Mark Smith's Analyst Perspectives

At its annual conference Oracle OpenWorld this year Oracle flexed its muscles as a technology giant. The company has been steadily growing through acquisitions to expand its database, middleware and applications, and the recent acquisition of Sun Microsystems gives it a way to sell hardware for servers and storage. This momentum is enabling Oracle to develop new streams of revenue, which were on display at OpenWorld in offerings such as a new generation of appliances from Oracle Exalogic for transactional computing and Oracle Exadata 2 for analytical processing along with the Oracle Exalogic Elastic Cloud. This move into database appliances provides a route to capturing market share, particularly from Hewlett-Packard and IBM. As well its market and technology consolidation efforts are paying off in strong financial growth, as shown in its results for the first fiscal quarter of 2011. The conference had hundreds of announcements and insights delivered in breakout sessions or customer presentations regarding all aspects of Oracle’s portfolio of applications, middleware and database technologies. Seeing the former CEO of HP, Mark Hurd, on stage as President of Oracle added to the sense that the company is making dramatic steps for the present and future (See: “Oracle Hopes Mark Hurd Brings New Herd of Business“). And while there were few references to the previous president, Charles Phillips, it is clear that his hard work sowed the crop for Hurd to harvest in marketing, sales and services.

There were some negatives to Oracle OpenWorld, such as bland sponsor keynote advertisements on stage, the absence of attendees from the lines of business and a lack of clarity about the value of investing in Oracle products. On the other hand, the high points were seeing the latest technology, from appliances to predictive analytics that are embedded in Oracle Fusion Applications, and seeing how Oracle is improving the user experience of its applications. The company also is simplifying the assembly and deployment of what we call information applications for immediate access by users wherever they are and through mobile technologies. Our benchmark research on this rapidly emerging topic shows strong demand by business users and by IT groups that seek to reduce the time it takes to provide applications to the business.

Overall OpenWorld was an interesting event and useful from my perspective to see how the company is advancing and to help validate some of our research and prepare us to provide better guidance to our clients. The OpenWorld OnDemand experience is not the best but did help with a couple more sessions that I could not attend and enable my further analysis of Oracle. Here are some highlights that might be useful for those who want details on the Oracle portfolio.

Oracle Applications
One of the main new areas of focus for Oracle is its Fusion Applications, which were announced at the conference after a preview in 2009 and demonstrated by early-adopter customers. This new generation of business applications features collaborative and analytic capabilities targeted to help line-of-business people operate within business processes and across management functions. We have already provided previews and analysis on Fusion Customer Relationship Management (CRM), Financials and Human Capital Management and will follow that soon with commentary on the other modules, Fusion Supply Chain Management, Project Portfolio, Procurement and Governance, Risk and Compliance. All these applications are built on the latest Oracle middleware and available in on-premises or cloud computing methods of access. New to this generation are its modularity and more important the usability and sophistication brought together in a better experience for business users. Oracle has done a splendid job in embedding analytics into the applications and in using predictive analytics to guide actions and decisions; both serve the central function of generating contextual activity streams. The first phase of Fusion will be generally available in 2011; Oracle will have to engage with the lines of business and market Fusion by explaining why this suite of applications should replace their legacy transaction systems for sales force automation (SFA), accounting and human resources management (HRMS). Oracle wants to push Fusion as a new standard for innovation, work and adoption, but it will have to provide more proof points that it can be a focal point for a new approach to handling business operations and an advantage for the future. I believe Fusion has value but now needs to be better communicated with some deeper points of value for line of business compared to IT who might end up squabbling over purchased compared to renting.

At the same time, Oracle has plenty of applications from earlier generations that are still very relevant for customers that use them. For example, since its acquisition of Siebel Oracle has continued to advance CRM and SFA, and Oracle CRM On Demand Release 18 is the latest version of this well-proven application. In an emerging area, Oracle is taking steps in sustainability, which more organizations are moving to adopt. Competitively this is a strategic component of SAP’s applications strategy, and dedicated providers like Hara and Perillon are gaining attention. Oracle supports environmental sustainability management and provides methods to help reduce costs while maintaining compliance to policies and regulatory controls with Oracle Manufacturing Center. It has an opportunity to be a core provider in sustainability if Oracle also addresses the needs of the operations and finance functions for efficiency and cost management.

