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September 16, 2005
Acquisitions
In the last two years Oracle has spent $19 billion on acquisitions of software products for the specific purpose of taking the game up to its arch rival SAP. So, is SAP worried? Well, if they are they are not admitting it. Speculating on the aquisition of Siebel SAP CEO Henning Kagermann says
Why did Larry Ellison do it? Because he had lost market share. He was not a friend of acquisitions in 2001 or 2002. He said the same thing we said back then. But things have since changed, and Oracle has a different strategy. It has acquired most of these companies--JD Edwards, PeopleSoft, Retek, and now Siebel.Yet, what has happened is surprising. Oracle has spent roughly $19 billion on its last five acquisitions. But if you look at it from a market-share point of view, even with the five combined, Oracle is still the same size relative to SAP as it was four years ago -- half our size.
I think he [Ellison] had no other choice. He says he wants to be No. 1, but he's just half of SAP, so I ask myself, how can he become No. 1 when there are no other targets left to buy?
It is a fairly predictable response from SAP however it is worth looking briefly a the strategic approaches of these two software behemoths because they are fundamentally different.
SAP have a strong committment to "build rather than buy", that is they enhance the functionality of their product through internal software development rather than the acquisition of complementary software products. It would seem a slower approach but is it really?
I think we can put aside the myth of open systems long enough to recognise that the integration of two large complex pieces of software is no simple task and successful integration is essential to avoid the impression, or reality, that Oracles spectrum of offerings are a dogs breakfast of incompatibilities and inconsistencies.
Of course, development of the SAP suite of offerings is possibly the most extreme example of "programming in the large" and the same risks accompany software development of this nature. The problems are only avoided by the imposition of an extremely disciplined software development and release framework. Something that SAP have clearly mastered although at the expense of their software appearing, at times, inflexible.
The other big benefit of the aquisition approach to software augmentation, as Henning Kagermann aludes to above, is that it is a path to rapid increase in market share. Companies implementing products such as Oracle, SAP, Seibel et al. do not change their software infrastructure lightly or quickly for very good reasons. Changes of this scale are inherrently painful for a company and the challenge for Oracle will be to make the changes that will accompany the blending of these software products sufficiently painless to ensure that companies are not tempted by other offerings, in particular SAP, at the time that the blending is taking place.
Posted by Chris Padgham at September 16, 2005 09:38 AM
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Comments
Drifting up the stack
One thing that is on my mind as these acquistions occur is that Oracle as a corporation depends less and less on its once flagship database. Through these acqusitions Oracle is distancing itself from base technologies that are easily commoditized and is moving into a the application stack where open source is not yet a serious threat. I wish Oracle took their technologies more seriously, but Oracle's current corporate strategy is not to win back the Google's of the world from open source databases. Rather Oracle aims not to compete against open source databases, but to gradually drift out of the database market and make their money elsewhere.
I hope that I'm wrong, but the database company with an application's wing is now an applications company with a legacy software tools development wing.
Posted by: Steven Ensslen at September 17, 2005 04:02 AM