Oracle Rays of Hope in Market Downturn, OnDemand Strategy

Dennis Byron

What would you say about a down quarter (in generally-accepted-accounting-principle--GAAP--terms) and down fiscal year (after adjusting for the 2008 BEA and Primavera acquisitions and early 2009 acquisition of mValent), which is what Oracle announced at market close June 23?

 

The economy is in the tank. IT budgets were slashed after last year's financial crisis broke (and in many cases, even before AIG collapsed). Oracle's large customers in financial services and the automotive industry are either going to jail or begging politicians for bailouts (which is sure to lead to some kind of combination of the two some time in the future). Big projects in both database and packaged application terms are on hold. Middleware is hurting because the developers that use middleware have been laid off. It's time to hunker down and keep the customers satisfied.

 

That's what you say if you are a normal IT company.

 

And that's why journalists and analysts like Oracle.

 

Never content to take the normal boring public relations path, Oracle led its end-of-fiscal-year press release (after all the currency-conversion, GAAP/non-GAAP gobblydegook) with the claim that is beating SAP, even in Europe, and that Oracle's Exadata database is eating Teradata's lunch.


 

The problem with the SAP claim is that it compares SAP's historically worst quarter (the first of its fiscal year) with Oracle's historical best (the last of its fiscal year). The even bigger problem is that the comparison is for only one quarter, whereas annual or trailing-four-quarter comparisons are more meaningful. In fact, from a quick search, it appears that Oracle made the same claim vis a vis SAP at this time last year in its earnings release and then never mentioned SAP again in an earnings-announcement press release. But this sort of claim is the red meat that analysts and journalists can dig into.

 

In addition of course, SAP is quite a bit larger than Oracle in packaged applications revenues in Europe and on a worldwide basis. I do believe Oracle's claim that it is gaining share on SAP in the applications market, however, even as SAP gains share on Oracle in middleware. But that's not an apples-to-apples comparison, either. Most of Oracle's applications revenue relates to a disparate mix of pure-play applications such as Primavera, iFlex and Siebel and disparate ERP architectures such as Peoplesoft, JD Edwards software running on AS/400-iSeries, Retek and classic Oracle ERP software. Most of SAP's packaged applications revenue relates to the tightly integrated descendants of R/3.

 

As for the Teradata comparison, I'll let someone with more business-intelligence/database expertise than I parse that claim. Oracle is also claiming Exadata wins against IBM and Netezza.

 

Overall, Oracle says it maintains a solid sales pipeline. Notwithstanding the down trendline, Oracle had done such a good job of preparing the financial markets for bad news that all the financial analysts questions on the quarterly conference call were forward-looking positives.

 

On the conference call, Oracle founder Larry Ellison opened the kimono a little by explaining how Oracle's OnDemand strategy works as compared to the Salesforce.com (and conventional wisdom) view of OnDemand. Subject to checking the transcript when it is released, I think he said that OnDemand to Oracle invovles three options: the software delivered as a service is in your data center with Oracle running your data center (1) in person or (2) remotely or (3) the software is at an Oracle data center. Most people look at only option 3 as OnDemand and Ellison explained how Oracle's view is a strong advantage against Salesforce.com and others. (Look for a comment below, which I will add after I read the transcript.)

 

If you're an SAP, Teradata, IBM, Netezza or Oracle user with an opinion on how such quarterly earnings announcements and claims affect your IT planning, send me an e-mail or comment.



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Jun 24, 2009 1:11 AM Dennis Byron Dennis Byron  says:

I think I characterized Oracle's definition of OnDemand incorrectly above in that Larry Ellison was only describing two OnDemand models in this exchange with a financial analyst  during the June 23 Financial Analyst Conference Call. When he said Oracle had three models, I guess he meant the third model was traditional on-premise via perpetual license.  For the record, here is the exchange:

"Kash Rangan - Merrill Lynch

"So if I read it correctly, it is going to be.. everything on demand, delivered as a multi-tenant service from your data centers to add to the subscription model, right.

"Larry Ellison

"Absolutely but... The interesting thing is it's not necessarily from our data center. We have three models.

...

"We have on demand in our data center where we run it.

"But then there is an on demand in your data center where we run it. So the computer is actually on your floor, behind your firewall, attached to your very fast local area network but we provide all the services.

"And we think that's where the real value is and we think that's the interesting model. It's a model that Salesforce.com does not offer. It's a single tenancy on demand model, with a computer on your data center, highly secure, highly performance, but we provide all of the upgrade services and we administer the applications.

"That's proven to be a significant differentiator between us That's proven to be a significant differentiator between us and Salesforce and what is allowing us to win virtually every large-scale deal."

That being said, I think Oracle offers the three services I listed.  It's just that Ellison was combining my items 1 and 2 into 1.

-- Dennis Byron

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