Oracle continues to advance in business intelligence (BI)applications acquired from JD Edwards, PeopleSoft and others with a new release that uses the Oracle database and middleware; the Oracle Business Intelligence Applications are a core part of the Fusion releases. To help CIOs manage technology and projects more efficiently, it is touting a major new release, Oracle Primavera P6 Enterprise Portfolio Management 8, which competitively plays against established dedicated provider Planview and it’s advancements into operational planning.

At this point Oracle is clearly a leading provider of applications that reach every business function and industry and is working on new applications that fill the gaps of its previous generations. But again it needs to reach out more to businesses customers in their own terms. My colleague, who has been tracking Oracle in the applications market from the early days, pointed out the need for a separate Oracle Applications World conference; at OpenWorld the business attendance was just as low as the previous year and left many valuable presentations with few people in the audience.

Oracle Middleware
Oracle has been working for years to build a consistent, integrated approach to middleware technology that can serve a variety of needs, especially in application development and business intelligence. Progress continues with Oracle Fusion Middleware 11g, to which one-third of its customers have upgraded; it adds new or expanded capabilities for BI, data integration, event-driven architecture, collaboration and deployment of application to mobile devices. We have covered some of these advancements in middleware previously, such as business intelligence and analytics and content management. Oracle probably has the most coherent middleware strategy of any major vendor, including IBM, Microsoft and SAP. This continues to be a significant point of differentiation and customer growth as its value for the underlying Oracle database is as important as the interfaces to Oracle’s appliances.

Oracle Database
Oracle continues to innovate and extend its database technology with Oracle Database 11g Release 2 and at OpenWorld outlined advancements in management, security and storage. In addition, Oracle Exadata Database Machine X2-2 provides an appliance for analytical computing with data warehousing. Oracle announced a larger version, X2-8, that provides more computing power; with four configurations of the appliance Oracle should compete more effectively against Teradata, IBM (after its announced acquisition of Netezza) and HP. Oracle also continues to provide interoperability with Microsoft Excel in an update to its MDX Provider for Oracle OLAP. And the company is working to advance its technology again for larger scale and faster performance to keep up with the advancing power of microprocessors and in-memory processing. While continuing to be a dominant provider of database technology, with its appliances Oracle is addressing issues in the complexity of configuration and tuning for businesses and their IT staffs.

Other Oracle Technology
Oracle’s acquisition of Sun brought it not just a portfolio of hardware but also the Java technology for computing across platforms. In 2011 it will bring to market a new version of Sun’s operating system, Solaris 11; it is tightly coupled in development with Sun’s SPARC processor in a T3 release that Oracle is pushing as part of a new category of software and hardware industry benchmarks. At the same time Oracle continues its commitment to Linux, ensuring its use and scalability for Oracle’s database, middleware and appliance offerings. All of these provide more options in the architecture of computing, which you can buy directly for in-house implementation or packaged in appliances that can be simpler to get up and running. Oracle appears to be easily integrating the components of Sun’s technology and meshing it with its own marketing and sales machinery. With a common management the previous decade of politics between the two companies is fading away. Mark Hurd is well qualified to help integrate the Sun business into Oracle, and his readiness to make changes or remove people who are impeding progress should speed up the process.

Oracle for Industries
Oracle has made large strides in meeting the needs of vertical industries. For example, Oracle Health Management Platform addresses the demand for improving efficiencies in healthcare using enterprise software. For pharmaceuticals the incremental release of Oracle Agile PLM 9.3.1 introduces analytics, connectors, monitoring and publishing of product information; this is not a full product information management (PIM) offering like you find from Hybris, Stibo Systems and others but moves in that direction. Oracle’s vertical industry efforts have not been among its strong points. Like IBM and SAP, it is slow to update its marketing messages to point out the value of analytics and other desperately needed technology to give customers a rationale for replacing the older generation of applications. With its acquisitions of industry-specific applications and teams of people who understand them, it beginning to shape a coherent story but now needs to incorporate the Fusion Applications and capabilities as part of the narrative.

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Regards,

Mark Smith – CEO & EVP Research