October 23, 2006 4:00 AM PDT
Oracle's new plan: Make friends, don't buy them
The software giant this weekend opened the doors of its Oracle OpenWorld customer conference, an event big enough to close off Howard Street in host city San Francisco.
Company executives are scheduled to deliver road maps on Oracle's primary products--databases, applications and middleware--as well as its "information management" strategy. Keynote speeches from large partners--Advanced Micro Devices, Hewlett-Packard, Cisco Systems, Dell, and Sun Microsystems--are planned as well.
Oracle likely still has more acquisitions ahead of it--with people speculating that it could buy business intelligence or open-source companies--but analysts expect the deals to be smaller than the blockbuster Peoplesoft and Siebel deals.
Instead of pulling out its checkbook to boost revenue, Oracle is increasingly turning to partners, according to company executives and analysts.
It has begun to exhibit signs that it can't "own the world" via acquisitions and is beginning to show a change in attitude in working with other companies, even competitors, said Peter Kuper, a Morgan Stanley analyst.
"During their last conference call (to discuss quarterly results), I don't think a lot of analysts picked up on (CEO) Larry (Ellison's) subtle message," Kuper said. "He said Oracle was willing to support BEA Systems, rather than saying something like he usually does like, 'Why would anyone go somewhere else when Oracle can provide the software stack?""
Added Kuper: "He's beginning to see he can't own the world, or he'll alienate customers. He's finding it's better to own 70 percent of a real large pie, than all of a smaller one."
Oracle's "hot pluggable" middleware software, used to underpin its e-business applications suite, is designed around standards, which means it can be swapped out with open-source and competing products. That technical design is also meant to attract partners, such as application builders catering to small businesses.
Having a rich network of third-party products based on Oracle's software helps fill the "white spaces," or gaps, in Oracle's own portfolio.
It also creates broader market acceptance of Oracle's middleware, which could ultimately displace the infrastructure software from competitors as application customers make upgrades.
"We're trying to be best in class--open and hot-pluggable with competing components," Ellison said during the company's most recent earnings call. "But we hope over time, if Oracle does a good job in delivering its components, (customers will) use our completely integrated suite, as opposed to trying to mix and match amongst multiple vendors."
Apart from whether there will be another an acquisition, or confirming rumors that Oracle will offer its own Linux distribution, perhaps the most pressing question for Oracle's top brass is the status of its Fusion Middleware.
Having bought several application companies, Oracle has sketched out the multiyear Fusion program to have those companies' disparate lines run on Oracle's back-end software, such as application servers and portals. The lines include software from PeopleSoft, Siebel Systems and J.D. Edwards.
Fusion could generate significant revenue as existing application customers upgrade to the common software foundation, analysts have said. It is also the software that third-party application providers need to build on, in order to sell their products to Oracle customers.
As a result, middleware has become a key battleground for Oracle with rival SAP. The two are vying for the attention of partners and corporations that are adopting a modern, modular system design called a services-oriented architecture.
SAP has developed infrastructure software called NetWeaver that is now shipped with SAP applications, according to a representative for the German company.
In this race, Oracle has the advantage of having a well-established, rapidly growing middleware business separate from its applications business, Forrester Research analyst John Rymer said.
"Oracle is definitely further along in creating a solid, comprehensive platform than SAP," Rymer said. "They are proving themselves in the open market, competing head-to-head in middleware with IBM, BEA and Microsoft."
The largest software vendors--Microsoft, IBM, Oracle and SAP--have each made a priority of growing their "ecosystem" of partners and third-party products.
At a developer conference last week, SAP announced efforts to expand its network of NetWeaver-certified products, including a separate license for developers and investment from its $125 million NetWeaver Fund.