Oracle Hangs a Solid Q2 on a Thick Neck

Positive second-quarter earnings can be attributed largely to Oracle's acquisition strategy—42 companies in less than four years—and customer demand for "one throat to choke."

Oracle surprised Wall Street analysts and investors Dec. 20 by reporting better than expected fiscal second-quarter 2008 earnings, particularly in the area of software license revenue, much of which can be attributed to the fact that its acquisition strategy is finally paying off.

Oracle announced Dec. 20 that its earnings were up 35 percent to $1.3 billion and revenues were up 28 percent to $5.3 billion. Even more telling for Oracle's acquisition strategy, whidh has seen the company acquire 42 companies in just about as many months, software license revenues were up 29 percent to $4.2 billion, while new software license revenues were up 38 percent to $1.7 billion.

"The strength of the quarter comes down to the fact that we are selling more products to more customers in more industries," said Oracle Chief Financial Officer Safra Catz during the company's second-quarter conference call with analysts.

It is a sign, analysts and customers said, that buyers are looking for a single vendor—one throat to choke.

"Regardless of role, all the companies seem to appreciate the potential upside of the Oracle strategy," Bill Swanton and Lee Geishecker of AMR Research said in a November research note titled, "Oracle's Application Strategy—What's Your Five-Year Plan?"

"In fact, once Oracle accounts for over half of their enterprise applications footprint, most companies adopt an Oracle-first policy of seeing if Oracle's product meets their needs before investigating other vendors. They like the idea of single-vendor responsibility," Swanton and Geishecker wrote.

In its "Midsize Enterprise ERP Spending Report, 2007-2008," AMR Research found that 48 percent of midsized companies will increase their enterprise resource planning budgets by an average of 5.1 percent in 2008. That increase in spending will be driven in part by a desire to have a broad spectrum of functionality delivered from a single software vendor, the report said—a finding that ties nicely into the acquisitions that Oracle has been making.

In a Dec. 19 research note, Goldman Sachs analysts Sarah Friar, Derek Bingham and Frederick Grieb wrote that Oracle turned in a "highly impressive" second fiscal quarter, beating estimates on both applications and technology revenues. The reason, they said, is Oracle's acquisition strategy is paying off.

"Oracle continues to execute on its consolidation strategy, which has afforded it an expansive product set, greater account control and tremendous cross-selling opportunities, as well as a recurring engine of maintenance revenue," the analysts wrote. "While many investors believe Oracle's acquisition strategy is now limited by the number of targets available, we do not agree. The software landscape remains fragmented with opportunities springing up in newer areas such as software as a service. A tougher economy might only abet Oracle's strategy by lowering valuations and creating more motivated sellers."

Existing customers agree that Oracle's acquisition strategy is working, for a couple of reasons. The first is the "one throat to choke" theory, which is becoming more of a reality as Oracle acquires more companies. The second is that Oracle has realized the integration nightmare brought on by acquiring 21 application companies since 2005; while the actual product is not yet a reality, Oracle announced in April it would take on integration for its customers with its AIA (Application Integration Architecture).

Author: Renee Boucher Ferguson @ www.eweek.com

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Oracle VP Mike Betzer: The Mainstream Is Waking Up to CRM

"More companies are realizing [CRM] is more than ever before relevant to their businesses. There is more competition than ever before, and companies are trying to figure out how to make customer loyal. They know they need a good CRM foundation to do that," said Mike Betzer, vice president of CRM Strategy at Oracle.

Mike Betzer was working for MCI several years ago when he realized that if the company could use the Internet Over 800,000 High Quality Domains Available For Your Business. Click Here. as a front end, it could leverage the software in the data center and develop a network-based application that could be sold to other companies doing essentially the same thing that MCI did in-house.

As it happened MCI, in the midst of being acquired at the time, was in no position to develop such a new business strategy. Betzer though, for his part, went on to launch Ineto Services, a firm that provided hosted telephony infrastructure. He jumped into, in short, a trend that would come to dominate the CRM space in a few short years.

Later Ineto was folded into Siebel as the then-CRM giant began its push to develop its own on-demand strategy, of which Ineto would play a key part. Siebel, in turn, was acquired by Oracle (Nasdaq: ORCL) Latest News about Oracle a few years later.

Betzer's view of CRM has since evolved. For one -- not surprisingly -- he embraces Oracle's hybrid approach to CRM deployment, which includes both the on demand and on presence models. Betzer's prescience on trends in the CRM space, meanwhile, appear to be as sharp as ever. CRM Buyer caught up with Betzer to talk about where he sees CRM heading next, and how Oracle intends to stay on top of the trends.
Competition Ahead

CRM Buyer: Let's start with 2008. What do you think will be the big CRM story for the year?

