Oracle Finds Success Where Other Tech Giants Fail
"We've done more business in the last year and a half with Oracle on PeopleSoft than we did in the last five with PeopleSoft," said Maude, president of Beacon Application Services in Framingham, Mass. "'Thrilled' is probably the right word to describe my feeling about the experience with Oracle, much as it surprises me."
Oracle's acrimonious $10 billion PeopleSoft takedown was the first major deal in an unprecedented shopping spree that has consumed 41 companies over the past four years and cost Oracle more than $25 billion. Several years into the buying binge, solution providers in the company's ever-expanding ecosystem say Larry Ellison and Co. have done the near-impossible: successfully integrated the technologies and development teams they've bought, and turned Oracle's rapacious strategy into a channel success story.
"We had record revenue last year and we're expecting the same this year," said Rich Woll, executive vice president of eVerge Group in Plano, Texas, a PeopleSoft and Siebel solution provider that joined Oracle's partner program through the acquisitions. "From the standpoint of Siebel—they have continued development on it, there's a road map, and there are more people selling Siebel now than when Siebel was independent."
This isn't how the story was supposed to go. Observers across the board—analysts, customers, partners, investors and press—expected Oracle's ambitious acquisitions campaign to eventually end in disaster. IT mergers are famously challenging: Witness the sturm und drang of Hewlett-Packard's Compaq integration. And then there's the example of the last major software company to chase growth through pricey acquisitions: Computer Associates, now CA, spent the '90s gobbling up smaller vendors, a strategy that turned into an arms race. When CA ran short of cash and targets, it inaugurated its infamous, illegal "35-day month" to camouflage its stalled growth.
Oracle has never shown any signs of susceptibility to the accounting chicanery that ravaged CA and sent some top management to prison, but CA's name was pervasive in discussions of Oracle's frenzied spending back at the shopping spree's start, as a symbol of all the ways a "roll-up" acquisitions strategy can fail. Former Ellison protg Marc Benioff, now CEO of Salesforce.com, made the comparison explicit. "When I was at Oracle, we watched Computer Associates buy all those mainframe software companies and milk them for their license revenue. I never thought that's what Oracle would be doing one day, and yet, here it is," Benioff said in September 2005, on the day Oracle announced it would buy Siebel.
Two years and a dozen acquisitions later, the strategy is working. Oracle's revenue and earnings are at record highs, but more important to partners, so is channel satisfaction. In this year's VARBusiness Annual Report Card study, Oracle topped its software categories, and North America channel chief Rauline Ochs landed Channel Executive of the Year honors, based on feedback from Oracle's VARs.
So what happened? Where did Oracle go right?
Next: Applications Turnaround Applications Turnaround
One key question confronting Oracle from the start was how it would integrate and promote disparate application lines. The company's initial plan wasn't reassuring: "We will not be actively selling PeopleSoft products to new customers," Larry Ellison announced on the day Oracle launched its hostile PeopleSoft bid. His intention was to support PeopleSoft's existing customers but steer all new buyers toward Oracle's homegrown E-Business Suite.
In time, though, Oracle's stance softened. A critical turning point was the "Applications Unlimited" commitment Oracle made in mid-2006: In response to customer and partner feedback, it pledged to support and enhance all of its product lines indefinitely. Rather than ending sales of PeopleSoft, Siebel, JD Edwards and its other acquired products, Oracle chose to expand them.
VARs say Applications Unlimited has made a huge difference. Oracle kicked off 2007 with a Big Bang update on all of its application lines, releasing PeopleSoft 9 and Siebel 8 alongside Oracle E-Business Suite 12. It also drafted road maps for future improvements. Beacon Application Services, a 17-year PeopleSoft services veteran, has technical architects working with Oracle on new, built-from-scratch PeopleSoft functionality. That momentum gives customers the reassurance they need to invest in PeopleSoft, said Maude, who has closed several major deals this year with customers that had never before bought PeopleSoft technology.
"From what I can tell, PeopleSoft is going to have a long life," he said.
Oracle's unexpected nurturing of its acquired products goes beyond continued support of partners already specializing in them. Ironically, the industry's top consolidator has become the last refuge of best-of-breed technology adoption: Some Oracle veterans are adding expertise in those technologies because they prefer the software Oracle has bought over that it built.
