Ellison Stakes Claim To More Of The Software Stack

The Oracle CEO said Wednesday that the company must continue to add new capabilities to its software, in some instances cutting third-party opportunities, in order to lower total cost of ownership of its solutions.

One reason Oracle is building Automatic Storage Management (ASM) into its upcoming 10g database upgrade is that Veritas storage management is "very expensive," he told reporters after his Oracle OpenWorld keynote in San Francisco.

"If people feel they need to use Veritas with Oracle, that raises the price of Oracle and it's not integrated with Oracle ... [ASM] will be a key feature that lets us sell to SMEs," Ellison said, referring to small- and medium-sized enterprises.

Indeed, Oracle is trying to come down from its high-margin enterprise roots to attack smaller businesses with repackaged, lower cost software to take on Microsoft's SQL Server database as well as IBM's competitive platform.

Oracle is not unique in this quest, he added. "Microsoft is doing this. We have to move more aggressively because we're a database specialist, we need to be well ahead of SQL Server," he noted.

"I don't want to pick on Veritas, but we can't compete with Microsoft [without ASM]," he noted.

At this very show three years ago, Ellison appeared to declare war not on a whole flock of ISVs ranging from business intelligence vendors to application server vendors. On the application server front, it has made strides in the intervening years against BEA, some say.

On Wednesday, he differentiated between Veritas and the business intelligence players, however. Automated backup and storage management need to be integrated with Oracle's software, he said. In the case of business intelligence, "we need that with our applications but it's slightly different. It's not that third party business intelligence makes Oracle less reliable, but it might make us more expensive," he said.

Less additional software means less third-party maintenance and less cost to the customer, he said.

Oracle is wooing some ISV partners for its software stack while moving into contention with others. This week the company said it was breaking out its business intelligence functionality as a separate offering.

Oracle has to do more to automate common processes and procedures that may have been the province of other companies, he said.

"Low-volume, high-priced software raises our total cost of ownership and makes us less competitive," he said.

Of course, Oracle critics maintain that the company is still not the low-cost provider of any of this gear.

Ellison also said the company is working to resolve channel conflict as it gets serious in the midmarket. The first step was to get the right product packaging and pricing, which he says Oracle has done with its new Standard Edition One database and eBusiness Special Edition suites.

Asked if he would support a move to compensation-neutral sales model that would assure that Oracle's direct sales people got the same margin whether the software sale goes direct or through partners, Ellison demurred. He noted that the company is partitioning the market, so that for some products and some regions, all sales will go through channels.

"We do have some comp-neutral saleswe're not the same all over," he said. In Japan, for example, most Oracle sales go through partners.

Oracle is working to set up channels for the eBusiness Suite Special Edition that will eventually only be offered by partners. That is a step in the right direction, channel players say, but even that product continues to be sold by Oracle telesales until the company certifies partners for it. In addition, some VARs said, Oracle direct sales people discount the full eBusiness suite so dramatically that they undercut the lower-priced SMB package.

Even Oracle execs acknowledge that these kinks must be worked out if they hope to win against Microsoft in smaller accounts. Microsoft relies on an army of solution providers to move its software in those accounts. Oracle even plans to recruit from those ranks, so VARs say it needs to get this compensation model straight.

The level of rivalry between Oracle reps and partners has been heated over the years even though current Oracle management up to and including President Charles Phillips is saying the right things.

Just this month, one east coast VAR said his Oracle field reps told him "they prefer working with non-Oracle resellers on Oracle opportunities, so they're not exposed to losing the license deal direct" he said. That means these reps actually introduce competition into a deal for total solutions [so they can ensure] they snag the license margin themselves."

Oracle channel executives have said such incidents should be escalated to them for resolution.