Oracle and Enterprise 3.0

As promised in my earlier post on SAP, here is my take on Oracle in the Enterprise 3.0 framework.

Oracle is the world’s leading supplier of information management software and the second largest independent software provider. Its current market cap exceeds $100 billion.

Oracle’s core strength since its inception in 1977 has been its database technology where it has thwarted competition and maintained its number one position since the mid nineties. It was only natural that the company would focus on developing enterprise applications, which integrate seamlessly with its databases. Largely unsuccessful with internal development, it scaled its applications business by acquiring some of the largest players in the market. Today SAP is the only player of note, which competes directly with Oracle in the enterprise software market.

The big question in the context of this series is whether Oracle’s strategy fits in the larger framework of a shift towards the Enterprise 3.0 trend. The answer is not as forthcoming. If we analyze Oracle’s acquisitions from December 2004 onwards, we find that majority of them have been enterprise software vendors in specific verticals (banking, telecommunications, retail etc.) or traditional enterprise software vendors (PeopleSoft, Seibel etc.). True, there have been Demantra—a demand management, sales and operations planning, and trade promotions management providers and TempoSoft—a workforce management solution, which can be seen as catering to the extended enterprise. But, such acquisitions are a small part of the $22 billion that Oracle spent on its acquisition spree in the past 30 months.

Now let’s look at the other integral component of the Enterprise 3.0 trend in Oracle’s context—software on-demand. Oracle separately accounts for revenue from Software and Services. The Services stream comprises Consulting, On Demand, and Education services. On Demand includes Oracle On Demand and Advanced Customer Services. In the quarter ended February 28, 2007 On Demand revenues at $142 million accounted for slightly more than 5% of total revenues at $2.6 billion. The growth of On Demand revenues compared to the corresponding quarter last year was 47% while total revenues grew by 22%. The growth looks impressive, but Oracle needs to do more in this space than its current offerings, which primarily allows Oracle experts to manage software, technology, and infrastructure on customers’ behalf. Given its size, Oracle’s on-demand offering is miniscule.

Over the past two years, investors have expressed confidence in Oracle’s buying spree and the stock has risen by 60%. This week, Oracle is reporting a 23% jump in profit for its closely watched fiscal fourth quarter, providing additional evidence that Chief Executive Larry Ellison’s acquisition strategy is paying off. However, to plug its gaps in the revenue mix, they would likely need to keep continuing to acquire, and at this point, their acquisitions need to add Enterprise 3.0 vendors into the mix.

In the same vein that I suggested SAP’s Enterprise 3.0 journey will be organic, Oracle’s is likely to be via acquisitions. Citrix, Rightnow, Omniture, Taleo, Concur, etc. are very likely to find their exits in the arms of Oracle. This would enable Oracle to increase the % of on-demand, Software-as-a-Service (SaaS) revenue in its P&L.