May 20, 1999
Changes in Software Market
Force
Oracle to Start Shifting Focus to
IBM
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
The Captain Ahab of the computer industry has a new
whale to chase, this time a Big Blue one.
For years, Larry Ellison, chief
executive officer of software
supplier Oracle Corp., has been
fixated on Microsoft Corp. and
its chairman, Bill Gates. Rarely
would Mr. Ellison, himself a billionaire, lose an
opportunity to make some snide remark about his
much wealthier rival. And many of Mr. Ellison's
technology initiatives, such as his ill-fated attempt to
popularize new appliances called network computers,
were thinly disguised attacks on Microsoft and its
strong market position.
Now, though, the shifting dynamics of the corporate
software market are forcing Oracle to start paying less
attention to Microsoft and much more heed to another
competitor, International Business Machines Corp.
That's because the huge computer company has been
coming on strong in Oracle's core business of
database software.
"We are now much more focused on IBM than we are
on Microsoft," said Mark Jarvis, Oracle's senior vice
president in charge of world-wide marketing. "That
has become very clear in Larry's mind in the last few
months."
Jousting With IBM
Indeed, IBM's total database revenue last year
surpassed Oracle's, though the two mainly supply
different segments of the market. Now, however, a
more direct conflict is brewing, in large part because
of IBM's high-profile television commercials touting
its electronic-commerce products.
Mr. Jarvis and other executives insist that Oracle is
the rightful e-commerce king, with a dominant
position at big companies and big Internet sites. But
they concede they must quickly react to IBM's
marketing push. They plan to triple Oracle's annual
advertising budget next year, from $50 million to
$150 million, including both TV and newspaper ads
that will stress Oracle's strong market position.
Jousting with IBM may be more difficult than with
Microsoft, a relative newcomer to the corporate
database market. By contrast, IBM researchers
invented modern database software in the 1970s and
have continued to advance the state of the art in
high-volume business transactions.
Until recently, IBM sold its flagship product, called
DB2, for use only on its own mainframes and
minicomputers. In the past few years, though, IBM
has started to push the software for use on hardware
using the Unix operating system or Microsoft's
Windows NT -- both key markets for Oracle. IBM
still has a small part of those latter two markets, but
its share is growing fast. Market researcher Dataquest,
for example, says IBM now has nearly 10% of the
Windows NT market, compared with 4% two years
ago.
"Customers now have a clear alternative to Oracle
from a company with established database leadership,"
crowed Janet Perna, general manager for data
management at IBM.
Slowing Demand Hurts Stock
Though Oracle still regards IBM as a minor player,
the need to spend millions of dollars to remind people
that it is the industry top dog is just one of several
surprising indignities it has been forced to suffer
recently. After all, the Internet helps to recentralize
computing, theoretically driving demand for the
company's technology. Mr. Ellison repeatedly brags
about how Oracle has become a "nothing but 'Net' "
technology supplier.
Yet the recent results at Oracle hardly are those of a
company in the middle of an epic boom. In the fiscal
third quarter ended Feb. 28, Oracle reported slowing
demand for its key products, sending its stock
plummeting roughly 25%. Its shares Wednesday rose
6.3%, or $1.5625, to $26.375 in Nasdaq Stock
Market trading but were still 36% below their
52-week high.
The stock has also been hit by rumors that Oracle's
current quarter-ordinarily its biggest of the fiscal
year-could be a tight one. (Oracle says it is in a quiet
period before the announcement and can't discuss the
issue.)
One of Oracle's biggest problems is that for all of Mr.
Ellison's invoking of the Internet, the company is
closely tied to a much more prosaic market, that of
enterprise resource planning software, which is used
by big companies to manage their businesses. Oracle
sells ERP programs of its own against rivals such as
SAP AG, PeopleSoft Inc. and Baan Co.; these
products also require database programs, so ERP
sales also affect Oracle's database revenues. While
ERP suppliers had huge spurts of growth in the past
few years because of preparations for expected year
2000 computer problems, spending on those products
has recently dried up.
Nipping at Its Heels
Mr. Jarvis says Oracle is being unfairly "tarred with
the ERP brush," because investors don't yet
understand that Oracle, unlike its competitors, has
reworked all of its software to be compatible with the
Internet. Not all analysts buy that view, though. For
example, James M. Pickrel, with Hambrecht & Quist,
says that Oracle's technology lead over SAP and the
others isn't as great as it lets on.
While Mr. Jarvis says Microsoft has faded as a
competitor lately, Mr. Pickrel argues that Oracle is
understating the threat. Microsoft's new database
product, says Mr. Pickrel, "may not have exploded out
of the starting blocks to the degree Microsoft might
have wanted, but it's very credible, and a lot of
companies are building products around it."
Also bedeviling Oracle is the fact that younger,
nimbler companies like Seibel Systems Inc. and i2
Technologies Inc. are nipping at its heels in
specialized parts of the corporate market. Seibel
Systems, for example, sells tools used to automate
sales and customer-service functions and has become
enough of an irritant to Oracle that the company is
being forced to respond to it. Mr. Jarvis, however,
dismisses those companies as niche suppliers and
promises that Oracle will eclipse Seibel "in a couple
of years."
While Wall Street is currently cool to Oracle, most
analysts expect the company to rebound. But new
challenges lie ahead. For example, in the market for
Internet software, prices tend to be much more fickle
than Oracle is used to facing in the pre-Web corporate
market. That's one reason many people are suggesting
a wait-and-see attitude on the stock. Says Robert
Austrian, an analyst with NationsBanc Montgomery
Securities, "the company is in a great position, but the
transition may well be quite painful." |
