Chou Pushes Oracle Apps Online chief Tim Chou is committed to the idea that software is better managed and creates more productivity when it is administered by the developer that created it. president Tim Chou sees the world in transition from a place where every company is an island with its own IT department running its own applications, to a place where companies are not only connected with their trading partners but with their software provider. Increasingly the future is now for Chou, whose business, a unit of enterprise applications and database developer Oracle Corp., hosts the Oracle E-Business Suite of applications for some 200 customers. eWEEK Department Editor John McCright and eWEEK Senior Writer Matt Hicks recently spoke with Chou about the strengths and weakness of the hosted software model at company headquarters in Redwood Shores, Calif.

eWEEK: How has Oracles hosted application service changed since you arrived two years ago?

Chou: Six months into [my tenure] I went to [Oracle CEO] Larry [Ellison] and said we could clearly run as a separate company but the true value would be lost because what this is really about is morphing the software business from delivering its intellectual property on a CD and [saying to the customer] "Good luck," and delivering it as a service. Its better for customers as a service – its a far faster, far cheaper, far better service, and its a lower cost for us, too. Thats why it will change the entire software business.

eWEEK: Its cheaper for you to run it than to just stick it on a CD and let the customer run it?

Chou: We dont have really good data, but if you think about this, the true cost of software is in the operation, maintenance, et cetera of software, which has implications on both sides of the fence. We estimated there are 500,000 Oracle DBAs (database managers) in the world today. If you [estimate that each one ] costs a company $100,000, that means people are spending $50 billion supporting, managing and operating Oracle software. Were not unique in this, the vast preponderance of cost in IT is not hardware and software its the people to manage all this because software changes, software is not bug free.

[Customers] are building an infrastructure and we are building an infrastructure [and theyre linked] by a primitive concept called telephones. [Think about] Click and Clack, the "Car Talk" [radio call-in show]. You call up, they make fun of you for five minutes, then they hang up. Well, welcome to the world of software product support – our jokes just arent as good. Its PeopleSoft, SAP, Oracle, Microsoft – were all like this. As dumb as it is –why dont you call a guy up on the phone to diagnose a car problem – thats ludicrous. But a car is a far simpler piece of technology than complex software/hardware systems; but what do we do, call up on the phone…There are huge costs buried in this.

The online model, the outsourced model, the directly connected model eliminates that.

eWEEK: Has the typical customer changed?

Chou: We have 200 customers. We go from startups to large, multinationals like Cigna International, for whom we consolidate 26 country systems to one system for the globe. It spans the range.

We were in New York [last month] to tell the world we were taking this mainstream. [Oracle CFO] Jeff Henley got up and said this is easily a multi-billion-dollar business…and we believe we can do this far cheaper. IDC backed us up saying we can do this 50 percent cheaper than the customer can do it, and we can deliver the service 50 percent better—we can process and issue a question or problem 50 percent faster than the old fashioned way and 45 percent of the time we can fix the problem ahead of time. We have a customer, British-American Insurance, signed them up in December. We were working on a press release about the new customer, but by the time the press release was done, 68 days later, a friggin ERP system is live and running.

We tell our customers, "Our core competence is software and you focus on burritos, banking or baking, whatever your business is."

eWEEK: How does Oracle online update software, do you push everything to them?

Chou: We coordinate with them, because there is a certain amount of testing we need to do to make sure they are correct, but it is almost automatic. [Customers] have different work flows, not everybodys manufacturing workflow or financial system is identical. So were on a rolling upgrade with these guys that is typically every six months. Its not to the point yet where it is seamless, but it is a huge leap from the traditional world.

eWEEK: It must take a lot of time if every customer is customized?

Chou: We have a standardized process called an Online Lifecycle and part of that is a very thorough definition of where people are strictly adding software. What that causes to happen is most customers realize that the E-Business Suite is comprehensive, it does a lot of stuff, so there is no need to write a million lines of Java code. But for guys that say, "I have this report that I need to run my business and it is not part of the standard offering," we can add those in a standard way. If the guy says, "Ive got to have these 500 reports," we say, "No problem, standard pricing does not apply, here is this other bill and there is a bigger price to pay for upgrades." We just translate it into money for them, which, at the end of the day is what its really about.

eWEEK: Where most of your customers already using licensed Oracle software?

Chou: A large percentage of our customers are new to Oracle apps and they are new to outsourcing. Im talking about Oracles big E-Business Suite, $50 million companies and above.

We do have the Small Business Suite, it is targeted at the $50 million company and below. The value proposition of them is identical—a single piece of software that allows you to automate business processes from soup to nuts. From selling to marketing to manufacturing through one common data model; so that the meaning of the word "customer" is the same thing in your CRM system, in your purchasing system and your financial system is the same thing.

[Oracle has] starting to bid the outsourced E-Business suite as part of every bid.

eWEEK: Who sells Small Business Suite?

Chou: NetLedger [Inc., which developed the software] is a separate company, but we have rebranded it under the Oracle name. Were doing a lot of things to work together, but the Oracle sales force, those guys cant make enough money to buy Porches selling Small Business Suite.

eWEEK: Is there an upgrade path for Small Business Suite customers to the full Oracle E-Business Suite?

Chou: There are no case studies, but we believe it is possible to migrate from one to the other.

eWEEK: Arent they different code lines?

Chou: We would just migrate the data. Why would you migrate from Small Business Suite? Because there are some business processes you can not automate with that – you cant close books in 26 different currencies, for instance.

eWEEK: What have you learned from hosting apps, whats next?

Chou: As we manage our application suite we are managing our application serve and our database. In E-Business Suite outsourced what weve done is said that [there is a thing ] you call application administration – figuring out how to tune the application, point release upgrades, dealing with patches – and administering the database with the application – space management, capacity management – and administering the [operating] systems, and administering the hardware – keeping the computers cool, keeping the lights on. Traditionally customers have [done all this administration.] Now, were saying we want to do all this [administration] for you better, faster, cheaper. We can do this in one of two models – we own the hardware or you do. We are location agnostic.

Now, lets assume [that the customer is] not running our application. No matter what application theyre running we can help you out [with the database and application server administration.] This is [simply] supporting and managing our technology.

eWEEK: Where did the pilot customers come from?

Chou: It came out of a skills shortage in Europe. People realized we could connect to them in a network because they dont have the skills. There arent enough DBAs out there.

eWEEK: What is the database management service called and how is it priced?

Chou: We call it Technology Outsourcing. If we own the hardware we charge you 5 percent per month of the list license of the app server or database, and if it is at your place it is 3 percent of the list license of the app server or database.

eWEEK: Will this new database management service be targeted at any particular verticals or geographies?

Chou: At the end of the day it comes down not to a technical issue, its a cultural issue. Today, every one of our E-Business Suite customers could live in this [hosted] model. Will they? No, and it wont be because of a business or technical reason, it will be because of a cultural reason.

The whole software industry should move this way, because it is a ton better for the customer. It is well known that software is complex. Weve found the magic, it is [outsourcing.] Were 50 percent faster today, we could be 500 percent faster, thats how much advantage there is in this model.

eWEEK: Have you felt any pressure from or others like that?

Chou: We watch them, but our field people havent seen them yet. But it is clearly a better model to be in, enormously better.

eWEEK: In the managed database offering where is the data, does the data from different customers run on the same big database?

Chou: No, everyone gets their own place. We have a project in-house, iLearning, that is software that you can only buy online and for that we [run data from many customers on the same database] to take cost out of the system. As we get more sophisticated I think youll increasingly see that.