Oracle, the Innovation Company: Core Innovation, Fusion Applications' Debut, and Why It’s All Up to AIA

If I had to distill a vast and complex product strategy into a single, admittedly simplistic description, Oracle of late would have been known as a company that innovates through acquisition: This has been largely true since Oracle’s acquisition binge started five years ago. And until now innovation through acquisition has been one of the simplest ways to differentiate Oracle from SAP, which, using similarly simplistic language, largely innovates at the core of its flagship product line.

So it’s only fitting that, during the same year that SAP made a major innovation-through-acquisition play by buying Business Objects, Oracle used this week’s Open World shindig to showcase an impressive amount of innovation at the core of its now vast software portfolio. Perhaps the most impressive, due only in part to the huge hype riding behind it, is Fusion Applications. Oracle gave industry analysts a two-hour mind-melting core dump earlier in September on Fusion Apps and is planning on showcasing some of the new functionality during Open World on Day Three. And here’s what I can say without blowing the terms of an NDA agreement I signed two weeks ago: Oracle has made good on its promise to deliver Fusion Apps, and has greatly exceeded my expectations in doing so. A very impressive debut.

But Fusion is far from the only core innovation. E-Business Suite has new talent management, supply chain, and MES integration capabilities, for example. PeopleSoft has global payroll support, and is planning new talent management functions as well. JD Edwards is adding more real estate management capabilities, and cost accounting, among others. And so on. In short, each of the major suites has new releases and new functionality that can definitely be called innovative.

And then there’s net new functionality, like some of the Social CRM apps (which represent in my mind the best example of enterprise-class Web 2.0 functionality I’ve ever seen) that Oracle highlighted on Day One of the conference. These are net new applications that can be placed into an existing portfolio, regardless of whether a company is running EBS, PeopleSoft, some versions of JD Edwards, and even (or especially), SAP. Included in the standalone innovation category are new products like the Demand Signal Repository – a product that helps supply chain managers deal with fluctuation in demand, and Beehive, a new version of Oracle’s Collaboration Suite that hopes to be more acceptable to the customer base than Collaboration Suite ever was.

Oracle’s Business Intelligence apps are also getting some new functionality, with new capabilities regarding spend analytics, project analysis, recruiting, and asset management, among others. And the list goes on and on.

Of course, Oracle is innovating for all the usual reasons, customer requirements being only one of them. The other reason is all about the bottom line: Oracle, like everyone else in the business, needs a lot of net new license revenue – and with it the recurring revenue that comes from a 22 percent maintenance fee – in order to keep the financial picture rosy. Putting these standalone applications into the market place has a potential 2-for-1 benefit to Oracle: Benefit number one comes from buying a license for, say, Demand Signal Repository. Benefit two comes from potentially having to upgrade to Fusion Middleware, Application Integration Architecture (AIA), and the latest release of EBS, PeopleSoft, Siebel, or JDE in order to run the new application, all of which can have a license revenue upside.

Which is a great segue into the importance of AIA: I used to think that Fusion Apps (did I say I was impressed with what I saw? So what, it’s worth saying twice) would be the make-or-break development on which would ride the future of the company. But more and more that make-or-break role is falling to AIA. This product, which orchestrates all the different processes across the vast, and disparate, Oracle Applications stack, is the place where the vision of Oracle becomes reality: There is no way for Oracle to pull off rationalizing its massive acquisition strategy without AIA making all the interprocess communications between, say, Glog, Siebel, Oracle Financials and PeopleSoft HR (and SAP, while we’re at it) seamless, easy, and fast. Absent a highly performant AIA middleware layer, Oracle’s dream of cross application process functionality becomes a user nightmare.

So how is AIA doing? So far, it looks good on paper, but the numbers are a little slim for now. Again, the NDA police are watching closely, so I can’t really say much except this: growth in AIA deployments will be a major measure of how well this innovation at the core strategy really works. Without a huge uptake – and it’s way to early to use that word today – Oracle’s core innovations won’t be worth anywhere near what they should be for Oracle or its customers.

Here’s why: The more AIA becomes deployed in the Oracle customer base, the more Oracle’s twin visions of core innovation and innovation through acquisition can be realized in a competitive manner against SAP’s core innovation strategy. Right now, innovation at the core in SAP-land implies a high-degree of out-of-the-box integration: for the most part SAP’s core innovations, even if they incur a separate license cost, don’t need a massive middleware layer to tie them to the rest of the suite. If you buy core SAP innovation, integration comes with it.

Meanwhile, in Oracle-land, core innovation will likely require AIA to connect to one of the many product lines that might make use of this innovation. Customers of PeopleSoft, JDE, EBS, Siebel, Hyperion, Agile, and iFlex – to name the major product lines – will need some middleware to truly leverage the innovation Oracle is providing, or that innovation’s value will be potentially limited.

So, it’s hats off time to Oracle for coming up with a lot of net new functionality, thus proving that there’s more to the company than its financial and M&A acumen. Now it’s time to breach the next hurdle, and grow AIA’s critical mass. The product supports a wide range of integration options today, but it’s up to Oracle customers to prove that this integration strategy -- and by inference the company’s entire acquisition strategy – makes sense. So the next stop on the Oracle train is AIA customer uptake. I’ll be watching carefully, and so should the rest of the market.