Singing Our Song
The offering is a shot across the bow of Microsoft, SAP, Best Software and other software powers now mounting their own aggressive business application offensives in small and midsize companies.
It also represents a ton of upside for Oracle partners, said Oracle President Chuck Phillips. "There aren't a lot of good choices for midmarket applications, at least from a brand-name company who is going to be around," he told CRN last week in an exclusive interview. "So if you want to run on Linux, you think that is important, or if you want to have at least the option of running on Linux, that kind of rules out Microsoft. Their product is overdistributed anyway. This is a green-field opportunity for [solution providers] with a brand-name product."
Phillips acknowledged that Oracle has strained partner relations in the past, but he says all that has changed. "We are doing lots of things to improve relationships with channel partners. Part of it is [being] clear about the rules of engagement, [having] escalation procedures, market segmentation."
The new offering, E-Business Suite11i Special Edition North America, is the latest in a series of salvos Oracle has fired on the product side. A year ago, the Redwood Shores, Calif.-based company introduced a low-end version of its flagship database in Standard Edition One, for use on single CPU machines at $4,995 or $195 per named user. (The Oracle10g Standard Edition lists for $15,000 per CPU, the Enterprise Edition for $40,000 per CPU.) Earlier this month, Oracle unveiled a lower-priced SKU of its 10g Application Server. In August, CRN broke the news that Oracle would bring its e-business suite into the midmarket realm.
This channel-only package bundles financial, inventory, purchasing and other applications with preconfigured business-process flows for $2,000 per user. Oracle has already offered this version outside the United States. Hosting, training, support and service are not included, but the partners, handpicked by Oracle, will offer fixed-time and scope implementation services. Customers can still opt for support from Oracle as well. In contrast, SAP Business One is $3,750 per user plus 17 percent for service and support. Great Plains or other Microsoft solutions are difficult to compare because they are sold per module and require a big chunk of the Microsoft stack, but one longtime Great Plains reseller said the $2,000 price point for Oracle is "very compelling."
Partners that have been selected to resell the product are excited. "In the past we teamed up with an Oracle sales rep and Oracle would get the license sale, we'd get the implementation services. We'd get a 10 percent referral fee if we led the deal," said Mike Feldman, CEO of Lucidity, a Dallas-based Oracle application partner. With this SKU, the partner can now lead the deal, there's less back-and-forth with Oracle and therefore a more efficient sales cycle, he noted.
The margin on software sales, often pooh-poohed by vendors and partners alike, is actually quite important. "You don't get rich on software sales, but that incremental revenue comes in handy," said Joel D'arcy, president of Whitbread Technology Partners, Stoneham, Mass. The real revenue opportunity comes in implementation and support, most partners concur, but they still use proceeds from license sales to generate new business.
Others say that since this suite is the same code base as the Enterprise Edition, it will make it easy for businesses to expand as they develop. "This really is Oracle e-biz suite. There won't be an upgrade for a company who wants to start off small at an aggressive price point and then grow," said Mike Adams, sales director at Vertex Systems, Santa Monica, Calif.
Several partners say application implementers will be pleased with this addition, but it is unclear how many Oracle database integrators will see the advantage. "I don't think this suite will make that much of a difference," said one database reseller.
Some partners also wonder if Oracle's sales force will be paid on the channel suite sales. If not, they fear that Oracle salespeople will pitch a heavily discounted version of the full e-business suite into accounts.
"Oracle's people are extremely aggressive and creative and if the sales guys do not get comped [on our e-business suite], they'll view us as competitive," said one Midwestern Oracle partner.
Clearly, Oracle is not pushing channel friendliness or this suite out of the goodness of its heart. Its application business plunged 36 percent year-over-year in its most recent quarter, a fact Phillips attributed to a "tough comparison" with the year-ago period when the company made a huge sale. But even to its diehard partners, Oracle remains a database company fighting for market share in applications and application server segments. The very fact that it is pursuing its $7.7 billion hostile buyout of PeopleSoft shows how critical the space is to the company. Oracle last week extended its tender offer again until Oct. 8.
