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Turning Larry's Yacht

Have you heard this story about Larry's yacht?

Larry likes to play basketball on deck. Ocasionally, somebody (else) misses a basket and the ball goes overboard. Larry does not like losing balls, but he also doesn't like to have to turn the yacht. So he has two crew members on Ski-Doos follow the yacht, and they pick up the ball.

Well, Larry's really big yacht has run out of Ski-Doos. So he's decided to turn it. Oracle Apps World was clearly more customer savvy and more nuanced than ever before. From the demos (canniest ever) to the message (save money, save money, save money) to the vision (articulating the value of a single global instance better than SAP did), the subtext was plain—we'll help you with your issues.

Short-term, this change means very little. It provides a little more reassurance to skittish customers who need to upgrade. But two years from now, this maneuvering, if completed, should leave the company quite well positioned.

It's essentially a Normandy, Day 3 strategy. Come up from the beach and fill in the gaps between the forces. It's a strategy that only SAP and Oracle are positioned to execute right now and Oracle only if the yacht finally turns.

The short term is another matter. The Normandy strategy only works if companies upgrade to 11i. Today, 10% of the roughly 15,000 live customers are finished upgrading or in process. The consensus of several consultants at the show was that another 30% are thinking about it. But despite a looming deadline (July, 2003), most are too doubtful or too busy to move. This could lead to a wild flurry in Q4, if the customer base stampedes. But more likely is inertia and another extension of the deadline.

Larry e was selling Oracle upgrade services hard. This is a defensive strategy. The license revenue opportunity in an upgrade is smaller than Oracle would like. Yes, there can be more seats and new modules, but past discounting and overselling has left a lot of seats ont he shelf, and if there's a stampede, purchase of new modules will tend to be deferred.

If he can sell these services, the sheer volume should make a difference to the bottom line—call it $200K each for 4,000 customers. True, it will be "bad" service revenue rather than "good" license revenue. But the company correctly sees that a) money is money and b) the service revenue is a prerequisite for later license revenue. Analysts that punish Oracle for what I predict will be a short-term shift in the license-service mix will feel well within their rights, but will in fact be working with a distorted picture of Oracle's operations.

What about stability? Different parts of the App set are clearly more stable than others, but even the most problematic, sales orders, has one real, live customer, GE Medical. A lot of the current Release Pack 6 adds in functionality that got left behind in the crunch, another indication that the bug count is down.

Still, they are in the early stages of the upgrade, and every new customer will discover something, because each customer uses the products differently.

Finish with some customer stories. Both GM and Ford talked about their courtship with Oracle Applications, which seems to be at the second-date stage. No pins have been exchanged, but the possibility is not foreclosed.

The panelist from GM was clear that replacing the tens of thousands of apps at GM with Oracle would take a very long time. At one point, he thought a questioner was asking about the gaps in the product. "No partner modules. Sequencing not there. etc., etc., etc., etc." in a tone of real irritation.

Oracle's recent huge win at McDonald's was described by one consultant as "a triumph of salesmanship." They are replacing Lawson HR there, among other modules, a module that seemed to be working perfectly well, when I reviewed it.

EMC also talked about their 28-month implementation of Oracle, an implementation I know very well. They're on 11.0.3, and it works well, with lots of customization. There is plenty of opportunity for infill and extension--in planning, in HR, in CRM, and in manufacturing. But they won't be able to move with some of these things until they upgrade, and they're not planning to upgrade any time soon.

One reader of the last note pointed out that they did the cards at OpenWorld, too, but at OpenWorld, you got $75, not $50. Another pointed out that they did feed the analysts, including me. Yes, we got fed, but the customers didn't.

Yet another thought I was criticizing Oracle. Au contraire, I can assure you. There's simply no need for the old excess in this market. Oracle is profitable, and it has high margins, and this kind of attention to detail is what produces that effect.

See also our other recent Short Takes.