In a meeting with Enterprise Irregulars after his keynote at OpenWorld, Oracle President Charles Phillips discussed the future of Fusion, software-as-a-service (SaaS), his notion of "acquired innovation" and other topics.
Fusion is Oracle's next-generation suite of applications, built from the ground up on SOA principles. He was asked if Fusion is "real." He responded, "I've been trying to clear this up for three years."
The new set of SOA-based applications will start appearing, module-by-module, beginning next year and continuing over the next several years, he said, and will co-exist with existing applications for many years to come. This is consistent with previous remarks from the company about Fusion.
Phillips went on to say that some customers may never switch. They can continue using existing products such PeopleSoft General Ledger or E-Business Suite or move to Fusion for some applications. Licenses are transferable, so there is no upfront switching cost for the software. In addition, the various platforms share a common back end and parts of the currently available Fusion Middleware stack, he said. "If you get 75 percent of Fusion today [in products], maybe 20 percent of the market can afford to do it [move to Fusion].
"The strategy is to deliver more and more out of the box for customers, packaging integration between Siebel and SAP, for instance. Only a third of [IT] spend is off the shelf. The obvious thing for us to do is get that two-thirds. We have more to do to give [corporations] less reason to build it themselves," Phillips said.
He maintained that Oracle is comfortable financially with all the parallel development efforts. "We can afford to do it. We don't want to leave any part of the market uncovered. SAP can't afford to do it.
If he is saying SAP can't afford to rewrite its applications in an SOA architecture and support its previous generation, that doesn't seem to match reality. SAP has been reworking its applications in an SOA, NetWeaver framework, with thousands of enterprise services and developing a new mid-market suite, Business ByDesign, over the last several years. Unlike Oracle, SAP hasn't spent tens of billions on acquisitions to grow by consolidation.
It appears that Oracle is downplaying Fusion. It's no longer pitched as the ultimate destiny for Oracle customers. The reality may be that the pressure to move quickly on Fusion has subsided since SAP's enterprise services initiative hasn't been able to put major pressure on Oracle's application business, which is currently a stew of home grown and different acquisitions that is humming along an integration path.
Fundamentally, Oracle and SAP are in a legacy business, and their investments in new generation platforms are decade long efforts, ensuring that they are relevant to customers as new architectural epochs come to fruition. It's their hedge against extinction and is served both by internal development and strategic acquisitions.
SAP has taken a more internal development approach (although the company recently acquired Business Object after Oracle bought Hyperion) than Oracle.
Phillips recently described Oracle's ambitious acquisition philosophy as "acquired innovation."
"It's a term I created," Phillips said. The amount of money required to start company is very low and many small companies can develop innovations quickly, he said. Oracle gives entrepreneurs the freedom to focus on sales, marketing and development, while it takes care of all the administrative functions and firewalls off the acquired company.
Phillips said he modeled managing different businesses within the Oracle business on GE's structure. "We give them autonomy and enough authority so they feel like they are running the company," he said.
Oracle has acquired companies large and small over the last several years to fill out is product portfolio. In some sense the strategy is about acquiring innovation, and talented developers, via smaller companies, but it is more directed toward acquiring market share with the larger acquisitions.
Phillips also pointed to innovation with Web 2.0 technologies, claiming that Oracle is at least two years ahead of competitors, which is hard to substantiate. Dennis Howlett wrote about some of Oracle's experimentation with Web 2.0 applications.
On the subject of software-as-a-services, Phillips said that the company has 3.5 million users of its hosted applications, up from 1.7 million 18 months ago. The applications include CRM, ERP, financials and HR.
"We will make sure all of our products are able to run as software-as-a-service," Phillips said. "We give them choice, and we think we can run it better than customers." Oracle is looking at providing hosted applications for financial and retail customers with point-of-sale systems.
Phillips isn't worried too much about cannibalizing license revenue with subscription-based hosted services. "Once past 2.5 years, we make more money on software-as-a-service than on perpetual licenses," he said. In fact, Oracle is fine with charging less for licenses and more for support services, focusing on annuity revenue. "That's how you get margins on any business related to software." He didn't offer a timetable as to when Oracle would cross the hosted applications chasm.
Nor is Phillips concerned about the state of maintenance revenue associated with licenses. "We really don't see that as a threat. [Customers] see the value of having a guy who owns the IP [intellectual property] providing the support, unless you are trying to do what TomorrowNow and SAP have. They can't update the IP--the bug fixes and patches don't work. It turns out they were stealing," Phillips said in taking a jab at SAP's TomorrowNow business unit, which has been sued by Oracle over some allegedly illegal downloads.
Unlike salesforce.com and NetSuite, Oracle doesn't apply a multitenant model. "A lot of analysts are confused by multitenancy," Phillips said. "I talk to hundreds of customers each month. Multitenancy is a way for vendors to manage multiple clients at a low cost. It's an architectural choice."
Rather than sharing database instances, as in salesforce.com and NetSuite, Oracle has a shared administrative layer. Enterprises won't adopt hosted services if companies share databases with competitors, especially in the public sector and government, Phillips explained. "Security is bigger than it is given credit for. How you provision multiple users is a problem, and we think we have figured that out."
SAP has a similar philosophy, but as salesforce.com has shown, many large corporations are willing to work in a multitenant architecture for CRM applications despite data co-residency. It is noteworthy that Phillips said all Oracle products would eventually have a hosted option, signaling an epochal shift sometime in the future to the cloud for large enterprises beyond CRM.