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 plainwe'll help you with your
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 linecall 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
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
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.