Oracle's Strategy: Shrink-SAPped Software?
Oracle's acquisition binge sets up a two-horse race in the packaged software business
As I noted in an earlier post, mergers are happening at a breakneck pace, particularly in the technology space, where the coffers are overflowing. Oracle's Siebel buyout is the latest big-ticket deal. As with the PeopleSoft buy, this deal marks a home-coming of sorts (both PeopleSoft and Siebel were started by ex-Oracle execs).
With this string of acquisitions, Oracle has emerged as a behemoth in the business, and is increasingly positioned to combat Germany's SAP, the industry leader. This business is thus increasingly turning into a two-horse race (IBM does not play in this space, while Microsoft appears content to be a bit player (although it considered acquiring SAP at one time).
For its part, SAP appears unruffled for now. SAP CEO Henning Kagermann says in Business Week that this as a desperate (and futile) catch-up strategy by Larry Ellison. And he mayhave a point. Oracle has just bought up a complex set of offerings, with conflicting and overlapping features and technologies. It has a big challenge on its hands figuring out how to integrate them, and may not necessarily get them all to work well together. In the meanwhile, unless Oracle provides clarity on what its future porfolio is going to look like (something it hasn't yet done), existing and potential customers are going to be jittery, wondering if what they have bought, or are planning to buy, will be discontinued. Strategically too, Oracle will be preoccupied for a while with its internal integration issues. SAP, on the other hand, has a better chance of being seen as consistent and coherent in its strategy.
Consolidation in the enterprise packaged software business has been driven primarily by - apart from overflowing money bins - the fact that customers are tiring of the "best of breed" (often euphemism for a mongrel!) approach, and expect a single vendor to take full responsibility for their entire IT applications portfolio. Another driver is the big players' hunger for revenue growth. A notable irony is that during the 1990s the packaged enterprise software business (then called ERP), was widely expected to replace custom, or bespoke application development. The acquisitions suggest the opposite - they seem to bear out Peter Drucker's classic observation that acquisitions are a sign of an industry in search of growth.
The IT landscape thus continues to churn, and not just with acquisitions. China is making its presence felt (the IBM - Lenovo deal), and so is India, with its offshore powerhouses. Neither are all the acquisitions blockbusters - there are smaller, less noticed ones too, such as Seagate's buyout of Mirra.
There may be a pattern to all the churn. The entire IT industry appears headed towards what The Economist referred to sometime back as the platform wars. As customers increasingly look for vendors who can take responsibility for the entire IT portfolio, they choose to rally round big players — interestingly, this seems a bit like a return to the old days of proprietary, closed computing platforms, albeit with a different reason - the need for fewer integration headaches.
In this great end-game, four big industry players - IBM, Microsoft, Oracle and SAP - seem destined to be the stars, with everyone else assigned bit roles. Will it really pan out this way, and who will win?
Oracle's acquisition binge sets up a two-horse race in the packaged software business
As I noted in an earlier post, mergers are happening at a breakneck pace, particularly in the technology space, where the coffers are overflowing. Oracle's Siebel buyout is the latest big-ticket deal. As with the PeopleSoft buy, this deal marks a home-coming of sorts (both PeopleSoft and Siebel were started by ex-Oracle execs).
With this string of acquisitions, Oracle has emerged as a behemoth in the business, and is increasingly positioned to combat Germany's SAP, the industry leader. This business is thus increasingly turning into a two-horse race (IBM does not play in this space, while Microsoft appears content to be a bit player (although it considered acquiring SAP at one time).
For its part, SAP appears unruffled for now. SAP CEO Henning Kagermann says in Business Week that this as a desperate (and futile) catch-up strategy by Larry Ellison. And he mayhave a point. Oracle has just bought up a complex set of offerings, with conflicting and overlapping features and technologies. It has a big challenge on its hands figuring out how to integrate them, and may not necessarily get them all to work well together. In the meanwhile, unless Oracle provides clarity on what its future porfolio is going to look like (something it hasn't yet done), existing and potential customers are going to be jittery, wondering if what they have bought, or are planning to buy, will be discontinued. Strategically too, Oracle will be preoccupied for a while with its internal integration issues. SAP, on the other hand, has a better chance of being seen as consistent and coherent in its strategy.
Consolidation in the enterprise packaged software business has been driven primarily by - apart from overflowing money bins - the fact that customers are tiring of the "best of breed" (often euphemism for a mongrel!) approach, and expect a single vendor to take full responsibility for their entire IT applications portfolio. Another driver is the big players' hunger for revenue growth. A notable irony is that during the 1990s the packaged enterprise software business (then called ERP), was widely expected to replace custom, or bespoke application development. The acquisitions suggest the opposite - they seem to bear out Peter Drucker's classic observation that acquisitions are a sign of an industry in search of growth.
The IT landscape thus continues to churn, and not just with acquisitions. China is making its presence felt (the IBM - Lenovo deal), and so is India, with its offshore powerhouses. Neither are all the acquisitions blockbusters - there are smaller, less noticed ones too, such as Seagate's buyout of Mirra.
There may be a pattern to all the churn. The entire IT industry appears headed towards what The Economist referred to sometime back as the platform wars. As customers increasingly look for vendors who can take responsibility for the entire IT portfolio, they choose to rally round big players — interestingly, this seems a bit like a return to the old days of proprietary, closed computing platforms, albeit with a different reason - the need for fewer integration headaches.
In this great end-game, four big industry players - IBM, Microsoft, Oracle and SAP - seem destined to be the stars, with everyone else assigned bit roles. Will it really pan out this way, and who will win?
posted by Vivek Pai Kochikar at 4:26 AM
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