Scott Jenkins, CEO of The EBS Group in Lenexa, Kan., calls Siebel's analytics technology much stronger than anything Oracle had previously. He's also a big fan of Oracle's buyout of identity-management tools makers Thor Technologies and Oblix. With those technologies, EBS Group can offer its customers broader middleware stacks than it could before. "We've seen a tremendous increase in revenue from identity management," Jenkins said. "That business wouldn't have gone to Oracle before; it would have gone to Sun or someone else."
Next: Strong Channel Management Strong Channel Management
Oracle has another trump card contributing to its success: a channel team partners praise as unusually skilled and responsive.
"At a high level, the channel program is a lot better since Rauline Ochs has been at the helm," said Jenkins, who began working with Oracle in 2001, two years before Ochs joined the company. "Oracle had something of a love-hate relationship with the channel—sometimes it really loved the channel, sometimes it felt like the regional managers with quotas didn't like to work with us. Rauline has done an excellent job of educating the Oracle management."
Partners who came in through the acquisitions consistently say their experience with Oracle compares favorably with their old vendors. Siebel never had a strong channel program; it was in the early stages of building one when it succumbed to Oracle's pursuit. JD Edwards partners suffered the turmoil of two quick ownership changes: It was part of PeopleSoft for just 18 months before Oracle in turn took over PeopleSoft.
PeopleSoft could be a frustrating partner, according to Maude, whose company was one of the first to join PeopleSoft's channel program. Much of PeopleSoft's attention was focused on top systems integrators like IBM Global Services and Accenture. In contrast, Oracle is a more democratic company that helps partners of all sizes access the resources they need, he said.
EVerge's Woll has a similar outlook: Oracle "does the channel very well, compared to my experience in the past with a number of vendors," he said. Siebel's channel efforts were nascent and PeopleSoft's were spotty, while Oracle's channel training, outreach and support is reliably strong, in his view.
Even partners that didn't stay through the transition acknowledge pre-existing problems predating Oracle. FMT Consultants in Carlsbad, Calif., joined Siebel's channel program but didn't stick with it.
"Siebel was going through a lot of different partnering models and struggling to be successful," said FMT CEO Tom Gildred. "At one time, they were fighting the classic direct-vs.-partner battle." The complexity of Siebel's technology was also problematic. While complicated deployments made for bigger deals and more revenue for service providers, it also extended sales cycles and lowered close rates. "We loved selling and implementing Siebel technology, but we found very few happy Siebel customers," Gildred said. His company now focuses on Microsoft's ERP and CRM applications.
Fusion Confusion
There's one big cloud of uncertainty hanging over Oracle's success: Fusion.
First discussed in early 2005, Fusion is Oracle's intended next-generation application set, a "functionally merged" but built-from-scratch application line drawing on the best features from each of Oracle's acquired software suites. Scheduled to debut in 2008, Fusion remains shrouded in mystery and controversy. The applications chief charged with shepherding Fusion, John Wookey, quietly stepped down from the project in October as part of what Oracle describes as a reorganization. Insiders say Wookey lost a power struggle. Fusion is now guided by executives including Thomas Kurian, senior vice president in charge of Oracle's middleware technology, and Edward Abbo, senior vice president of application development.
The departure of Fusion's chief months before its planned arrival is an ominous signal, but few Oracle partners are worried, largely because few of them have much interest in Fusion in the first place. Thanks to Applications Unlimited, customers can continue indefinitely with their existing application sets, and VARs say that's the path they see their customers taking.
"Oracle's making it pretty easy for customers to stay on their current application path," said Ron Zapar, CEO of Re-Quest, a Naperville, Ill.-based solution provider and longtime Oracle partner. His customers are taking a wait-and-see approach to Fusion.
