Oracle Recognizes the Need for Change

Article Featured Image

In 2010, Mark Hurd joined Oracle from HP, where he had, according to The New York Times, "pulled off one of the great rescue missions in American corporate history, refocusing the strife-ridden company and leading it to five years of revenue gains and a stock that soared 130 percent."

That's a tough act to follow—especially considering that Oracle was already doing quite well financially when Hurd took the helm. In fact, even with the lingering effects of the Great Recession, Oracle's fiscal year revenue increased 15 percent, to $26.8 billion, in 2010.

However, despite Oracle's short- and long-term success—namely its ability to compete with the biggest companies in various industries over three decades—the company couldn't simply rest on its laurels. Technologies such as social media, mobile devices, cloud computing, and e-commerce were rapidly advancing, the effects of which have significantly changed customer demands and the nature of business. And despite its size and success until this point, it was time for Oracle to change.

Complicating matters is the fact that you couldn't simply point a finger at only one or two competing companies. "I don't think you can look at Oracle and say, 'Here's your competitor across all fronts,'" says Floyd Teter, vice president of technology at EIS technologies and former vice president of both the Oracle Applications Users Group and consultancy Innowave Technology. "If you look at what we used to call HR, which is now human capital management [HCM]…it's Workday. If you look at CRM, it's Salesforce.com. If you look at manufacturing, well, Oracle alumnus Charles Phillips is down at Infor doing some real good work."

Additionally, Oracle competes with IBM in the data warehousing and transaction processing market and with SAP and others for enterprise applications, including enterprise resource planning, CRM, and business intelligence applications.

Clearly, with this many considerations, employing any change that will have a material effect on the company must be well conceived. But what do you change?

For Oracle, the answer involved architecting its much-anticipated Fusion platform to integrate its diverse and sometimes overlapping applications, jumping into social media, rebranding its corporate messaging, and, despite CEO Larry Ellison's early reluctance to do so, betting big on software-as-a-service (SaaS).

Eye on the Sky

One of the common complaints about Oracle's solutions is that they are expensive to deploy. "For a company that's made a small investment in Oracle or for a net new customer, I have to admit it, the support fees would scare me to death…if you're already on the river raft in the middle of the river and the rapids are coming, your best shot is to choose the rapids," Teter says. But for [those] that have yet to make a choice in enterprise software, "I'd [look] really hard at the support fees and say, 'Is this something I want to do?'"

SaaS solutions from Oracle, however, might assuage this concern.

For most of the 35 years since its founding, Oracle had been firmly fixated on the on-premises software market. Today, the company that only a few years ago marginalized the promise of cloud computing is now firmly entrenched in the SaaS camp, and even goes so far as to say that its cloud business is key to its success moving forward.

"The development of the Oracle cloud is strategic to increasing the size and profitability of Oracle's software business," Ellison said during a June press conference announcing the company's fiscal year results. "Our Oracle cloud SaaS business is nearly at a billion-dollar revenue run rate, the same size as our engineered systems hardware business. The combination of engineered systems and the Oracle cloud will drive Oracle's growth in [fiscal year] 2013."

Why, after all this time, is Oracle investing so heavily in SaaS? Well, the delivery model can't be ignored. Research firm Gartner values the current worldwide SaaS market at $14.5 billion, up from $10 billion in 2010. Gartner expects the market to reach $22.1 billion by 2015. Additionally, the research firm indicates that CRM continues to be the largest market for SaaS, with 2011 sales of $3.8 billion, representing nearly 32 percent of the CRM market's total software revenue.

Oracle, which serves large enterprise customers, delayed its entrance into the market because many of its clients have been slower than smaller and midsized businesses to adopt SaaS. However, more large enterprises are asking for cloud services because of their inherent benefits, such as lower, predictable costs; flexibility and scalability; fewer maintenance requirements; and remote user support. In fact, by the end of this year, Forrester Research predicts larger firms will outpace smaller ones in their adoption of cloud-based solutions.

Esteban Kolsky, founder and principal analyst at ThinkJar, acknowledges that Oracle is late in showing its commitment to SaaS, but points out that its customers haven't really asked for cloud solutions until recently. "If you look at the way Oracle comes to market, they are very good at following what their customers ask for, and their customers hadn't been asking for cloud solutions until now," he says.

"Oracle and other traditional software vendors are recognizing that the SaaS/cloud movement is real and growing, and they are trying to quickly respond to escalating demands from their customers for on-demand, subscription-service alternatives to their legacy, on-premises applications," observes Jeff Kaplan, managing director of THINKstrategies.

