Oracle Open World, 2006. The acquisitions Oracle has made since 2004 took on a physical presence as 48,000 people attended the company's signature customer event of the year. Oracle is a huge company, and this Open Word showed that all those acquired properties seemed to be coming together into something bigger. But the big story of the week was Oracle's shot at Red Hat.
The Big News
The Red Hat v. Oracle news is already old, with excellent analyses posted on Rough Type, Infoworld, and here. Red Hat is furiously trying to spin it (check out their home page).
What is interesting to me is why this even happened? It is safe to assume Oracle was exploring doing this via a partnership with Red Hat. So why didn't Red Hat do it? Clearly someone in Raleigh (Red Hat's GHQ) didn't appreciate the threat Oracle posed to their revenue model. Now substantially all of their revenue is at risk. Red Hat did not have the cards to play, and needed to take whatever deal Oracle offered. Their options now might include buying an open source DB like mySQL, but with their stock currency seriously devalued that gets harder. Furthermore, mySQL relies on InnoDB for their storage engine - and we all know that Oracle bought InnoDB a while ago. Right now, Red Hat is going to have to cut their prices to retain their clients, further weakening their position.
About the only thing Red Hat can hope for - and this is largely out of their control - is that Oracle flubs it. Oracle has a world class support organization but an OS is a different animal than a DB, and there will be a learning curve associated with scaling the support.
The big disconnect at Oracle is their view that this is not a new distribution of Linux. Obviously they recognize the drawbacks in asking CIO's and ISV's to certify yet another linux distribution. They strenuously pointed out this is EXACTLY the same as Red Hat's Linux. Except without the trademarked Red Hat graphics. And with some additional patches. And then recompiled.
Funny moment of the analyst meeting: The product manager for Oracle's Linux Support team was being very animated as he emphasized how this wasn't a new distribution. The analysts weren't buying it at face value and someone whispered next to me, "It doesn't matter what you think... what do CIO's think?" Yes, this passes for humor at these events...
It's not an Oracle meeting without a conspiracy theory!
The conspiracy theorists are now wondering if this is all part of a grand scheme from Oracle. A plot so cunning and prescient that almost makes sense. Let's see, Oracle destroyed $1B of Red Hat's $3.7B market cap the day after the announcement. Red Hat has about $1B of current assets (cash, AR, ST securities, prepaid expenses) as well as $570M of debt on the balance sheet which gives you an enterprise value of about $3B. The Oracle has over $8.3B in cash and short term securities alone.
Assimilation Doing Well
I spoke with Oracle employees who were formerly at PeopleSoft, Siebel, and even JD Edwards. OF course I chatted with Fusion reps, Apps reps, and Tech reps as well. They all had been, well, assimilated (for lack of a better term). I mean this is a good way - Oracle has matured into a customer focused, highly professional selling organization. I was impressed at how the individual reps took advantage of the event. Reps brought their customers in large numbers, held numerous appreciation events and leveraged the proximity of so many senior Oracle managers. In other words, they did what they were supposed to do.
Now this is much harder than it sounds. You have to be on top of this 3-4 months out to simply get on your customer's calendar. In most software companies I worked for, priorities one through nine were obtaining new license revenue. Everything else, from doing expenses to helping the marketing guys with their data to getting customers to these events all tied for the 10th priority. So when the event comes, it is swamped with people taking a boondoggle. Everyone parties like mad, and not much real work gets accomplished. The Oracle folks I met simply took everything more seriously and professionally. Someone is managing this team well. But I digress.
The point I want to make is that the conglomerate seems to be working out well. The reps are more harmonious than I expected. The customers were less skeptical about Oracle's support for their legacy systems. The atmosphere was positive and Larry's strategy appears to be playing out as he intended.
The Road Ahead
Oracle has taken the haymakers SAP landed in the chaos surrounding the PeopleSoft takeover. Oracle has been acquiring customers and maintenance streams, and the critical piece was to retain them. This was in considerable doubt given Oracle's predatory reputation in the pre-Charles Phillips years. But the partners and customers I spoke to all commented on how focused Charles Phillips was in talking to them, no matter how small or insignificant. By extending the maintenance terms for all the acquired software products, Oracle eliminated any compelling event for customers to go to Microsoft or SAP. By adding new features and functions to products that were starved by their original owners (I'm looking at you, JD Edwards) they won a critical mass of goodwill. In short, Oracle did retain their customers and thus the ROI on these purchases looks realistic today.
With strong management and execution - two themes I believe I saw all week - Oracle is set to farm their huge installed base and keep those margins going north.
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