A Critical Look at Oracles Revenue Call
A Critical Look at Oracles Revenue Call
Oracles Larry Ellison had good reason to preen over Oracles red-blooded, healthy-as-a-horse financial statement, announced Thursday. Net income for the quarter was up 11 percent over year-ago figures, third-quarter revenues jumped 9 percent, and software license sales were up 12 percent.
Ellison points to the companys milestone database upgrade, Oracle Database 10g, as being the engine behind this robust growth. For once, hes not just blowing smoke. Financial outfits such as Bear Stearns are citing 10g as providing a "compelling competitive advantage" over database software from rivals IBM and Microsoft. Its a competitive advantage that should persist for years, they say, and one that means Oracle is well on its way to solidifying its position as the No. 1 vendor in the RDBMS market.
And make no mistake about itOracles position at the top of the hill in the $13 billion world database market, according to IDCs 2002 figures, has been wobbly as of late.
IDC in March 2003 reported that the gap between Oracle and IBM had narrowed in 2002, slipping to 39.4 percent, or 5 percent less than its 2001 share. IBM showed up strong, pulling up to 33.6 percent market share, but Microsoft has been the real dark horse. Microsoft, though it had only 11.1 percent of the market, saw its share jump 15 percent in a year.
Database price war
The fact that Oracle has declared a price war on Microsoft rather than on IBM, which has a much larger slice of the database pie, is no coincidence. Microsoft is the one to really watch out for.
Take a look at what its doing in the land of enterprise-scale databases. A Winter Corp. study released in December showed that, between 2001 and 2003, Windows usage in the worlds largest, most heavily used databases grew from less than 20 percent to more than 40 percent in OLTP (online transaction processing).
Of course, that means more to IBM than to Oracle, since it narrowed the gap between Windows and the Unix and IBM z/OS operating systems, which hold sway in that realm. But still, its yet another sign that Microsofts assault on the enterprise market is real and gaining momentum.
For Oracles sake, Oracle 10g didnt come a day too soon. With such a compelling technology vision, its hard to understand how pundits who chastise Oracle for chasing PeopleSoft can say that Oracle should redevote itself to developing compelling technology and leave the poor Pleasanton people alone. Youve got to give the devil his due: Oracle, unfortunately for the many PeopleSoft employees and users whose blood runs cold at the idea of being swallowed, can chew gum and walk at the same time.
Oracle can both pump out a platform that (potentially) entails real cost savings, with 10gs promise of tying low-cost commodity component servers together into a compute-resource-frugal grid, while at the same time chasing PeopleSoft and the DOJ to the ends of the earth in its hostile takeover bid. Even though the grab for PeopleSoft seems doomed at this point, the ongoing battle hasnt slowed down Oracles innovation a bitat least not in the database space.
Oracle bests IBM in
You might ask whats so darn compelling about Oracles version of grid, considering that IBM has long been in that space. The answer boils down to two words: marketing and manageability. Oracles marketing pizzazz speaks for itself, as anybody who breathed in the dry-ice-fog premiere of 10g at last falls OracleWorld can attest.
As far as manageability goes, Oracle has it all over IBM. As Bear Stearns analyst John DiFucci noted in a recent conversation, IBMs database group is a slave to two masters, answering both to customers and to IBMs mainframe business. IBM has delivered a type of clustering technology for some time, but it just doesnt compare to Oracles solution, which, according to early users, shows that Oracle has finally gotten a handle on the oft-bemoaned excess of knob-turning needed with its products.
The enabling underpinning of grid, of course, is RAC (Real Application Clusters) technology. Oracle9is version of RAC was a vast improvement over the earlier incarnation of this technology, OPS (Oracle Parallel Server). Oracle touted 9i RAC as providing a high-availability and horizontally scaling cluster that didnt need undue customization to achieve scalability. As such, it was a big leap over OPS.
OPSnow, there was a hugely disappointing technology. Users complained, for example, about a locking procedure that relied on actual storage. Every time a user had two processors, if somebody placed an order or changed inventory in the system, the other processor couldnt access the data to check the inventory level. OPS required the first processor to write the data to the disk: a time-consuming process that made the locking procedure laborious. With these types of faults, OPS well-earned its poor market reception.
Oracle9i RAC, while an improvement, suffered from its predecessors bad reputation. Burned users were hesitant to adopt grid technologies from Oracle, with due cause. As a result, Oracle9is adoption was sluggish. Some 2.5 years after its release in 2001, Oracle9i had seen a 55 percent market penetration.
: Sitting pretty"> With that hesitancy having played out to some degree, and with RAC easier to implement than ever, 10g is looking at a much more open reception. As of November, some two years into RACs release, Oracle had more than 1,000 RAC customers. Of those, estimates put the number of live, production-level implementations at between 500 and 600. Now, thats already better than what Oracle achieved in five years with OPS, so its easy to see why analysts are pointing to 10g and its version of RAC as the fuel behind Oracles future growth.
Editors Note: According to Oracle, in September Oracle actually had 2,600+ Oracle RAC customers.
But lets put those numbers in perspective and not get carried away by Oracles grid hype. In a statement on Thursdays earnings report, Ellison pointed to the companys earnings growth as having been fueled by the database business, which grew 16 percent, with sales of RAC technology soaring 86 percent. Dont swallow those numbers whole. While 10g is on track to have a much healthier and quicker adoption rate than predecessor 9i, Oracles numbers on RAC are a little fishy. For example, Ellison said that Oracle now has some 3,500 RAC customers.
The math doesnt exactly compute. While number of customers doesnt necessarily correlate to amount of revenues, it would seem that an increase to 3,500 live customers from 500 to 600 would entail far more revenue. The question begs of itself: Of that 3,500 customer base, how many are live and in production? Remember, Oracle recently declared that it would be giving RAC away. Can we assume, of that 3,500 figure for RAC customers, that few are actually paying customers?
None of this is meant to imply that Oracles grid message isnt a good one. But, as is typical of any vendors message, it does seem that the recent news on RAC sales is confusing at best, if not misleading. Advice from me and industry experts Ive spoken with on the subject: Oracle 10g is hot, but take the grid message with a grain of salt.
Editors Note: When initially contacted to verify the facts presented in this editorial, Oracle declined to give details on RAC customers. However, after this story initially ran, an Oracle spokesman did contact me to correct the numbers on RAC customers that I had gleaned from an analyst firm. As it turns out, in September Oracle had 2,600+ Oracle RAC customers. That makes the increase to 3,500 RAC customers far less fishy. However, it would still be nice to know how many of those customers are paying customersa figure that Oracle releases to financial analysts but not to the press. For example, Oracle CFO Jeff Henley in the fall gave a presentation to financial analysts in which he cited 2,000 RAC customers, 400 of which were live. I apologize for the inaccurate customer number, but I stand by my initial contention that, given the low in-production rate, grids getting its share of hype.
Have you tinkered with RAC? Tell me how you like it, at email@example.com.
eWEEK.com Database Center Editor Lisa Vaas has written about enterprise applications since 1997.
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