Betzer: I think it will be a continuation of what has been quietly happening over the last several months and few years: a resurgence of CRM. More companies are realizing it is more than ever before relevant to their businesses. There is more competition than ever before, and companies are trying to figure out how to make customer loyal. They know they need a good CRM foundation to do that.

CRM Buyer: They didn't know this before?

Betzer: Of course they always knew that, but it is becoming easier all the time for a customer to switch from one service provider to another, from Verizon (NYSE: VZ) Latest News about Verizon, say, to AT&T (NYSE: T) Latest News about AT&T or from Home Depot (NYSE: HD) Latest News about Home Depot, for example, to Lowes.

CRM Buyer: I have to tell you, I am not sure how CRM can stop a consumer from switching from one service provider to another in a lot of situations. Most people, myself included, switch providers for a lot of reasons no matter how long they have been there, usually either because they are annoyed at the service or they like a phone offered by a competitor. And the Lowes versus Home Depot decision? Those stores are so commoditized now that people shop at the most convenient one.

Betzer: What you say is [about product commodization] true, which is why CRM is being viewed as the factor that can push a consumer from just shopping at the most convenient site to seeking out a company where he or she has had a good experience.

For instance, consider Dell (Nasdaq: DELL) Latest News about Dell. It developed a supply chain model that it thought it could ride to dominate the PC space -- until HP (NYSE: HPQ) Latest News about Hewlett-Packard copied that model. So consumers can buy from either Dell or HP, they don't care which one. But they will care which firm knows the consumer better and serves the consumer better. The way to do that is tie all the channels together and develop a master database of customer records. Developing a single source of truth on the consumer. Analytics as well is becoming increasingly important.
Oracle's Acquisitions

CRM Buyer: Can we talk about what is happening at Oracle and its strategy for CRM? How is it leveraging its acquisitions, PeopleSoft, Siebel namely, to build a better product?

Betzer: We are pulling the best from the different applications. PeopleSoft, for instance, cracked the code for the higher education vertical and figured out the right way to deploy and deliver software in that space. It did a fantastic job so we are leveraging that vertical instead of Siebel's.

In other cases we are blending the products. Siebel's field service Latest News about field service application was focused on a service person in a truck. Oracle's was about moving products through a supply chain. We are leveraging both and blending them together.

CRM Buyer: What can we expect to see from Oracle next year, in terms of CRM that is?

Betzer: More blending of sales, service and analytics to allow companies to make smart decisions faster and sell better. For instance, you own a Mac and several iPods. Conceivably an Apple (Nasdaq: AAPL) Latest News about Apple salesperson should have you on his radar, reaching out to you about new devices or related products that you might want. That is what we are focusing on -- allowing that sales person to leverage the knowledge about the customer that sits somewhere within the organization.

We also will be bringing more self-service Latest News about self-service capabilities to the application. Also, loyalty is another focus area for us. Up until recently most in the industry have gotten loyalty wrong -- they think of it only as a marketing E-Mail Marketing Software - Free Trial. Click Here. campaign. But it is not so one dimensional -- you have to leverage sales and service as well, just like the airlines have done with their loyalty campaigns. Airline miles, in fact, is one of the greatest loyalty campaign examples of all time. We want to apply those lessons in other areas now.

Author: Erika Morphy @ www.crmbuyer.com

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How much will Oracle put up to regain its database stronghold?

Oracle may be willing to spend a record sum -- over $6 billion -- to acquire a middleware provider it believes will give it a permanent leg up on Microsoft's SQL Server. Does it still take a huge M&A like this to stay on par with Microsoft?

Database and applications software giant Oracle is trying hard to buy BEA Systems, a big-time middleware maker -- and Oracle is willing to shell out $6.6 billion for the privilege. Business customers could stand to gain by getting a robust and integrated alternative to the Microsoft SQL Server environment.

But will the deal happen? And if it doesn't, does the database crown get transferred to Microsoft, as an addition to its trophy case along with the word processing crown, the collaboration tools crown, and the network mail management crown?

Remember back when databases stood as Oracle's main claim to fame? Well, after snapping up application software vendors PeopleSoft and J. D. Edwards (JDE) a few years ago, Oracle is now chasing down middleware maker BEA Systems with a $6.6 billion offer. If Oracle somehow manages to pull off the deal, many business customers actually stand to gain, especially big enterprises that prefer to run Microsoft Windows alongside non-Microsoft operating environments such as Linux, Unix, and mainframes.