Enter the Oracle Public Cloud, which the company launched last October at its OpenWorld user conference in San Francisco. It features a suite of products, including Fusion CRM and human capital management solutions and social networking applications. Oracle also offers two platform-as-a-service (PaaS) options—the Oracle Database Cloud Service and Oracle Java Cloud Service—to develop and deploy business applications in the cloud.

All of the cloud services are based on a monthly subscription model and can be purchased together or independently. Each is fully managed, hosted, and supported by Oracle from data centers all over the world, with 24/7 service and support.

In addition, Oracle provides private cloud and managed cloud services for organizations that want complete control and visibility over security, regulatory compliance, service levels, and functionality. Oracle can manage applications at the customer site, through its partners, or at its own data centers. Users can also choose a hybrid model and shift data and applications between the public cloud and their own private clouds as needs dictate.

"Oracle has clearly put a lot of thought and investment into the cloud and the ability to provide high-availability, high-dependability products with it," says Rebecca Wettemann, vice president of Nucleus Research.

"Our applications and platforms-as-a-service give us and our customers the most complete set of services available today from a single vendor," says Anthony Lye, senior vice president of Oracle CRM.

Oracle picked up much of its SaaS portfolio through a string of acquisitions that began in October 2011, with RightNow Technologies for cloud-based multichannel customer service solutions. Adding to its coffer, Oracle acquired Vitrue, a cloud-based social marketing and engagement platform; Collective Intellect, a provider of cloud-based social intelligence solutions; and Involver, a cloud-based social media marketing platform provider.

"We will be the only one in the industry with a suite of products that are SaaS-ready," Hurd says. "I'm talking about a whole portfolio by the end of the calendar year. So by the time we get started, our plan is to be number one; we're going to be number one in the world of SaaS."

Already, Oracle's SaaS sales account for nearly $1 billion in revenue. But, despite these efforts, Oracle must contend with established CRM cloud companies, such as Salesforce.com, which has already surpassed $2 billion in revenue this year.

Nonetheless, Ray Wang, CEO and principal analyst at Constellation Research, sees Oracle as a viable cloud competitor that is "in a good position," he says. "Oracle's advantage is its large install base. If it can deliver the right offering at the entry point through SaaS, existing customers will just add on through cloud-based offerings."

Into the Social Media Pool

Although its growth has been rampant, social media is still a relatively new technology. Facebook did not exist 10 years ago, and Twitter was just a sound birds made. However, given its explosive growth—Facebook is expected to top 1 billion users by the end of this year and more than 150 million people tweet—it is no surprise that established software companies have decided now is the time to swoop in.

Global revenue from social media is projected to reach $16.9 billion in 2012, a 43.1 percent increase from the previous year, according to Gartner. The bulk of the revenue will continue to come from advertising, which is expected to contribute $8.8 billion this year. Social gaming revenue more than doubled between 2010 and 2011 and is expected to reach $6.2 billion in 2012, while revenue from subscriptions for premium services on social sites is expected to total $278 million.

In a further sign that social media is transitioning into mainstream technology, software companies like Oracle, Salesforce.com, and Adobe are racing to offer marketers tools for building sophisticated social media campaigns. But rather than attempt to build their own tools, snatching up innovative start-ups is the name of the game. Oracle is not the only company buying its way into the social media space; however, the company has grabbed headlines with its rapid-fire acquisitions.

In May, the software behemoth announced it was buying cloud-based social media marketing firm Vitrue for $300 million. Founded in 2006, Vitrue helps marketers manage their presence on Facebook, Twitter, YouTube, Pinterest, Instagram, and other platforms. Its competitors are Buddy Media (acquired by Salesforce.com in June for $689 million), Wildfire Interactive, Involver (also acquired by Oracle), and ThisMoment.

Before it was acquired, Vitrue had raised $33 million in funding, according to TechCrunch. Its client roster includes numerous large enterprises (many of which are also Oracle customers), such as American Express, McDonald's, Facebook, P&G, Snapple, Intel, and Logitech.

In June, just a few weeks after buying Vitrue, Oracle bought Collective Intellect, a SaaS social intelligence solutions provider, for an undisclosed amount. The seven-year-old company offers tools that help businesses optimize the way they monitor, analyze, and respond to their customers' conversations on social media platforms, such as Facebook and Twitter. Collective Intellect's customers include Siemens, Hasbro, Pepsi, NBC Universal, Nestle Purina, Barclaycard, and Cision. It had raised $14 million in venture funding prior to the acquisition announcement.

