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REDWOOD CITY, Calif.–Viewing Microsoft as its most fearsome future rival, Oracle will continue to make strategic acquisitions that bolster its suite of enterprise application software and data management tools, company CEO Larry Ellison said Wednesday.
“Why do we fear Microsoft? They sell a lot of products,” Ellison said. “The more product you sell, the less you have to charge for it,” he said in addressing financial and industry analysts at company headquarters here.
If left unchecked, Microsoft Corp. will keep getting bigger and gradually will move deeper into the markets where Oracle Corp. has long been a prominent player, Ellison said. So, Oracle will follow suit to stay ahead of Microsoft. “Our strategy is to get bigger–sell more, charge less,” he said.
Oracle is also focused more than ever on competing head-to-head with Microsoft in database software sales, Oracle chairman Jeff Henley said.
Oracle is able to win 90 percent of the deals when it is competing directly against Microsoft SQL Server for a new account, Henley said. “But there are a lot of deals that we never see” because the customer doesnt examine Oracle as an alternate to SQL Server, Henley said.
Oracle is engaged in a “three- to five-year process to crush Microsoft,” Henley said, because the latest versions of the Oracle database have the ease of use and data management features to challenge SQL Server in the SMB (small to midsize business) market where Microsoft has been strongest.
Oracle also will grow by continuing to acquire companies that will help it enhance its products or gain access to a wider customer base, he said.
Henley added that Oracle is in a good position to take advantage of a general consolidation of the software industry, which he said is already well under way as customers seek to work with a smaller number of IT products and vendors. Ellison said the shift means it will become harder for the industry to support a large number of competing vendors selling point solutions.
Next Page: Customers will drive consolidation.
Customers Drive Consolidation
The idea that customers will spend time and money working with “lots of different products from lots of different companies and try to put them all together is a mad idea,” Ellison said.
Now more than ever, customers will move toward working with a few standard products and a few companies that can provide a broad range of technologies and applications, he said. “I think this indicates that a large number of companies will vanish,” Ellison said.
Hes been saying for more than a year that the Silicon Valley software industry is ripe for consolidation. A key advantage for Oracle is that it will be able to acquire companies “that are located in town” or nearby in Silicon Valley and “that will make the consolidation easier for us.”
Their close proximity will make it easier to integrate the acquisitions into Oracles structure and to retain the most talented managers, he said.
Oracle makes about 10 to 12 corporate acquisitions a year, Oracle president Safra Catz said. Nearly all of these are small organizations, such as its late June acquisition of Collaxa Inc., a business process management software developer whose technology will become part of Oracles new SOA (service-oriented architecture) platform.
Expanding application software sales has been a major business goal for Oracle in order to remain competitive with SAP AG, Microsoft, IBM and others. It has also been a major justification for its $7.7 billion hostile buyout bid for PeopleSoft Inc. The U.S. Department of Justice is trying to permanently block this acquisition through an antitrust lawsuit.
Next Page: The nitty-gritty of Oracles acquisition strategy.
Growing through Buyouts
Oracle will continue to acquire companies that provide access to new customer segments in existing markets, provide access to new markets and allow it to extend its product offerings or provide technical or management expertise in vertical markets, Catz said.
Oracle officials said they saw little evidence of a slowdown in enterprise software sales, as the company reported a 9 percent increase in revenue in its fourth fiscal quarter and a 15 percent increase in profits.
While competitors such as PeopleSoft and Siebel Systems Inc. both reported lower sales this month, Oracles business “turned the corner” in fiscal 2004 to show significant improvement, Henley said. Barring any unforeseen changes in the world economy, “we are in a position to do better next year,” he said.
While database license sales increased by 11 percent in 2004, applications software sales grew by only 2 percent. For the quarter, database license revenue grew 15 percent while application software license revenue actually declined 6 percent.
The company reported increased revenue from most major business lines in its fourth quarter. New software licenses totaled $1.31 billion, an increase of 11 percent from the same quarter a year earlier. Revenue for license upgrades and product support totaled $1.2 billion, a 13 percent increase.
But services revenues, including consulting and training, declined 4 percent to $558 million in the quarter.
For 2005, Oracle expects a modest improvement in IT spending as companies continue to make conservative and carefully planned purchases of computer hardware and software, Henley said.
Oracle expects that steady growth in the use of Linux, particularly in the Asia-Pacific region, will provide major new opportunities for sales growth in 2005 and beyond, company officials said.
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