Oracle's earnings soar

December 20, 2007 from ComputerWorld – “Robust software sales pushed Oracle Corp.'s second-quarter net income up 35% compared with the same period last year, to $1.3 billion (U.S.), or 25 cents per share, the company said Wednesday. Total revenue grew by 28% to $5.3 billion, Oracle said…

CEO Larry Ellison added that Oracle is finding new business by targeting vertical industries that may not be using packaged software like the kind Oracle sells. "Some of these verticals are almost green fields in terms of modern software," he said. The company's president, Charles Phillips, echoed Ellison. "We think we're very early on in this strategy," he said. "We're still selling in the verticals who are building applications. We're trying to convince them to buy packaged applications."

180 View – Good move by Oracle in targeting the verticals. But how do you take an already complex software system, add more functionality and create something that will not be too onerous to implement? As well, verticals require more than just software; the implementation team also requires industry expertise.

Oracle Buys Hyperion

March 1, 2007 from CRN – “Oracle said it would create a more comprehensive business intelligence software suite following its US$3.3 billion acquisition of Hyperion on Thursday. The two firms said the deal, which is expected to close sometime next month, would allow Oracle to integrate Hyperion's business performance management software into its own business intelligence (BI) product. Oracle's first BI product was released at the beginning of last year.

Hyperion started out primarily as a provider of financial reporting services but has also become successful with its online analytical processing (OLAP) engine, which allows users to quickly analyze complex queries. A few years ago, Hyperion made a strategic acquisition of its own when it spent US$140 million to buy Brio, which gave it an improved query tool…”

180 View – The acquisition represents the growing trend by ERP vendors to provide an end-to-end solution. Initially ERP was a back office application (financials, distribution…) Then it included the front office (CRM, eCommerce…). And now it includes Corporate Performance Management / Business Intelligence. In the short run, this aquisition should be good for all concerned. But what happens when sales fall off as a result of Hyperion prospects who are reluctant to acquire Hyperion because they don't use Oracle ERP systems?

TomorrowNow a threat to Oracle's maintenance business?

October 27, 2006 from Frank Scavo’s blog – “I conducted a phone interview last week with Andrew Nelson, founder and CEO of TomorrowNow, a third-party maintenance support provider for Oracle's PeopleSoft, J.D. Edwards, and Siebel products. I've mentioned TomorrowNow in the past, but I was interested in its business has been progressing in the year and a half since it was bought by SAP.

TomorrowNow has not yet announced its third-quarter results, but Nelson indicated a major increase in new customers: over 200 today, with 60% running PeopleSoft, 30% on JDE, and 10% with Siebel (its newest support offering). The firm plans to offer support for Baan (now Infor's ERP LN) beginning in January 2007, and has already signed up some customers for this offering. Over the past year, TomorrowNow has built out its worldwide support organization to Europe, Asia, and Australasia, in addition to its base in the U.S.

Although TomorrowNow markets its services for all users of PeopleSoft, JDE, and Siebel, in my view there are really a few key segments where the firm's offerings are most attractive. Nelson confirmed that one sweet spot is companies that are running SAP globally but still have instances of PeopleSoft, JDE, or Siebel. These firms, which may be looking to standardize on SAP, have little reason to stay on Oracle support contracts, and they welcome a lower-cost option that is backed by a major player such as SAP.

Another sweet spot is companies that have many modifications and do not intend to upgrade Oracle's Fusion product. In Nelson's view, such customers are paying maintenance fees to Oracle (at 22% of their license cost) to "prefund Fusion," even though they have no intention to upgrade to Fusion. Why shouldn't they save 50% or more on maintenance fees by going with TomorrowNow?

Furthermore, TomorrowNow actually supports the customer's modifications to source code as part of the support contract. Oracle's support agreements, in contrast, only provide support for original source code.”

180 View – This is an interesting blog that contains “independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.”

Oracle defies the naysayers

August 15, 2006 from BusinessWeek – “In 2003, when Oracle Chief Executive Larry Ellison announced his intention to buy PeopleSoft, he was declaring war on a number of fronts. Not only did he have to contend with PeopleSoft CEO Craig Conway, who railed against the deal for more than a year, but he was also stepping up a battle with his counterparts at SAP, the largest seller of so-called software applications, which run everything from businesses' accounting to their call-center operations.

Early on, Ellison made it clear Oracle (ORCL) was buying PeopleSoft and other companies with the immediate goal of becoming the No. 2 player in applications, and ultimately capturing the top spot. "SAP is a formidable company, but we have a shot at catching them," Ellison said back in April, 2004 (see BusinessWeek.com, 4/4/05, "Larry, You Picked a Nasty Fight").

Then there was Ellison's tussle with the many naysayers—SAP (SAP) and PeopleSoft executives among them—who warned Oracle wouldn't sufficiently support PeopleSoft products and that it would stumble in an ambitious project, code-named "Fusion," to knit together a string of acquisitions, ultimately sending PeopleSoft customers into SAP's arms.

IMPRESSIVE GAINS. These days, the digestion is well under way. And according to new data from AMR Research, Oracle has done a much better job keeping acquired applications customers and winning new ones than many early critics expected.

