Ellisons War Perplexes Some
There are two ways to build and sell enterprise applications.
Theres the best-of-breed approach, in which vendors embrace open architecture and easy integration with disparate products. Then theres the Oracle Corp. way.
At a time when the database company is growing increasingly dependent on revenues from products other than databases, Oracle is embracing a formula that includes telling customers to stop customizing ERP (enterprise resource planning) and CRM (customer relationship management) software and start locking themselves into a single line of products, even when those products come up short. The philosophy, along with Oracles continued evangelizing of software as a service, has many questioning Oracles abilityand resolveto get footing in an applications market that has, to date, eluded the Redwood Shores, Calif., company.
Industry observers said the suite-or-nothing approach is driven by two things: the monolithic vision of Oracles flamboyant front man, CEO Larry Ellison, and the departure last summer of Oracles second-in-command, Ray Lane, the man who championed the companys application sales efforts.
The vision is either genius or folly, depending on which users and analysts are asked. But it is decidedly odd to hear a chief executive in a sour economy berating customers for wanting specialized tools. Ellisons declaration of a "war on complexity" urges enterprise users to end application customization by changing their business processes to fit Oracles technologyin other words, no customization, particularly with applications in the companys year-old 11i e-business suite.
"You shouldnt be writing C code. You shouldnt be writing custom sets of programs and, my God, you shouldnt be changing our computer programs," Ellison told an auditorium packed with Oracle customers at the Oracle AppsWorld user conference in New Orleans this spring.
The idea, according to Ellison, is that Oracle will provide 100 percent of what a company needs and about 85 percent of what it wants. The rest of the functionality will come in due time.
But is Oracle good enough to be that bold? Analysts say Oracles 11i application package has more bugs than any such suite released to date. Oracle 11i for Unix and Windows required some 5,000 software patches after only 10 months on the market.
"You have no idea what it is to support Oracle here," said Jim DeMin, program manager at Infonet Corp., in El Segundo, Calif., who installed 11i. "You install the basic product. And then you install the patches, and then you install patches to fix the patches that broke. Then you have workarounds, which is to bootleg the patch in some fashion. Its like the starter isnt working in your car, and the workaround is to get out there in your dress clothes and push 10 miles down the road every morning."
At Ellisons AppsWorld keynote, a customer said that her company had implemented 11i and was still waiting for patches on bugs and workarounds.
"Keep bugging us," Ellison advised.
The curious approach keeps alive the question of whether Oracle, or Ellison, has ever really been interested in ERP outside of whatever business it can bring for its core database businessOracle applications require Oracle databases underneath. Oracle has 550 customers working with 11i with 3,500 more implementations under waymore than half of which are upgrades. Oracle also depends on business from users of products from such vendors as SAP AG, PeopleSoft Inc. and a number of ERP/CRM companies. Thats because Oracles database serves as the production database for those companies systems. But with fourth-quarter license revenues coming in flat, it is clear the company cant afford to rest on its database laurels.
"Going forward, we see our apps growth at 50 to 100 percent in good market conditions," said Mark Jarvis, senior vice president and marketing officer at Oracle. "If the market goes south, your guess is as good as mine. Not Q1, but year on year, in a good economy."
In contrast with Oracles single-vendor vision, PeopleSoft and SAP are eschewing the monolithic approach to embrace best-of-breed delivery.
PeopleSoft 8 was announced last summer and has been shipped to more than 1,800 customers. SAP released its own Web-architected e-business software around the same time.
Both PeopleSoft and SAP reported solid earnings for the second quarter. PeopleSofts license revenue increased 51 percent over the second quarter of last year to $166 million. SAP reported a 24 percent revenue increase over the same period last year, to $1.62 billion and a 17 percent increase in license revenues, to $550 million.
Oracle reported for its fourth quarter ending July 19 that while overall revenues increased 25 percent to $2.6 billion from the previous year, software license revenue for the quarter slumped 10 percent, to $1.66 billion.
SAP is still the ERP leader, with 30 percent penetration. Oracle follows with 14 percent and PeopleSoft with about 9 percent market share.
The competition notwithstanding, industry experts say its the skepticism of users that should alarm Oracle as it strives to be all things to all enterprises.
"The major fear people should be having is [that] you are at [Oracles] mercy. [Oracle applications] wont run on any other database," said Keith Fries, vice president of IT at National Healthcare Resources Inc., in New York. "They do have an excellent database, but they are no longer the only excellent database on the market.
"As a customer, my business depends on the ability to be flexible. I would be in utter, mortal fear that if they decided to go in a direction away from me, I am really at their mercy," said Fries, who ditched his Oracle applications in favor of rival PeopleSofts financial package.
