A key plank ofOracle's strategy for growth over the
next few years is to reposition itself as a strategic partner
rather than simply remain a technology supplier in key enterprise
accounts.
The aim is to become an end-to-end business systems provider and
to gain more influence in the boardroom in a fashion similar to
IBM, not least to counteract contracting margins across the
software market as a whole.
Ronan Miles, chairman of the UK
Oracle User Group, says, "The challenge is to engage more at
the business level in order to leverage the debate. So Oracle wants
more visibility in the boardroom, which means that it has to move
up the food chain."
But to operate successfully, it is crucial that Oracle
demonstrates an understanding of how to deal with customers'
business problems and is able to communicate with them in
appropriate non-technical language. This will require hiring
a
new breed of business-focused personnel to bridge the gap.
Board-level influence
"Oracle's challenge is to have the same traction at board level
as IBM. It has to get the board's attention by ensuring that its
applications are business products rather than technical products
and by getting into the corporate DNA," Miles says.
And this desire to develop the ability to talk business rather
than in technical language, Miles says, was the key motivation
behind its acquisition spree of recent years. "It realised that if
it wanted to move up the food chain and be a soup-to-nuts supplier,
it had to move quickly. So it acquired intellectual property
pertaining to its ambition of having business applications that are
generally pertinent to everyone such as Siebel and applications
that were also pertinent to key vertical markets."
So far Oracle has chosen to focus on six industries - retail,
finance, telecoms, manufacturing, logistics and public the sector -
but Jesper Andersen, senior vice-president of Oracle's application
strategy, says that the company intends to continue to expand the
number of vertical industries where it has industry-specific
applications.
"Not only do we see tremendous market opportunity to sell
applications across vertical industries, we also know that these
applications are strategic to a customer's business and open the
door to other opportunities," Andersen says.
So banking or retail applications, for example, provide, strong
entry points from which Oracle Fusion middleware and Oracle
database products can be sold to customers. Of course, for
industries such as telecoms and utilities, where companies are
already using Oracle databases and middleware, the firm's existing
back office presence can be used to leverage other Oracle
services.
In Miles's experience there are, nonetheless, different views on
Oracle's strategy within its user community. "Some say that it is
great that Oracle is moving up the value chain and having one
throat to choke is marvellous. But in the same room, you will also
have people saying that it should stick to what it has always done,
so there are mixed feelings," he says.
Fighting on many fronts
Neil Macehiter, a partner at analyst company Macehiter
Ward-Dutton, likewise has mixed feelings. Although he understands
what Oracle is trying to do, he is concerned that by operating in
an increasingly broad range of software markets, Oracle will end up
confusing customers as to its positioning. He also points out that
Oracle may create some "serious" competitive problems for
itself.
"It is battling in numerous rings. There are applications with
SAP, infrastructure and collaboration tools with IBM and
Microsoft, and it is also taking on the
business intelligence suppliers so it is fighting on a lot of
battlefronts," Macehiter says.
But this need to "understand a lot of enemies" means that Oracle
will need to be quite broadly knowledgeable, but also quite
focused. As a result, its competition is fragmented in multiple
directions from a technical and go-to-market perspective, which
could generate challenges.
Oracle believes, however, that the broadening out of its product
line is a virtue. "For enterprises making strategic software
decisions, Oracle believes it has the richest, most complete
portfolio of applications, middleware and database systems. No
other current IT supplier offers the breadth and depth of systems
Oracle does, and we do not anticipate this changing in the future,"
Andersen says.
Another consequence of Oracle's decision to expand its remit has
been the rewriting from the ground up of all of its applications,
whether home-grown or acquired, as a Java component-based suite
known as
Fusion. These Fusion packages are based on its own middleware,
which again is a mixture of in-house and purchased products, and is
likewise dubbed Fusion.
Andersen says that Oracle's aim is to provide customers with
pre-integrated, industry-specific systems. "This approach will help
customers reduce complexity and costs, maximise the value of their
existing Oracle investments and provide the industry-specific
capabilities they require to stay competitive," he says.
Macehiter says that such an ambitious goal will not be easy to
achieve. "The vision with Fusion [applications] is to fuse all of
the separate capabilities into a more holistic single proposition
and if that can be realised, it will address current management and
support concerns in the user community. But the reality is that it
is proving pretty difficult to materialise in a way that makes it a
risk-free proposition," he says.
So a former PeopleSoft or Siebel customer may ask, "Am I really
going to move to the next iteration based on Fusion or just stick
with what I know?" This may be particularly pertinent as Oracle has
promised to support and upgrade all of its purchases for as long as
customers require under the Applications Unlimited scheme.
Nonetheless, a recent survey of the UK Oracle User Group
indicates that about 43% of likely application migration candidates
intend to move to the new suite within their unspecified planning
windows.