According to the numbers, Oracle made impressive gains in one of the fastest growing categories of applications: Human capital management, or HCM, includes software for human resources departments that automates tasks like performance reviews and handles paperwork around hiring new employees. Oracle took over the top market share slot for the first time, thanks to its PeopleSoft acquisition, according to AMR. By the end of 2005, it had 25% of the market, while SAP had 23% -- though the lead will narrow in 2006, when SAP's share will rise to 24% as Oracle’s holds steady, AMR says.

PeopleSoft had been the gold standard for HCM, so the gain isn't entirely surprising. But the jump was larger than if PeopleSoft and Oracle's premerger revenues were lumped together. In 2004, Oracle sold $324 million of HCM software, and PeopleSoft sold $864 million. But in 2005, the combined company sold nearly $1.4 billion in HCM software. "One plus one actually equaled two-plus," says Jim Shepherd of AMR.

LONG ROAD. When it came to customer relationship management, or CRM, the share gains weren't quite as impressive, because Oracle's acquisition of Siebel, a leader in CRM, didn't close until 2006. Still, in 2005 Oracle moved from the sixth largest seller of the software, which helps manage salespeople and call centers, to No. 3, just behind SAP and Siebel, in 2005. This year, AMR expects Oracle will rise to No. 2, with 14%, just below SAP's 17%.

Oracle still has a long road to surpass SAP in applications overall. HCM and CRM make up less than 30% of overall applications revenues marketwide. And because research firms count market share differently, not everyone grants Oracle the top spot in any category. In a statement, SAP noted that AMR takes into account services revenues, not just licenses and ongoing maintenance, which gives Oracle an edge. Further, it said, "any gains…Oracle has made in enterprise software are a temporary situation, based on their flurry of recent acquisitions designed to gain market share." The statement called further gains "unsustainable."

Still, Oracle clearly has the wind at its back. The company posted a banner fourth quarter on June 22, with applications revenue up an impressive 83%. And the stock price has been flirting with its 52-week high of $15.50, closing Aug. 14 at $15.29, up 2%. Meanwhile, SAP had a rare earnings stumble on June 13 when it said it would fall short of analysts' expectations for the second quarter. Analysts said the miss suggests Oracle could be finally eating into SAP's market share. "If that's not a momentum shift, I don't know what is," says Jesper Andersen, Oracle senior vice-president of applications strategy.

SLUGFEST AHEAD. Analysts give Oracle props for overcoming early customer fears that the company would kill PeopleSoft's superior applications. Instead, Oracle has offered lifetime support for the software customers had already bought. "That really took a card off the table the SAP guys could play against them," says Credit Suisse First Boston analyst Jason Maynard. "Oracle is demonstrating to customers this applications thing is a real and serious market for them," he says.

And, as Oracle and SAP begin to slug it out in the few remaining up-for-grabs industries, such as retail, banking, and telecommunications, strong footholds in human resources and customer care will be a big bonus. To service businesses, that software is more important than manufacturing-friendly software that manages things like when to ship how many widgets to which customers.

The challenge for Oracle will be maintaining the momentum, beyond integrating acquisitions. In core applications software, SAP has more than double Oracle's market share. And SAP is adept at execution. Without any acquisitions, it's expected to increase revenue at least 15% this year. "Next year will really be a neck-and-neck race (in these two sectors) for Oracle and SAP," Shepherd says. "While PeopleSoft really did bump them up to the top, they are by no means pulling away."

After all, that's the real battle between SAP and Oracle: Not how many customers you have, how much of their IT budget you can get. Almost every large company already has some Oracle or SAP somewhere, and these aren't systems that are easily or cheaply replaced. Ellison may yet make good on his promise to become No. 1, but expect a long bruising battle for both companies. Oracle may have acquired its way to No. 2, but it'll have to become No. 1 the old-fashioned way: closing deal after hard-fought deal. And there, SAP has historically had the edge.

180 View – We were one of the naysayers. In January 2006, we wrote “We think that Oracle has bit off more than it can chew. Creating one system for the best of Oracle, PeopleSoft and JD Edwards is going to be a huge job and you can't please everyone at the same time. There is also a lot of uncertainty right now, which is scaring potential new customers away.” It looks like we underestimated Oracle.

Oracle Vows Unlimited Support for Acquired Apps

May 11, 2006 from CRM Daily - "Oracle has assured its installed base that there will be no forced marches to Fusion, its next-generation set of applications. At Oracle's Collaborate 2006 user conference, the company announced that it will indefinitely support and upgrade the products it gained through its acquisitions of PeopleSoft and Siebel Systems, as well as its own line of applications. Oracle had previously committed to support the products only through 2013. Jesper Andersen, Oracle's senior vice president of application strategy, said the move was made to ease the fears of users of the older products. "We have 30,000 customers and need to make sure we treat them well [so] they'll stay with Oracle a long time," he said."

180 View - It's taken a while for Oracle to come round but it sounds like Oracle is now listening to its customers. We suspect that there is an ulterior motive too. Oracle's prospects will be reluctant to purchase any of their existing systems with an unknown future.