Oracle repositions itself as a business systems provider

A key plank of Oracle'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.

A key plank of Oracle'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 anew 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."

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