarketXchange.com
- 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.