Ellison goes for broke on hosted ERP apps and services
By Dana Gardner and Martin LaMonica
InfoWorld Electric
infoworld.com
Posted at 1:28 PM PT, Oct 5, 1999
NEW YORK -- Oracle plans to leap ahead of its current competition -- and to begin competing with a broader swath of the information industry -- by becoming a super online provider of enterprise platforms, services, and data and application hosting, said CEO and chairman Larry Ellison here Tuesday.
Oracle is now the largest application server provider (ASP) in the Americas and Europe, and has teamed with global telecommunications firms, Internet data centers, and independent software providers (ISVs) to vastly expand its online reach and breadth, said Ellison in a press conference atop the World Trade Center.
Oracle Business OnLine (BOL) is Oracle's response to large companies that no longer want to run their own data centers and install their own enterprise resource planning (ERP) suites, as well as to smaller and emerging companies that can't afford the up front costs of installing large systems.
By paying Oracle on a monthly per-user fee basis averaging about $300 per employee, BOL will host Oracle and other partnering vendors' applications to perform critical business functions over virtual private Internet networks, or via the open Web.
BOL running on the Oracle Application Suite of products -- from tools to databases to vertical ERP applications -- from data center locations worldwide will dramatically reduce the overall cost of implementing and running such systems, and alleviate the training and labor crunch that hobbles many IT efforts and their efficiency, said Ellison.
Moreover, the convergence of large systems software providers like Oracle with the ASP online hosted model will drastically change the computer industry itself. All surviving software companies will have to become ASPs eventually, or be wiped out, Ellison said.
"Everyone else has got it wrong, and we have it right," said Ellison. "Every software company will have to become an ASP ... Does everyone who wants to do computing have to hire experts? It's a strange notion. We think we're early to the party with BOL. Your software has to change. You can't take your existing SAP and put it on the Web."
By taking Oracle on a shoot-for-the-moon voyage of competing with many of his potential and literal customers and channels -- such as ISVs, ASPs, resellers, and even an enterprise's existing infrastructure and IT managers -- Ellison is continuing his tradition of being bold and innovative, and certainly not risk averse.
"Sure we compete with our customers," said Ellison, adding that "Oracle everywhere" is better than "Microsoft Windows everywhere" because Oracle's centrally hosted way using mostly Oracle products and services is cheaper, more reliable, better leverages the Internet, is inherently mobile to clients, and is based on standards.
Oracle's bold new world also portends some risks. The Redwood Shores, Calif.-based database leader, for example, will not sell any of its ERP and vertical applications to any other ASP. Oracle alone will sell the services, obviating the role of resellers. Oracle will need ISVs to join it to provide the richest set of services, yet will compete with the ISVs if those ISVs host their apps themselves or elsewhere.
"We need to tell ISVs to build for the Web, not for Windows, that's the pitch. We love our network partners, but we live or die with the ISVs," said Ellison, adding that BOL will be half of Oracle's business in a few years.
At the same time, Oracle has a competitive stance toward many ISVs that will need to carefully examine their relationship to Oracle.
"Unless I'm fired, we will never sell Oracle applications to other application service providers. I don't want to be mushy on this," said Ellison. "We're going to outsource ERP, and compete with the other ERPs, the ASPs," as well try and out-Web the application platform makers, like Microsoft, Sun/Netscape, and IBM.
One analyst said Oracle's decision to be the sole provider of Oracle Applications may limit their ability to make Oracle Applications the standard for hosted applications.
"The idea [of a sole provider] goes against the story of the Internet, which is all about propagating technology and freedom. To only have one licenser goes against that and they'll lose market share in the mid-market as a result," said Dean Davidson, program manager for Meta Group's service management strategies group in Stevenson Ranch, Calif.
So far, IBM has backed off from using its products to create an ASP infrastructure, preferring an original equipment market approach to selling the means of building ASPs, rather than competing with potential customers.
Microsoft and Sun/AOL have portals sites that they have hinted will have a role with their platforms offerings. Sun also recently bought a suite of productivity applications from Star Division from which to build a hosted applications service.
But Oracle will also begin competing with Internet portals and original content Web sites because users of BOL will have targeted advertisements directed at them as they use their Oracle applications from Oracle's hosting servers. A purchasing manager, for example, could be specifically targeted by sellers of products during the order cycle.
Ellison's view, in short, casts asunder the conventional business structure of the way IT products and services are sold and supported. Oracle could win big, but could be ostracized too and surrounded by enemies, too.
"Software is on the way to becoming a service. If you don't understand this you're going to be in a lot of trouble. Your customers will only be the three ASPs, and that's not the business we want to be in," said Ellison. "This is a fundamental change in the delivery platform."
But Clare Gillan, an analyst at International Data Corp. in Framingham, Mass., said that pressure from start-ups and customers will force Oracle -- and other software providers -- to alter its business model and rent software, rather than sell license and a service.
"Their strategy indicates that they want to be the world's number one ASP because they're willing to host other people's applications, but I question their long term business model. Right now they're very dependent on software licenses," said Gillan, noting that all software vendors are going through the same transition.
Meta Group's Davidson also noted that the ASP industry, while garnering interest from many vendors and users, is still immature. Basic operational issues and processes like governance, security policies, and help desk are still not up the level of outsourcing services from established firms like EDS and IBM.
Ellison, however, said the more companies that join BOL, the more valuable it becomes and the more buying power the constituent members have, a sort of reverse auction for the procurement process, said Ellison. Instead of one company buying tables, all the thousands of BOL-linked firms could buy tables in bulk at significant discount due to volume power.
For its hosting, Oracle BOL will be based on three basic hardware platforms: Sun Solaris and HP-UX for Unix on the high end, and PC servers running Linux on the rest, said Ellison.
Ellison also deferred questions of financial liability for hosted mission critical applications and services. Would Oracle be liable if a company lost money because of some snafu or glitch with its hosted services?
Ellison said he did not know, but offered that: "Anybody can sue anybody."
Oracle Corp., in Redwood Shores, Calif., is at www.oracle.com.
InfoWorld Editor at Large Dana Gardner is based in New Hampshire. Martin LaMonica Martin LaMonica is InfoWorld's news editor.
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