Observations for Oracle

Oracle’s full year results for FY11 were more or less as analysts expected, with strong growth in new license sales of 23% proving that Oracle’s core hunting business is still going well. Market domination This remarkable growth...

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Oracle’s full year results for FY11 were more or less as analysts expected, with strong growth in new license sales of 23% proving that Oracle’s core hunting business is still going well.

Market domination

This remarkable growth coupled with strong support and maintenance revenues proves Oracle’s unassailable position in the enterprise database market place. Safra Catz’s boast that, “our software business is now even bigger than IBM’s software business” is understandable. Many large enterprise organisations may have an unfavourable view of this market dominance, regarding it as monopolising the market, giving rise to lack of customer choice and leverage.

Fighting too many fronts

In contrast, Oracle’s hardware sales are telling a different story and the Application business is still fighting a slow battle of attrition against SAP. With a 5% drop in share price from after market trading and a continuing struggle with the Sun Microsystems business, what lessons should Oracle observe from these results?

Exadata is beginning to see some traction in the market, however this could all unravel quickly. On this call, as on previous ones, it was emphasised that this hardware was a high margin business, but it was clear that the contribution to revenue is still not significant enough (yet). Oracle’s undervaluing of the expertise of ex-Sun employees and stripping out the Channel business has proven to be an expensive strategy. Alienating the competition with antagonistic behaviour has driven Oracle’s competitors to up their game causing clients to consider their options. And after abusive advertising aimed at HP, HP is now suing Oracle over its product pricing on itanium.

Oracle is a player and enjoys formidable influence and control over the market, however it cannot afford to underestimate the buying power of the client and the influence of the general economy.

So Oracle, if you are listening …

  • Demonstrate value to your clients - being the biggest, and even the best, doesn’t always mean that you are the right choice
  • Sort out your hardware channel - having the best product is fine but falls down if you can’t deliver
  • Selling hardware at higher margins is NOT, in itself, good news, particularly when you sell many fewer units
  • Never underestimate the value and potency of your hardware competitors - antagonistic behaviour will motivate them to beat Oracle at all costs

In essence the Oracle results call was a lot less triumphalist than those in previous quarters, with less tub thumping about SAP and more measured tone regarding Sun hardware. It seems that Oracle’s senior management understand that everything won’t go their way all the time and they may even be able to learn from this.

I wouldn’t bet much on a significant change in strategy however, as an intransigent attitude has typically been the norm in this area. This, in turn, may mean Oracle is in for a long, slow haul on the hardware side of the business.

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