Oracle in the wars?

Larry Ellison took time out of the Oracle year end frenzy last week and during an interview at a conference, talked about yachts, the competition and generally amused himself. We also like to take stock at this time of year as Oracle is about to...


Larry Ellison took time out of the Oracle year end frenzy last week and during an interview at a conference, talked about yachts, the competition and generally amused himself.

We also like to take stock at this time of year as Oracle is about to report earnings for its final quarter. Stepping back to look at the enterprise IT landscape right now is reminiscent of spectating the aftermath of a medieval battle.

The weapons of choice in the armoury of IT giants today are not longbow and broadsword but litigation and acquisition. For sure the armies of the North have been busy; the battlefields are littered with the carnage of war and the stench of death hangs in the air. So with this back drop in mind, we look at Oracle Q4 activities as indicators of its probable FY12 year-end position.

The battles Oracle picked over the past 3 months

Ellison is a lifetime follower of Sun Tsu and rarely finds himself fighting unless he has already worked out how he will win, hence Oracle public spats are the best indicators of Oracle strategy. Here are the top 3:

  • The Battle of Evermore, aka Enterprise Server Sales. Ever since the Sun acquisition, analysts have looked to Oracle server sales as an indicator of shareholder value return. This is the high stakes table. Ellison, just yesterday was on record as saying he wants to beat IBM in high end servers - displacing P Series etc with Exa. Only by usurping IBM will Larry fulfil his hunger with the global number one and the eternal legacy that goes with it.
We see daily evidence of Oracle focus here - every sales rep has an Exa target, any deal gets the Exa treatment and every executive call enforces the Exa pressure. It is pretty difficult to assess how this battle is progressing but anecdotally, although we have advised on some Exa transactions we aren’t seeing major market adoption and figures from IDC this week show overall global server sales down 2.4% and Oracle factory sales slumping by 7.3%. Oracle says this is to plan but we can’t tell yet. As Led Zeppelin sang “....time will tell us all.”

  • The Battle of Britain. Success or defeat in war usually comes down to who controlled the skies. Likewise in the high level battle for Enterprise domination much focus comes down to ERP control. For Oracle this means beating the clear leader SAP. At the early stages of this war the battle is focused on Innovation, R&D and Thought Leadership and SAP were extending their lead. Oracle changed the game to play catch up by acquisition and have, since 2002 made over 70 progressive game changers. This quarter, Oracle announced Cleartrial, Taleo and Virtrue which all captured business conversations and mindshare, acceleration into the Cloud and incremental operating revenues. Oracles execution is well rehearsed and the momentum is formidable. But SAP, after Apotheker, is fighting back and has retorted with Success Factors and now Ariba; both great moves on the back of its Hana response to Exa.
We have seen some stunning Oracle successes (particularly in Financial Services), in the high end total-solution space where it has pushed acquired products into significant transactions that have also driven Exa into the stack. On PowerPoint, the Oracle concept of engineered systems is genius. Let Oracle be a single point of accountability for the whole business app stack on its middleware, on its database, on its servers and in its datacentre, punching out BI in its own style. What can go wrong? We watch this space. Client concerns about how much operational trust to put in a software company may be a stumbling block that further acquisitions and patching of the jigsaw will never overcome.

  • Battle of Midway aka control of ubiquitous intellectual property. Probably the key original rationale (though never admitted) for the Sun acquisition was actually to prevent control of Java falling into the hands of IBM rather than for Oracle to compete in hardware. Java is a building block of much of Oracle products, and has become a common component in many consumer touch points, for instance in the Google Android mobile phone operating system. Oracle decided to use the courts to drive Google into coughing up multibillion dollar compensation for claimed infringement of copyright. In a highly technical courtroom battle the jury in essence found that there was infringement, but in a way that warranted no material compensation. Although actions continue, what Oracle found is that it failed to capture the empathy of the jurors, and defence of the American dream put Google as the good guys and Oracle as the bullies. I’m surprised that Ellison, as an old buddy of Steve Jobs, didn’t see that messing with consumer markets (Android) means dealing with consumers, and these include jurors. Empathy is useful, and is sometimes absent.

So to review the battle stats...

It’s increasingly hard to call Oracle performance as it has little transparency into its revenue contributors - geographic performance is also quite opaque and the performance of acquisitions cannot be compared like for like, period on period. This means even the old traditional indicators such as “database new license revenue” starts to blur. Oracle are clearly also struggling with this ever increasing complexity, hence its first big miss on expectation in its Q2 this year.

But we call it as follows - in the Server Sales battle Oracle is failing to get traction outside of its “Global 1000” client base at the expense of IBM which is performing more consistently. Against SAP, Oracle is holding its own despite an ever impressive SAP resurgence of fighting. The midterm will depend on Oracle delivering against the Fusion promise by integrating the acquired apps - we see issues due to the pure scale of the engineering challenge. And in terms of mindshare and market empathy - we expect Oracle to try a softer side to win more trust and support - a tough order for a battle-hardened veteran.

For the ORCL earnings call later in June - we expect it to scrape in or narrowly miss expectation.

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