Whither Oracle? What’s Behind the Strategy and Will It Work?
By Judith Hurwitz
I like irony. I guess you can’t be in the computer industry as long as I have and not get a kick out of watching the absurdities of the shenanigans of industry players who are fighting hard to be king of the hill. I am struck by the contrast between the evolving strategies of Oracle and Computer Associates.
Let me get straight to the point: Oracle started life as a solid database company, a weak packaged application provider, and an also-ran middleware player. Now, with the purchase of PeopleSoft, Oblix for Identity management, and Retek and ProfitLogic for the packaged software retail market, Oracle is trying to reset the clock. Rumors are also flying that Oracle will buy BEA. Clearly, Oracle has acquired a taste for acquisitions.
The Same Dangerous Path?
A recent Business Week article quoted Larry Elison saying that Oracle might buy “companies with a narrow profit margin that have attractive maintenance revenue.” So here’s what I find ironic. Just as Computer Associates is refocusing itself away from the strategy that got it into trouble, Oracle may be starting down the same dangerous path. Buying mature companies, cutting out the costs, and focusing on maintenance revenue was what got CA into trouble. Today, CA is strapped with more than 1,500 products as a result of this same acquisition strategy. With John Swainson on board, the company is beginning the long path back to sanity. It is beginning to shed many aging products. Unlike Oracle, CA is becoming a focused company – choosing to focus on management and security.
Five Things to Watch
I find it curious that Oracle would head down such a dangerous path. What are the dangers? Here are five things to watch (I could come up with more if I had more time, but five’s a good number):
1. Oracle’s database business (which accounts for 80% of current revenue) will suffer if the company takes its eye off the ball. Challenges to the database market will come from IBM at the high end and open source offerings at the low end. In addition, emerging database appliance vendors (Netezza and DATAllegro) are putting pressure on Oracle as well. Customers are uncomfortable with Oracle’s pricing strategies.
2. Oracle’s aggressive moves in packaged applications might force IBM and SAP to decide to play nice with each other. The combined forces of IBM and SAP could be big trouble for Oracle.
3. Does the world need yet another middleware platform? I don’t think so.
4. The PeopleSoft and JD Edwards customer bases are not a “lock-in.” Some smaller ERP players see an opportunity. Also, as IBM begins to package its intellectual property about vertical markets into its middleware platform, it will challenge Oracle.
5. Focus, focus, focus.can Oracle be all things to all people? Does it have the management depth, strength, and instincts to take on the world? The answer is not simple. While there are some strong players in the management fold, the company lacks the management depth to navigate among competing factions within the various product acquisitions.
The Bottom Line
While Oracle has a long history of success in selling high-end database products, it has a less certain track record in packaged applications. Oracle had made gutsy and bold moves to gain dominance. If successful, Oracle will be able to put together a plan that would leverage all of its business segments: database, middleware, and packaged applications.
At Hurwitz & Associates, we think the opportunities for missteps are as great as the opportunities for success. Oracle will have to navigate carefully between the pressures of open source and competitors who will not stand still.