SAAS Doesn't Pay, Oracle's Ellison Says

CEO Ellison knocks SAP's midmarket and on-demand strategy while failing to mention Oracle's own investments in SAAS. Oracle CEO Larry Ellison has some definite opinions on the software-as-a-service sector and reaching the lower to midmarket customers traditionally interested in on-demand software: neither area is worth pursuing.

During Oracle's fiscal first-quarter 2008 reporting call with analysts Sept. 20, Ellison expounded on SAP's release the previous day of its Business ByDesign suite, formerly code-named A1S. Ellison pointed out the "radically different strategies" of Oracle and SAP's growth plans and said he believes SAP is wasting its time pursuing the midmarket with an on-demand offering.

"Our strategy for growth is to find a way to add more value to the same customers we already serve, which are the large end of the midmarket and large companies," Ellison said. "What we're doing here is moving beyond ERP [enterprise resource planning] to industry-specific software."

Oracle, based in Redwood Shores, Calif., has pursued a vertical approach to the business applications market—in which it vows to beat global leader SAP—by acquiring best-of-breed technology vendors in specific industries, such as Retek in retail or I-flex in financial services. The strategy is to sell those core applications to its existing ERP and CRM (customer relationship management) installed base.

Oracle's strategy, according to Ellison, is "very different" than SAP's strategy of going after "small companies" with SAP's Business ByDesign suite.

After four years in development, SAP's Business ByDesign suite was announced earlier the week of Sept. 17. The suite is an on-demand, integrated suite of ERP, CRM and other back-office functional applications. SAP is targeting the midmarket first, expecting to add 10,000 customers to Business ByDesign's roster by 2010, and will likely tap its larger enterprise customers through departmental sales once it irons out the kinks of the new software.

Ellison said he believes SAP has taken a misstep with Business ByDesign—particularly in its approach to the midmarket. "We see the problem in that because we've looked at going downmarket," Ellison said. "We've looked very closely at it, and we think it's very hard to make money because there is no synergy. To go downmarket you need a new product and new product development teams. You spend a lot of money developing a whole new product for the low end. But you also need an all-new sales force because we don't call on those customers. We don't call on small businesses, and it's very expensive to call on small businesses. It's very expensive to do ERP implementations in small businesses. The cost of sales is high. The cost of implementation is high. There are virtually no synergies in sales, marketing, and product development and support."

Ellison said that while Oracle thinks the "small market" is interesting because it's large in size, he said, "We just haven't figured out a way to make a substantial profit in that market. We think it's hard to make money."

With regard to successfully selling to small companies, Ellison speaks from experience. Oracle has tried in the past, unsuccessfully, to sell its software to the SMB (small and midsize business) sector, with fair to middling success—results tough to handle for a company that is looking to be the global leader in application sales.

Ellison's statements regarding SAP are not unexpected given the company's strategy of knocking its biggest competitor in the applications market, particularly during Oracle's own earnings calls. What Ellison failed to point out is that Oracle paid a heavy premium of $5.85 billion for Siebel Systems, which had a significant on-demand offering. At the same time, Ellison personally owns about 41 percent of NetSuite, an on-demand ERP company that will compete directly with SAP's Business ByDesign suite.

NetSuite's technology was the basis for the Oracle Small Business Suite. In 2004, Oracle and NetSuite (previously NetLedger) severed their ties with regard to the Oracle Small Business Suite, but in marketing terms only. At the time NetSuite, which sold the Oracle Small Business Suite, changed the name to NetSuite Small Business. NetSuite is prepping for an IPO.

All that said, Ellison does have a point. SAP is tasked with building a (nearly) new channel to sell Business ByDesign—no easy feat for any company to do quickly. SAP currently has about 2,500 midmarket partners, and expects to push the software through its direct sales channel while it builds a partner channel.

"It is our obligation to create a market for our partners. 2008 is a year we are still testing [the Business ByDesign suite] out, so it will be pushed a little by SAP's sales force," said Leo Apotheker, Deputy CEO of SAP, based in Walldorf, Germany, during an interview with eWEEK. "Hopefully rather quickly we will be able to empower our partners so that at the end of the day we will be a full business partner."

Author: Renee Boucher Ferguson @ eweek.com

Read more ...

Profit booms at Oracle

Oracle kicked off its new fiscal year with its biggest increase in software sales since the dot-com boom, propelling a first-quarter performance that topped analysts' expectations.

The Redwood City company said Thursday that it earned $840 million, or 16 cents a share, for the three months ended Aug. 31. That represented a 25 percent improvement from net income of $670 million, or 13 cents a share, at the same time last year.

If not for stock-option expenses, Oracle said, it would have earned 22 cents a share - a penny above the average estimate among analysts polled by Thomson Financial.

