The dogs bark, and the band marches on . . .
Oracle battling partners
Betrayed companies say they'll fight back
BY CECILIA KANG
Mercury News
A new battle line has been drawn in Softwareland: Oracle Corp. vs. everyone else.
By trying to provide all the software needed to run a business over the Web, Redwood Shores-based Oracle is attacking the home turf of companies like Siebel Systems Corp., PeopleSoft Inc., and SAP AG.
Those companies provide software applications that make Oracle's core database software more useful to corporations, and they have helped Oracle become the world's leading maker of databases.
With Oracle now competing with them to provide similar applications, Oracle's partners feel betrayed, and they're fighting back. They have joined forces with International Business Machines Corp., the other leading database software maker, to take on Oracle in the race to provide important services, such as benefits management and customer-service software, to corporate customers over the Internet.
Oracle will regret alienating its partners, said Tom Siebel, chairman of San Mateo-based Siebel Systems, which makes the leading customer-service and sales-force software packages.
``When you're a company the size of Luxembourg declaring war on every other country in the world, you're being kind of stupid,'' said Siebel, formerly head of sales at Oracle. ``That strategy will likely fail.''
At this point, the new partnerships boil down to joint development and marketing, and the deals won't immediately result in big profits for anyone, analysts said.
But by directing customers to each other, IBM's alliances with Siebel, SAP, PeopleSoft, i2 Technologies Inc., Ariba Inc. and Baan Co. could mean big sales down the road, they said.
``These are very real and very deep relationships,'' said Terilyn Palanca, an analyst at consulting firm Giga Information Group. Although the big companies that buy databases and applications won't suddenly dump Oracle software, the partners hope to gradually persuade new customers and those upgrading to switch to their camp.
Billions of dollars are at stake, and that has stoked emotions and plenty of mudslinging from both camps.
``IBM is forging these alliances so they can talk the talk that Oracle talks,'' said Jeremy Burton, senior vice president of marketing at Oracle. ``But it will be difficult to walk the walk because its will be expensive for customers to pay for the ongoing services.''
Burton said Oracle's customers won't have to pay hefty service and consulting fees because all of their software will be integrated and ready to go. By buying various pieces from IBM and its applications partners, customers will have to hire costly consulting people from the companies to tie all the software together, he said.
Stepping out alone
It wasn't always so bitter. A few years ago, the success of Oracle's database software depended on sales of business management applications from SAP and PeopleSoft. Typically, companies buy applications first and then buy database software to organize all the information being processed through the applications, analysts said. And the applications companies heartily promoted Oracle's robust database.
Now, with its own set of business applications rejiggered for the Web, Oracle wants to be an island unto itself -- a one-stop shop for companies to get everything from database software to financial management and sales automation applications. Because everything is built by a single company, Oracle says, the individual applications will work better together than the jury-rigged combinations of competitors' products.
Oracle's competitors argue that customers want to buy applications from a range of vendors, not just Oracle. And it doesn't make sense to buy a whole set of second-rate products from Oracle when you can get the best software from leading vendors in their particular niches, they say.
IBM -- which has been outhustled by Oracle ever since Oracle founder Larry Ellison borrowed the relational database concept from an IBM research paper two decades ago -- is quietly leading the new alliance.
``We see this as opportunity knocking,'' said Janet Perna, head of IBM's software business. Perna said IBM has a huge opportunity to take a bite out of Oracle's database sales lead as applications partners funnel sales leads to Big Blue.
As companies move more of their operations onto the Internet, they are expected to buy more database software to manage all of their Web-based data. Dataquest forecasts database sales to reach $12 billion in 2004 from $8 billion last year.
Perna said Armonk, N.Y.-based IBM has been able to attract a growing list of partners because IBM has been clear that it doesn't want to build its own software applications.
Instead, IBM Chief Executive Officer Lou Gerstner promised last year to funnel $1 billion into improving the company's DB2 database software.
And IBM has slashed prices of its database software to boost sales. ``We intend to ride the growth of their businesses,'' Perna said, referring to IBM's new applications partners.
Although the battle has just begun, IBM has already won market share in some database software segments, and it now trails Oracle in overall database software sales by just one percentage point of market share. (Microsoft Corp. is also a database player on the low end.)
``IBM has seen impressive growth rates that are much higher than Oracle's,'' said Palanca. ``From the technology perspective, we don't see much difference in terms of functionality between DB2 and Oracle.''
Still, Oracle's dominance in the database market gives it a hook for selling its new set of business applications, analysts said.
``Oracle has the largest installed base of databases and its market share will continue to grow nicely,'' said Norma Schroder, an analyst at Dataquest in San Jose.
Schroder also questions how long IBM will be able to sustain its discounted database software prices. ``Will these relationships wipe out Oracle? I don't think so,'' she said.
Handling customers
Beyond database software, applications companies see a wealth of resources in IBM.
Diane Walker, manager of i2's alliance with IBM, said the Dallas maker of supply-chain management software, was attracted to IBM's huge services and hardware businesses.
``No one out there has the breadth of products and services IBM does,'' said Walker. ``That brings a huge benefit to our customers.''
Still, waging a fight against Oracle involves some delicate maneuvering with customers. Because many of them use Oracle databases, SAP, PeopleSoft, Siebel and others need to make sure their software runs as smoothly on Oracle's database as it does on IBM's.
But that doesn't mean they have to say anything good about Oracle.
``Technologically, our software works well with Oracle'' databases, said Rick Bergquist, PeopleSoft's head of technology. ``But Larry's got a bit of an ego and that makes selling and servicing customers with Oracle difficult.''
IBM and Siebel have aggressively marketed their products together for nearly two years, and their engineers have worked to make sure Siebel's customer service, sales automation, and marketing software applications work smoothly with IBM's technology.
In its latest earnings call, Siebel said the company generated 60 sales last quarter from its partnership with IBM. And the payoff has been huge for IBM: IBM's database runs on around 20 percent of Siebel's customer base, up from just 1 percent about two years ago.
Bergquist said PeopleSoft has already referred some huge database customers to IBM. Recently, the Pleasanton-based human resources and financial management software maker helped IBM win a $1 million database software order from a financial institution.
``IBM is the kinder and gentler company we are looking for,'' said Bergquist. ``And if can take marketing dollars away from Larry, I'd love to do that.'' |