Even a customer such as Compaq Computer Corp., which Oracle touts as a true believer in the war-on-complexity approach, agrees that Oracles mantra of suite vs. best-of-breed is too much to swallow.
"We have very important strategic relationships with a number of important providers," said Paul Box, director of corporate procurement at Compaq, in Houston. "For us to say we are gravitating toward any one, I would have to say no.
"We still believe in the best-of-breed philosophy, but were honing down the number of breeds," said Box, who is implementing Oracles purchasing and e-procurement suites on top of SAPs financials and PeopleSofts human resources modules.
But even with that modified approach, Compaq could run into trouble by going with Oracles fully integrated purchasing suite.
"In terms of long-term maintenance, we have a bit of a risk," Box said. "If Compaq elects to change the core, the financial system of record, we may have a risk in terms of the Oracle apps we sit on."
And customers arent the only ones balking.
"The basis for the major disagreement between Larry Ellison and myself was that, you know, one vendor can do it all," Oracles former president and chief operating officer, Ray Lane, told a group at Sapphire, SAPs user conference in Orlando, Fla., in June.
Lane, who left Oracle June 30 last year after a long and often stormy relationship with Ellison, said Oracle is trying to copy what SAP did in the early days of ERP, which was to integrate the fundamental components of the back officejust as Microsoft Corp. integrated the fundamental components of the desktop.
"But as we move into e-commerce, now that those fundamental back ends are automated, now we look at technology moving into the much more important functions of our business, connecting suppliers, partners and customers," said Lane, who is now a partner at Kleiner Perkins Caulfield & Byers, a consultancy in Menlo Park, Calif. "As we do that, the game is changed."
Lane and others point out that every industry is different, and every company within an industry is different.
"Attaining differentiation in these e-commerce systems is going to be critical in the future," Lane said. "It is mandatory for companies to pick these best-in-class applications and to continue to want to innovate."
"There is a leadership void since Ray left," said AMR Research Inc. analyst Bruce Richardson, in Boston. "Ray was the money; he would go on a call, and Oracle would win."
"Nothings really changed [since Lanes departure], its really been business as usual," said Oracles Jarvis. "For the last three to four years, [Ellison] has been 100 percent at the helm of the company, from development to strategies to day-to-day [operations]."
Jarvis said the suite mentality at Oracle is definitely driven by Ellison. "Our message has become far more consistent now than at any time," he said. "We needed to change the perception that [Oracle was] just a database company. [Were] now seen as the four horsemen of the Internet."
In fact, newer, more nimble companies are finding Oracles suite approach refreshing. Its those companiesmany of which are startups that have the luxury of going with a suite approach from Day One, according to Mark Greenlaw, CIO at NerveWire Inc., a 2-year-old consulting company in Newton, Mass.
"[Older] companies can replace all their legacy systems, but those projects are huge and riskythe kind that can make or break a CIO," said Greenlaw, who went with a committee decision to deploy Oracles enterprisewide suite. "Our plan is to implement all the Oracle modules that would apply to a service firm.
"There will be a couple of instances where your primary vendor doesnt have what you need," Greenlaw said. "Ideally, those are on the fringe of your system."
Still, most users say the ability to innovate and customize software will be key to Oracles success in e-business applications.
Andy Kennedy, vice president of North American Order to Collections Information Manager at Xerox Corp., is looking to Oracle to replace 150 global legacy manufacturing systemsand has already replaced 100 manufacturing legacy systems in North America with Oracle applications.
Currently, Xerox has 50 factories at eight locations running Oracle purchasing applications.
"Were looking at Oracle to provide a lot of our core functionality," said Kennedy, in Stamford, Conn. "But were not afraid to say that in this area, our business is different, and well plug something in if we can.
"Its taken about a year to get it working really well," he said. "The new suite is huge, so if I look at the problems of the modules, its down, its better. Theyre paying the price of trying to build a fully integrated suite. Weve had some problems, but [Oracles] been very responsive."
Likewise, Daniel LaMorte, CIO at Submit Order Inc., an e-fulfillment company in Dublin, Ohio, said he heavily customized Oracles applications to fit his business.
"I dont think theyd resemble the basic systems anymore," said LaMorte, who chose Oracles purchasing, order management and inventory management modules.
Industry analysts say the message Oracle is pushing with its e-business suitethat it has everything and does everythingcant compete with niche vendors when it comes to specific functionality.
Xeroxs Kennedy agrees. "We view Oracles ideas as a core system as a good one," he said. "But to take it to the extreme of get nothing else, we would be a bit dubious about it."