Revenue for the period totaled $4.53 billion, 26 percent above last year's $3.59 billion and easily surpassing the average analyst estimate of a $4.34 billion. If not for a weak dollar that bolstered international sales, Oracle said its first-quarter revenue would have been up 22 percent.

Perhaps most important to investors, Oracle's sales of new software licenses climbed 35 percent to $1.09 billion, soaring past both management and analyst projections. Analysts had been anticipating an improvement in the mid-20 percent range.

The spike in Oracle's first-quarter software sales was the largest since free-spending Internet start-ups were driving demand in 2000, said Safra Catz, the company's chief financial officer.

The first-quarter gains included about $87 million in sales from two recently acquired companies, Hyperion and Agile Software, whose products weren't sold by Oracle last year.

Wall Street focuses on software sales because the new licenses establish a pipeline for future revenue from product upgrades and maintenance.

Oracle shares reached a new 52-week high of $21.31 Thursday before falling back to finish the regular session at $21.04. The stock added 6 cents in extended trading after the company released its first-quarter report.

"It was a strong quarter across the board," said Piper Jaffray analyst Ajaykumar Kasargod. "The (sales) execution is really coming along."

Catz predicted Oracle's momentum will continue in the current quarter. She forecast the company's software sales will rise by 15 percent to 25 percent in the three months ending in November to produce earnings of 26 or 27 cents a share, excluding stock-option expenses.

The first quarter is usually Oracle's weakest sales period because so many key decision-makers take summer vacations.

"If things weren't going well, this is where you would see it," Catz told analysts during a Thursday conference call.

August looked like it might be even more challenging this year as a worsening credit crunch triggered by the slumping real estate market roiled the stock market and raised concerns about both consumers and businesses curtailing their spending.

But the worries apparently didn't stop companies, schools and government agencies from buying Oracle's software.

The first-quarter performance extended a prosperous stretch that has justified an expensive expansion launched in 2004.

Hoping to build upon the company's dominance in database software, Oracle has spent about $25 billion on more than 30 acquisitions in the past three years. The shopping spree has primarily been aimed at luring customers away from Germany-based SAP, the leading seller of business-applications software that helps companies manage their operations.

During the first quarter, Oracle's sales of applications software rose 65 percent to $376 million.

Oracle also is making significant inroads in middleware software - coding that helps the applications work more effectively with the database software. The company's sales of database and middleware software increased 23 percent during the first quarter to $711 million.

"I would say that in the last 12 months, Oracle has certainly established itself as a much more viable software provider," said AMR Research analyst Bruce Richardson.

Author: Michael Liedtke

Read more ...

Microsoft offers Oracle defectors up to 50 percent off SQL Server

SQL Server 2008 isn’t set to be released to manufacturing until the second quarter of next year. But Microsoft already is taking aim at Oracle with its forthcoming release.

Microsoft officials announced on September 19 that they have no plans to increase the price of SQL Server 2008 beyond what the company already charges for SQL Server 2005. Microsoft execs also announced that, starting today, customers who migrate from Oracle to SQL Server will get a 50 percent discount on the price of SQL Server Enterprise Edition or 25 percent off the price of Standard Edition. However, both discounts are available only when users sign up for Software Assurance, Microsoft’s annuity volume-licensing plan.

Microsoft made its SQL Server announcements at the Professional Association for SQL Server (PASS) Community Summit in Denver. More specifics on the Oracle pricing promotion will be provided on Microsoft’s SQL Server Migration page.

This past spring, Microsoft held a contest to entice developers to build Oracle-Office mash-ups. Microsoft also created earlier this year a new user consortium designed to work with joint Oracle-Microsoft customers.

In other database-related news, Microsoft also announced on September 19 that its Office PerformancePoint Server 2007 product will be released to manufacturing this week. PerformancePoint is Microsoft’s latest business-scorecarding application and a key component of its business-intelligence line-up. PerformancePoint provides users with monitoring, analysis and forecasting/budgeting functionality. PerformancePoint builds on top of SQL Server and uses Office as its user interface. PerformancePoint integrates with SQL Server Reporting Services, SharePoint Services and SharePoint Server, officials said. It costs $20,000 per server, plus $195 per Client Access License (CAL), and $30,000 per Internet connector.

Microsoft officials said more than 10,000 customers kicked PerformancePoint 2007’s tires as part of the Community Technology Preview (CTP) test process.

Officials declined to discuss how Microsoft plans to add a services component to PerformancePoint in the future. But earlier this year, Microsoft officials said that Microsoft is developing a managed business-intelligence bundle that will include Microsoft-hosted versions of SQL Server and PerformancePoint. Still no date so far on when Microsoft plans to make that hosted BI offering available, however.

Author: Mary Jo Foley

Read more ...