This, Miles says, is a good result for Oracle, particularly as
its Fusion Applications will constitute a major change because it
is a new product. Moreover, Oracle has not yet given any indication
of possible migration paths - even though the first application
components are due to appear by June.
"I, personally, would treat it as a new implementation and not
an upgrade. This means that some organisations, for example in the
public sector, may be forced to tender simply because of the cost
of migration activity, even though Oracle may paint it as simple.
Others will choose to treat it as a migration regardless," Miles
says.
Focus on Fusion
Although such a situation could mean that Oracle risks losing
customers to rivals, if it can deliver on the Fusion application
story, it would undoubtedly shift the focus of the company to being
a business-applications provider that can also sell the
underpinning infrastructure, Macehiter says.
And this is important because of the progressive adoption of
service-oriented architecture (SOA) approaches among many
enterprises. SOA involves integrating components and composite
applications, potentially from a wide range of different sources,
in order to support a given business process or service. These
components create a pool of functionality that can subsequently be
re-used in different contexts and combinations to underpin other
processes.
The issue here though is that, in an SOA world, the traditional
value attributed to enterprise packages is reduced. Instead, it is
the middleware that glues all of the different components together
that takes centre stage by providing the crucial underlying
plumbing required for them to function effectively.
In Oracle's case, this middleware includes its application
server, enterprise service bus, application development tools,
business process management engine and
identity and access management suite.
"SOA changes the point of control. Enterprise applications have
until now been positioned as the backbone of the enterprise, but
unless the applications suppliers can come up with a decent
middleware story, they will become more of a limb and will lose
control of customer accounts," Macehiter says.
This means that middleware has now become a critical competitive
battleground - hence
Oracle's failed attempt to purchase BEA last year in order to
gain both technical expertise and market share.
"In terms of remaining alongside IBM, Microsoft and SAP as one
of the four monsters of the enterprise software space, if Oracle
gets this wrong, it will be surviving on maintenance revenues
rather than being the strategic supplier it wants to be," Macehiter
says.
The key notion here is that whoever controls the middleware
controls the customer account. So for Oracle, it is critical that
its installed base moves to its next generation of Fusion
Applications as, whether customers are aware of it or not, they
will also adopt its middleware at the same time.
The idea is that the Fusion Middleware will act as a default
framework that third-party components and applications plug into,
effectively creating infrastructure lock-in, albeit one based on
"open" standards. IBM, meanwhile, is playing a similar game with
WebSphere, SAP with NetWeaver, and Microsoft with .net.
"Oracle does not want to play second fiddle to another supplier
that integrates with it. So if a customer has SAP for its core ERP
and PeopleSoft for human resources, what Oracle and SAP both want
is for their applications to be at the centre and for the others to
be at the periphery, integrating with them. So it is partly about
control and partly concern about becoming a second-tier component
in the enterprise," Macehiter says.
Andersen has a somewhat different view of the situation,
however. "Whether a customer wants their IT systems on-demand or
on-premise, we are focused on delivering pre-integrated, vertically
focused systems that address specific business processes and draw
upon capabilities from across the Oracle stack," he says.
As a result, although he acknowledges that Fusion middleware is
a critical component in that it provides "powerful integration
capabilities", Andersen say that Fusion applications are equally
important in that they supply the "customer-facing, business
process capabilities that our customers need".
The database, meanwhile, helps companies to store, search and
analyse vast reams of data. So each product line within Oracle's
business is aligned to provide the holistic systems customers want,
Andersen says.
But all of this is not to imply that the application suppliers
will have the field all to themselves. Although organisations with
fairly standardised business processes currently tend to have an
application-centric perspective, fast-moving businesses that
require maximum flexibility tend to have more of a middleware focus
- an area where IBM has traditionally held sway.
Moreover, Macehiter says, "If Oracle and SAP are already in an
account, they have a greater likelihood of retaining control, but
if they do not get things right, it could be wrested from them by
other companies and the biggest threat is IBM. This is partly due
to its credibility in the middleware space, but also because it can
bring in a good services offering."
Microsoft's role
Microsoft poses another, although slightly different threat,
meanwhile, in that it is gunning for the mid-market space - an area
that Oracle, like rivals such as SAP, is also keen to possess.
To this end, the supplier introduced its Accelerate initiative
in October 2006, which comprises about 80 industry-specific,
pre-packaged application bundles and rapid implementation tools to
enable industry-specific resellers to customise and deploy its
packages in a matter of weeks.
Warren Wilson, a research director at Ovum, says, "The
mid-market challenge is a significant one. As the enterprise market
matures and growth slows, it is where all applications suppliers
are looking for the future, but it is a very long-term play. It is
also a large under-penetrated market and is growing very rapidly,
but at the moment it is not clear who is winning."
And this is a statement that could be applied to Oracle's
strategy across the board. Macehiter says, "Oracle has a pretty
clear vision of where it is trying to get to, but over the next
three years, it will be about seeing how well it does or does not
execute."