OracleWorld: Cost savings are Oracle's big sell

One message is being pushed at every opportunity at the OracleWorld conference here this week: Oracle can save you money.

One message is being pushed at every opportunity at the OracleWorld conference here this week: Oracle can save you money.

With the economy in a slump and IT spending down among its biggest customers, the database giant is pitching its products and services as a way to help businesses cut their overall IT costs. Rivals such as Microsoft claim Oracle is making price comparisons that are misleading.

The products being pushed include clustering capabilities in Oracle's database and application server which, Oracle says, can help customers save money by allowing them to run its software on groups of relatively low-cost Intel-based servers, rather than large Unix machines from the likes of Sun Microsystems and Hewlett-Packard.

Oracle is also promoting Collaboration Suite, a package of productivity applications including e-mail and calendaring, as an alternative to Microsoft Exchange and IBM's Lotus/Domino products. It said it plans to launch an upgrade to Collaboration suite early next year which, it claims, will cost less than half of what Microsoft charges for a similar set of products.

The database vendor is also plugging Linux as a suitable platform for running its applications and software, claiming that the open-source OS saves money and offers customers more freedom to customise their software than Microsoft Windows.

"What we're seeing in our customer base is that everybody is going back to basics and total cost of ownership," said Jeff Henley, Oracle's chief financial officer, in a speech at the start of the show.

"The only way people are spending money on new projects and technology is if it delivers a quick return on investment, so what you're seeing at this conference is this value proposition."

A question of economics?
Like other vendors, Oracle has been hit hard by the economic downturn. In the past four quarters its revenue has fallen 14% from the same period a year earlier - the first year of declining revenue in Oracle's history, according to Henley.

Net income also fell by 14% over the same period. The company apparently hopes that the low-cost message will draw new customers to its software.

Oracle's main point is not that its software is cheapest, but that customers can reduce their total cost of ownership by paying less for the hardware, software and services they use with Oracle's products, said IDC program director Carl Olofson. For example, it says a customer using standard Dell Computer servers running Linux would pay less than a customer running a large Unix system from Hewlett-Packard.

Besides making its products appear more attractive, Oracle's goal is to make itself the single biggest partner for its customers, which could help it to steer IT spending decisions that those customers make down the road, Olofson said.

For example, many Oracle customers spend a big chunk of their IT budget on Oracle's software and another big chunk on Sun's hardware and support services. If Oracle can reduce the hardware and service costs for those customers, it also makes itself the single biggest component of its customers' budgets for database spending.

"They want IT spending to shift from hardware to software," Olofson said. "They would rather be sitting around the table with Dell and Intel than with Sun. That way, overall IT costs get smaller, but their piece of the pie gets bigger in proportion."

As a customer's single biggest partner, Oracle would have more ability to sway future spending decisions, Olofson said. For example, it could persuade a customer to invest in its application server stack - which might involve buying more products from Oracle - rather than developing, say, a mobile infrastructure for its sales team.

Managing those big accounts closely is absolutely vital for Oracle if it wants to maintain its strong position, Olofson said.

Reliability and stability
Sun executives maintain that Intel-based servers running Linux or Windows do not come close to the reliability and stability of offered by Unix systems, which still run the bulk of large databases and enterprise software today. Analysts also note that Intel's Itanium 2 processor, released earlier this year, which has also been positioned as a lower-cost alternative to the Sparc processors used in Unix servers, remains a relatively unproven platform for large enterprise systems.

Oracle also concedes that customers have been slow to adopt its clustering technology, called Real Application Clusters. The company said in September that only 100 of its customers are using RAC, out of some 200,000 database customers worldwide.

Mark Jarvis, the company's chief marketing officer, claimed yesterday that the figure is now around 750. The company is trotting out RAC customers at its conference this week to show evidence of the technology's appeal.

Microsoft said in a statement that Oracle is comparing "apples with oranges" when it compares pricing for Collaboration Suite and Microsoft's products. It said that over a three-year period, Microsoft Exchange is "approximately the same cost" as Collaboration Suite depending on the licensing program selected, and could even cost less. And Microsoft has long maintained that its database software costs far less than Oracle's to purchase and maintain.

Another analyst said Oracle's prices could seem economical or expensive depending on the software that users need. Oracle bundles certain capabilities with its database and application server products. For users who want those additional functionalities, the products can seem inexpensive, but for customers who do not want them the software seems expensive, said Mike Gilpin, a research fellow with Giga Information Group.

"The pricing is a complex topic," he said. "It depends on what you want, if you see their price as high or low."

He added: "We do see, though, that customers are looking more often to get more of their tools and application infrastructure from one vendor, so the idea of putting all those things in a suite is certainly consistent with what some parts of the market are looking for."

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