By being nebulous about when Fusion applications will arrive and what they'll look like, Oracle has given itself a lot of wiggle room—and it's started wiggling. In mid-2005, Oracle rebranded its collection of application server, analytics and content-management software as Fusion Middleware. What initially seemed a confusing choice—two software lines sharing the same name—now looks like intentional line-blurring. At the OpenWorld conference, Oracle executives previewed three sales tools slated to become the first Fusion-branded applications, but also heavily emphasized that Fusion will be an iterative, backward-compatible extension of its existing applications. What they're describing now sounds more like incremental new functionality integrated through Oracle's middleware stack than the comprehensive applications rethinking discussed three years ago.
Analysts are taking note of the expectations reset. "Given the technological hurdles involved, we continue to have concerns about Oracle's ability to roll out a completely rewritten, truly unified applications code base next year," Sanford C. Bernstein and Co. research analyst Charles Di Bona wrote in a letter to clients following OpenWorld, a view echoed by other financial and industry analysts. "We believe that it is likely that the 2008 version of the Fusion Suite will more closely resemble a collection of discrete applications glued together with Fusion middleware rather than a single, unified applications suite."
From a customer and partner perspective, that's a better approach than a complete applications rewrite.
"Personally, I never believed there was going to be Fusion applications," said Beacon's Maude. "We don't need to replace the applications. What we need is better infrastructure."
Re-Quest's Zapar likes the message Oracle is sending that Fusion applications will be driven by Fusion middleware, rather than the other way around. In the past, Oracle's E-Business Suite applications weren't always in sync with its application server and other infrastructure technologies, creating integration problems for its solution providers and customers. "Now everything is moving to a standard development and deployment platform, and that's very cool," Zapar said. He added that Re-Quest's sales of Fusion middleware products are up 40 percent year-over-year.
Next: Oracle's End Oracle's End Game
Next year will be a critical one for Oracle, as it fleshes out its Fusion vision and begins delivering some form of the promised Fusion applications set. It's also poised on the precipice all acquisitive companies eventually hit: It's almost out of things to buy.
Oracle has quietly snapped up dozens of small companies with industry expertise or compelling technologies, such as operations planning software maker Interlace Systems (in October) and ID management developer Bridgestream (September). At OpenWorld, Oracle President Charles Phillips boasted, "We've become the IPO market for the enterprise software industry."
Oracle will never run short of start-ups to acquire, but like lions chasing gazelles, Oracle and its rivals have already picked off most of the software market's tastiest prey. Of four remaining indie vendors, Oracle has already made a play for one: BEA Systems (see "The Quest For BEA, this page). Can it succeed with the most acquisitive growth strategy the software industry has ever seen? It has momentum on its side.
"I hadn't seen them make many bad decisions," eVerge's Woll said. "They do what customers and partners need. They've made all the right choices. And to do that and assimilate all the companies they have—that's beyond a daunting task."
Rick Whiting contributed to this story.
LET'S MAKE A DEAL
June 2003: Oracle launches a hostile bid to buy PeopleSoft for $7.3 billion in cash, an offer PeopleSoft's management vehemently rejects.
February 2004: Oracle ups its bid to $9.4 billion. The DOJ files suit to stop the merger, which it deems anticompetetive.
May 2004: Oracle reduces its PeopleSoft offer to $7.7 billion. It later ups its bid again, but keeps it below the previously offered $9.4 billion.
September 2004: A U.S. District court rules in Oracle's favor and rejects the DOJ's arguments.
October 2004: PeopleSoft's board ousts Oracle resister Craig Conway.
December 2004: PeopleSoft agrees to an Oracle takeover for $10.3 billion.
February 2005: SAP agrees to buy retail applications developer Retek for $496 million. One week later, Oracle announces a higher, competing bid. After a tug-of-war, Oracle emerges victorious, buying Retek for $631 million.
March 2005 - January 2006: Oracle buys more than a dozen companies, a shopping spree climaxed by its deal to buy Siebel Systems for $8.9 billion.
April 2007: Another dozen smaller deals later, Oracle gets back into the game by purchasing analytics vendor Hyperion for $3.3 billion. SAP counters with a deal to buy Hyperion rival Business Objects for $6.8 billion.
October 2007: Oracle initiates a hostile bid for BEA, offering $6.7 billion. BEA's board says it is worth $8.2 billion and rejects the deal. Oracle lets its bid expire, leaving BEA's fate uncertain.