Although Oracle still wants BEA Systems, BEA is holding out for a better deal, Oracle's president and CFO, Safra Cata, suggested this week. Cata also confirmed that, over the past few weeks, Oracle has continued talks with BEA that started in October. But Cata said, too, that Oracle has now decided no "friendly" offer -- in other words, a pact which is willingly embraced by BEA -- can be accomplished "with the current BEA board at a price and terms acceptable to Oracle."
So why does Oracle want BEA so badly, anyway? For one thing, according to quarterly financial results released this week, Oracle is now growing more than twice as fast in application software -- at 63% year-over-year, in new licensing revenue -- as on its combined database and middleware sides.

Still, Oracle's 28% year-over-year growth rate for database and middleware isn't exactly chicken feed either.

But Oracle faces intensifying competition for its long-time database stronghold from Microsoft, a rival that's been working hard for years and years on creating a highly integrated middleware and applications software environment to accompany SQL Server.

With business already booming for its own database, Microsoft is currently pouring a lot of its considerable energies into supporting the launch of the virtualization-oriented SQL Server 2008 in February of next year.

Yet if Oracle's BEA buyout ever really happens, the deal will supply Oracle with a more robust middleware environment -- and through integration between BEA's middleware and the Oracle database, customers would gain a stronger alternative to SQL Server and the surrounding Microsoft .NET environment.

Moreover, many businesses want just this kind of choice. Although nearly all enterprises run some Microsoft software these days, lots of IT managers say they try their best to avoid "lock-in" to a specific vendor. And with Sun exhibiting greater openness these days, they're typically referring mostly to Microsoft.

Ironically, Oracle itself has been accused of just this sort of vendor lock-in, particularly by some customers of acquired properties such as PeopleSoft, JDE, and sales force automation specialist Siebel, who have opted to hire the now SAP-owned TomorrowNow or other third-party support specialists in lieu of Oracle Consulting.

But with Oracle ERP (enterprise resource planning) rival SAP now in court over charges that TomorrowNow hacked Oracle, could it be that some erstwhile disenchanted customers are finally giving up their grudges and signing on with Oracle?

Although Oracle isn't giving an answer here, this could stand as one factor in the company's stellar rise in new software licensing during Oracle's most recent quarter. For that matter, by the way, Oracle's services revenue also stepped up during the quarter to the tune of 22%.

BEA -- like Oracle, a company that's grown through acquisition -- now affords a Web SOA (service-oriented architecture) environment that could easily be used by Oracle to promote interoperability among its database, applications from its various acquired properties, customers' own custom apps, and other software from myriad operating environments.

BEA is also being widely hailed for its AquaLogic BPM (business process management) software suite, designed for automating customer-specific tasks such as manufacturing processes and document management routines. Recently, BEA was named to Gartner Group's prestigious "magic quadrant" in the BPM category.

Microsoft offers BPM, too -- most specifically, through its BizTalk Server middleware. But Microsoft's BPM requires installation of not just SQL Server, but a whole wide range of other .NET servers and components.

For companies that are on the fence about making deeper investments into Microsoft technology, could BEA's BPM serve to dissuade them?

Oracle's current efforts to buy BEA have major precedent in Oracle's purchase of a similarly reluctant PeopleSoft through an unfriendly acquisition back in 2003. But although at $10.3 billion, PeopleSoft might have cost more than Oracle bargained for at first, the unfriendly buyout has indeed paid off handsomely for Oracle in the end.

Oracle CEO Larry Ellison acknowledged this week that Oracle has been pursuing a strategy of growth through expansion into vertical industries, during the same financial conference call in which Oracle's Cata confirmed Oracle's continuing interest in BEA. According to Ellison, Oracle plans to keep going with this strategy into the future.

But how has Oracle managed to perform this kind of vertical expansion? On the CRM (customer relationship management) and ERP sides, PeopleSoft was notable long before its acquisition by Oracle for its penetration into financial services, for instance. For its part, JDE was big into manufacturing.

And that all points to yet another reason why Oracle wants to buy BEA. More customers in vertical markets. BEA just happens to be a highly active middleware player in at least a couple of dozen different verticals, including financial services, manufacturing, health care, government, and education, to name a few.

Yet even at a mere $6.6 billion, BEA would be a costly buy for Oracle, especially when you consider that Oracle's entire revenues for the second quarter amounted to less than that, or $5.3 billion.

BEA apparently wants more than $6.6 billion. And rumor on the street has it that BEA could be courting some other suitors, too. So we know that retaining the database crown is of value to Oracle. The question now is, how valuable? If Oracle ends up forking over $7 billion or more, even if Oracle's executives find themselves smiling...Microsoft's might also celebrate just a bit.

Author: Jacqueline Emigh @ www.BetaNews.com

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