"To grow, they have to break into new areas and they're having a hard time doing it," said one Midwestern integrator who asked not to be named. This is especially true as Oracle's traditional database turf is under siege by Microsoft SQL Server and IBM's DB2.
But growth beyond the enterprise requires a channel-centric approach, and Oracle's notoriously hard-charging sales force has long irked integrator and reseller partners with aggressive discounts.
"It's always whatever it takes to get the deal," said one longtime partner who requested anonymity. A typical scenario is a partner brings in a proposal but then ends up competing for it with Oracle sales reps. Oracle says it is addressing this problem by enforcing its rules of engagement and escalating squabbles up the chain of command. Phillips said he has seen fewer problems recently. "The sales force knows that I might find out about it and that it can get escalated, and it changed their behavior," he said.
But some partners say that Oracle's latest rules of engagement represent no real advance over the previous guidelines and that the vendor remains beset by conflicts. "Oracle reps are making their numbers not on product sales, but on making sure they don't lose channel margin when they sell," said one Midwestern regional VAR who asked not to be named. "Oracle partners and salespeople spend so much time competing with each other that they're not being productive in selling the product," the VAR said.
Oracle's hyperactive discounting in enterprise software was exposed once and for all in the Department of Justice's antitrust case against Oracle. In that trial, in which the feds tried to scuttle Oracle's PeopleSoft pursuit as anticompetitive, testimony in the case showed that these companies all offered seemingly irrational discounts in hopes of closing business. And, despite Oracle CEO Larry Ellison's attempt to rein in discounting a few years back with new price lists, the practice continues unabated to this day, according to several partners.
"It's all about what they can get for the license that day," said one West Coast partner. "I was trying to buy $30,000 worth of licenses; they wanted list price. I mentioned DB2, and I got 40 percent off."
Phillips, who is viewed by many partners as a channel champion within Oracle, said price-slashing, at least in big deals, will remain a fact of life. "On the high-end products and the high-end deals, you are still going to have discounting because people want better prices with that kind of volume. On the low end, products like [Standard Edition] One, the product price is just so much lower that people don't bother with it and it tends not to get discounted as much. The entry-level price, the absolute number, is attractive enough that no one is going to sit there and bicker over $129 per user."
Oracle is clearly segmenting the market, hoping that by sweating out hardware and operating system costs with standard Intel boxes and Linux, the Oracle solution is price-competitive with Microsoft and other players. Some partners say it's getting traction.
"We're seeing a lot of business on Linux; it's probably equal to or past Solaris at this point," said Dan Mori, vice president of Fusionstorm, a San Francisco-based Oracle partner. Several partners echoed his contention that Linux is mostly stealing share from Unix-based Oracle implementations, but a few said Oracle on Linux is making headway in what would have been Microsoft SQL Server accounts.
However, there remain many solution providers that admire Oracle's technical expertise but steer clear of the company. "Look. It's like IBM. IBM has IBM Global Services, and if you look at Oracle's balance sheet, it has a huge professional services group. Microsoft does not," said Frank Cullen, principal at Blackstone and Cullen, an Atlanta-based SQL Server specialist.
But Phillips swears the company is determined to mend fences with its partners and gain share in smaller companies. "We are doing lots of things to improve relationships with channel partners. This product specifically, however, creates [money-making] opportunity. [Partners] get the Oracle brand name, the years of functionality we have put into each product, the ease of use we packaged around products, the lower entry price, the margin on the license," he said.
Several partners, many of which have been burned in the past, appear willing to give Oracle the benefit of the doubt.
Hal Hawisher, vice president of sales at Baytree Associates, Charlotte, N.C., said, "I think they're serious about fixing channel relations. [Oracle channel chief] Rauline Ochs has spent a lot of time and energy developing tighter relationships with partners."
Lucidity's Feldman admitted that Oracle relations in the past, at least on the enterprise side, have always been "kind of a roller coaster," but said, "I really do think that they see their consulting organization now as a way to help [software] license sales [via partners]. I think they've realized that they're a software company and there's less conflict now from an integrator's perspective."
STEVEN BURKE contributed to this story.