In a statement, Oracle explained that it intends to integrate Collective Intellect with Vitrue and its other SaaS products to "enable marketing organizations to create more targeted marketing campaigns; help customer service teams respond quickly to customer feedback on social media; generate targeted leads and opportunities for sales teams; and strengthen how companies build more effective brands using the Internet and social media."

To further strengthen its cloud-based social media toolbox, Oracle announced in July that it would acquire Involver, a SaaS social marketing platform that also lets customers create customized social applications, for an undisclosed sum. Founded in 2007, with $11 million in funding prior to the acquisition, Involver pioneered the first social app suite on Facebook, and its coding language for social applications lets developers create customized brand pages and marketing apps.

Combining Involver, Collective Intellect, and Vitrue with SaaS-based CRM software developer RightNow Technologies lets Oracle offer customers a comprehensive set of tools to cover nearly all of their social media marketing needs. As for integrating the separate components into a useful suite, Denis Pombriant, CEO of Beagle Research Group, is confident Oracle knows what it is doing.

"I wouldn't suggest that Oracle is shopping first and [then] figuring out how to put the pieces together…that's a risky and expensive approach," Pombriant notes. "They have a vision for what customer relationships will be like in the future, and they are building accordingly."

As to what the company's next move might be in building out its social media offerings, analysts point to several areas.

"Oracle's heading in the right direction here as the war for customer experience takes hold," Wang maintains. In terms of its next step, Wang notes a number of acquisitions would "make sense" for Oracle, such as investments in cross-channel analytic tools with a Twitter pipe, gamification players, and a mobile payments integration.

Michael Fauscette, group vice president of software business solutions at IDC, notes Involver was "the missing piece" that Oracle needed to build out a "complete cloud-based customer experience suite of products," but he also believes there are more opportunities for Oracle to expand its social media offerings.

"There are a few areas where [Oracle] could add deeper capabilities—and gain some cross-sell opportunities—by buying additional products," Fauscette observes. "For example, you might see them add a better community management platform, like Lithium or Get Satisfaction."

Zach Hofer-Shall, a senior social intelligence analyst at Forrester Research, agrees. Hofer-Shall notes that once a company is able to "push out" advertising content and collect customer data, its next step is often to invest in a community platform like discussion forums and message boards—places where its customers can seek support and discuss the brand's products. "The community side is one of the few pieces left that Oracle doesn't have," he notes.

CRM Covers
for qualified subscribers
Subscribe Now Current Issue Past Issues

Related Articles

Oracle Adds Functionality to Sales Cloud

Enhanced dashboards, analytics, and industry specific capabilities aim to accelerate sales profits.

Oracle Gets Serious About the Cloud at OpenWorld 2014

Oracle's updated customer experience cloud promises deep integration and "extreme innovation."

Oracle Mobilizes Oracle Service Cloud

Introduces Oracle RightNow Mobile Agent Application

Oracle Releases RightNow Cloud Service Update

New features are designed to increase community engagement and improve message relevancy with customers and employees.

Oracle Wants to Take Customers Out of Systems Integration

The company plans to continue to aggressively go after cloud computing share.

Incentivizing Channel Behavior

Ten behaviors to reward and encourage in 2013.

Oracle Knowledge 8.5 Adds Context to Customer Interactions

Company calls release most "comprehensive" since InQuira acquisition.

Adobe to Reorganize Marketing Cloud

Plan divides offering into five core solutions.

SAP Rolls Out Business Planning and Consolidation Mobile App

New app offers financial planning and analysis capabilities.

Anametrix Debuts Campaign Analytics Tool

Self-service tool lets marketers evaluate multichannel marketing results and more.

Adobe Beefs up AdLens Solution

AdLens users gain access to SiteCatalyst, AudienceManager, and more.

Oracle Picks up Involver

Latest acquisition strengthens the software giant's social media toolset

Oracle Outlines Customer Experience Strategy

Deeper cloud offerings expected to follow recent acquisitions spree

5 Years Later, Oracle's Fusion Apps Finally Near Release

Oracle OpenWorld '10 — Day 1: Kicking off its mammoth conference, Oracle makes a few hardware announcements, tackles the cloud, and sheds more light on 2011's Fusion Platform.

Buyer's Guide Companies Mentioned