At its last quarterly earnings call Oracle sent analysts reeling with the shock announcement that it missed expectations by around 10%, the first such shock in over 10 years.
The miss was attributed to delayed deal approvals, particularly with Exadata solutions. The share price plummeted and Larry Ellison’s personal stake dropped by over $5bn overnight.
The lingering question is whether this sudden turn in fortunes was simply down to some buying decision delays with clients or whether Oracle is facing deeper issues in its markets.
After all, since 2002 it has made over 75 acquisitions, transforming the dominant enterprise software vendor to a full stack player after taking on the ailing Sun Microsystems business.
How is Oracle performing against SAP, IBM and Microsoft?
The last few weeks have helped put this performance in a market context after key Oracle rivals announced their relative performance.
Microsoft delivered an uninspiring but solid set of results when it announced on Jan 19th. With SQL Server 2012 coming on stream, it is a credible alternative option to Oracle in many enterprise scenarios.
IBM also met expectations on the same day, when it reported another solid set of gains. Its successful focus on analytics and cloud computing showed evidence of success with most of it coming from software and services. Websphere for instance grew by 21%.
Most tellingly for Oracle, SAP reported its results on 25th January. It managed to surprise analysts by exceeding expectations, as it announced its best ever results. Notably its software revenues grew by 25%, striking right at the epicentre of Oracle’s core business.
SAP strikes back at Oracle
What will delight the SAP Executives is not only the core ERP software performance against Oracle’s, but also the contribution from SAP HANA, its next generation application infrastructure designed for high performance cloud, based on in-memory technologies.
This is a real Oracle knockout product that will rival Exalytics; with sales of over $200m in its first six months, it seems to have found a hungry market.
2012 will be a pivotal year for Oracle
Looking back, there is no doubt that 2011 saw Oracle feel a sense of triumph of many of its industry rivals.
Acquisition had driven revenues to all-time highs, operational efficiencies had ripped costs out, its market cap had returned to the highs of old. The company humiliated HP, jumped on the cloud and got its market cap to within $27bn of IBM (its old nemesis has now regained its stride and extended its market capitalisation superiority back to around $80bn).
Oracle has a lot at stake then, as it needs to restore confidence in investors and get clients buying. And there-in lies the challenge in our opinion - it will be torn between resuming its normal highly aggressive "buy now" sales approach to market, and the more mature and client-centric long term approach that benefits full stack "C" level solution selling cycles.
What we are seeing client side in the market is a growing reluctance in many enterprises to increase spend and dependency, on a vendor that has historically been reluctant to genuinely partner with its clients; instead using compliance, complexity and extreme sales pressure to get and retain revenues.
Client executives are realising that regardless of how appealing the lure of Larry’s engineered as one pitch is, placing your database, business applications, middleware, virtualisation, storage, servers and support with a single vendor as self serving, aggressive and domineering as Oracle may be a step too far. Hence we are seeing hesitation and competitor wins.
A potentially sustained client backlash?
Time will tell. It needs to deliver in its third quarter results (due end of February). Having set a big expectation of delayed deals from the second quarter and a record pipeline for the third, it will be interesting to see its actual results as its competitors have demonstrated that budgets are indeed being spent.
Our interest is just how Oracle will drive the revenue - will it increase vendor audit activity and crank up the pressure, or will it take a longer term view and position real value creation through partnering with its clients? Oracle audit activity won’t surprise us.