Oracle’s applications business has come under attack from three different directions as it seeks to use its customer relationship management (CRM) packages to boost its presence in the enterprise applications space.
The three pronged attack involves a new twist in the war of words with arch rival Siebel Systems, heightened rumours that IBM is courting Siebel as a potential takeover target following a reseller agreement between the two, and SAP’s recent overtures to Software AG (SAG). This has resulted in SAP promoting SAG’s Adabas database over Oracle’s.
Last year, Larry Ellison Oracle’s chairman and chief executive, made it clear that he wanted the firm’s applications business to represent 50 per cent of its total revenues over the next few years.
Today, estimates suggest that the unit accounts for no more than 25 per cent of total sales, but Ellison knows that pressure on his core database business from Microsoft and more recently, rival enterprise resource applications (ERA) vendor, SAP, means he has to focus on applications to ensure continued growth.
As a result, the stakes are high, but this week the long running war of words between Oracle and Siebel took a new twist when Thomas Siebel, the firm’s founder and chief executive, attested that Oracle had withdrawn what he described as ‘illegal’ advertisements.
The adverts, which appeared last month in publications such as Business Week, claimed that Oracle was the only vendor to offer “100 per cent Internet based applications,’ and made special reference to CRM.
But Siebel hit back by slapping a writ on Ellison’s desk that attested the claims were both misleading and illegal.
Mark Barrenchea, head of Oracle’s CRM division, says that the company has not withdrawn its advertising, however, and adds that: “We still believe in our positioning on this one.”
While the general view is that the skirmish is more a clash of egos than a test of reality, analysts’ say Oracle is making an aggressive marketing point at a time when it could pose a serious threat to CRM and ERP vendors alike.
Several suggest that the infrastructure provided by Oracle, which is underpinned by its Oracle 8i database and Oracle 11i applications, poses a serious threat to applications vendors, largely because the company claims to be able to take complexity away from the desktop and make users’ lives simpler as a result.
Because complexity is found at the server level, Oracle claims that its packages are easier to manage and that cost of ownership is lower.
Bruce Richardson, research director at AMR Research, says: “Oracle’s positioning is clever. The combination of CRM and an Internet play means it can create powerful mind share. It now looks like having a holistic offering by the end of the year.”
But he continues: “Oracle is easily distracted by the latest shiny new thing and if Ellison’s database business comes under serious fire, it will back off applications.”
He adds that, for the first time since 1990, however, he is now prepared “to take Oracle seriously in applications.”
AMR recently forecast the CRM market would grow to $16.8 billion by 2003 from $2.9 billion now.
Brian Skiba, research director at Lehman Brothers, continues: “Oracle has clearly gained ground, but the minute IBM and Microsoft go after its database, it could oscillate. Oracle doesn’t have a choice - it has to break through in the next two years, but for once it is looking competitive.”
And Steve Coles, analyst at Forrester Research, agrees: “We’re much more positive that Oracle has recognised the market has moved from core applications. We think the excitement is Oracle this year, with more around ebusiness, but now we need to see evidence of success with customers.”
But he adds that Siebel “needs to hook up with someone who can handle the back end (ERP).”
However, the fact that IBM is forging closer links with Siebel would appear more ominous. Big Blue has spent the last two years moving away a focus on its hardware business to concentrate on growing its services, which now account for $29 billion of its annual revenues.
And a recent Gartner Report recently said that IBM Global Services was becoming crucially important as the IT industry depended more on service partners.
Under the terms of the new deal, however, IBM has said it will offer training and support for Siebel implementations, which will go some way to remedy Siebel’s current problems in closing deals.
Tom Siebel admitted in a conference call with analysts about the firm’s 30 June quarter figures that: “Our only constraint is in our ability to close the business. That’s a people thing, we need more.” Also, IBM is not a competitor to Siebel in the applications market.
But the move has also sparked new rumours that it might make a bid for the applications supplier. This led Siebel’s shares to rise sharply in trading on Wednesday, closing up $4.12 at $57.12, despite strong denials from the company that it was a takeover target and a reiteration that it wished to remain independent.
Elsewhere, IBM has been strongly endorsing supply chain vendor, i2 Technologies, and appearing on platforms around the world talking about Web based front office to back office applications. Big Blue also surprised the market earlier this year when it claimed that sales of its DB2 database had surpassed those of Oracle, although the two are targeted at different market segments.
The third prong of the attack on Oracle has come from SAP, which recently announced it would provide direct support for Software AG’s Adabas database. Although widely considered a minority player in the database world, SAP’s endorsement would appear to be an attempt to weaken the influence its rival has over it in terms of revenue mix.
Depending on which market research figures are taken into consideration, Oracle could be seen as the number two applications vendor ahead of Peoplesoft. Analysts says its new CRM products are a real threat to SAP, which will not have equivalent offerings until the end of this year at the earliest.
As a result, a reduced dependence on Oracle’s database could help it prevent Oracle from selling applications through the back door into its customer sites.
And Oracle is also causing jitters among other ERA vendors. Travis White, JD Edwards’ European marketing director, says: “Oracle is looking good and yes, it does concern us.”
The firm has also signed a joint development and marketing deal with Siebel and over the last month has been training its people on Siebel products.
Mark Lane, Peoplesoft’s vice president of marketing, adds: “Where there is a big technical component to the sale, then yes, Oracle is very competitive.”
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