Oracle and Sun: First takes The roadblocks to Oracle’s purchase of Sun Microsystems have fallen away, and the deal is – for all intents and purposes – done. So what did we learn during last week's five-hour marathon webcast? A lot. Oracle laid out its entire strategy, at least in a broad sense. True to its word, it intends to stay in the hardware market …
At the start of the article I was thinking "who are these Gabriel Consulting chaps, maybe I should check them out", but by halfway through it was "why bother!" A simple example is the contradictory statement "....customer desire to have integration done at the factory on the vendor’s dime rather than their own shop floor at professional services’ hourly rates. Of course, service and consulting is another lever that Oracle can now use to add more value and disrupt competitors...."
Integration done on the factory floor? Oh, you mean pre-delivery integration. Which can only go so far with complex enterprise systems, which require INTEGRATION with the environment they're going into to. Big hint - that's why it's called "integration" and not just "installation". Installation is what you do with appliances, which is what Oracle needs to be selling because they don't have any services capability to do real integration. And they can't look to Sun's former channel partners for the integration piece because those partners have just been told Oracle want to build a direct model, so the ex-partners are all going to be flogging IBM, hp, Dell, and just about anything BUT Oracle into those accounts Larry has targeted for his "factory-integrated" push. They'd be stupid not to, because services are what seperate those top-line resellers from tin-shifters and make them nice margins, and if Larry says he's going to take that away then they'll go play some other vendor's game.
But then we get the bizarre volte face of "....Of course, service and consulting is another lever that Oracle can now use to add more value and disrupt competitors...." So which is it? Larry's going to do factory integration of appliances and hope they can magically embed themselves into his customer's environments, or he's going to do complex and competitive services work (presumably on the "shop floor at professional services’ hourly rates", which Gabbers Consulting just said the customer's don't want) when he doesn't actually have a services arm to do the work! Oh, and I'm pretty sure that if the factory integration is anything more than physically bolting hardware together then it will mean hiring a large number of skilled "integrators", probably not far off the price of those professional services teams his competitors already have doing work inside those customer target accounts.
Were gabriel listening at all during the Larry & Phillips show? They said they wanted to be like IBM in the '60s, not try selling enterprise solutions in the way Dell sold PCs in the '90s. I'm guessing Gabriel's amazing analysis that led them to conclude that Larry wouldn't ditch the Sun hardware (oh, I assume that doesn't include Rock then?) was settled by the flipping of a coin going by the content of this "article". Are all the capable analysts off skiing?
What I was trying to get to with the services angle, and perhaps didn't do a great job of, is the idea that Oracle would move upmarket with more business oriented services. By this, I'm talking about advising the business side of the organization about how to wring more money out of their customers by database/app enabled cross selling, for example. As a vendor, when you can get into the heads of business side management, the deals get bigger, approvals come easier, and margins are higher than when you engage by simply responding to RFP's.
On the hardware side, IBM plays this game with very well with their PWC guys and other business consultants. In retail, for example, they do a lot of basic research into consumer behavior and use the data as conversation starters with customers. This conversation can then be extended to 'how can you, Mr. Customer, take advantage of this trend/condition/frustration?'.
From there it moves into a formal consulting engagement which identifies problems and, hopefully, puts a credible dollar figure on the value of the proposed solution. The hardware/software/integration spending is just part of the larger project and often isn't negotiated as fiercely as a straight IT procurement. If there is some negotiation, the vendor can discount whatever part of the deal is bothering the customer, while making up the margin on other parts.
I think that these types of services are going to become more important over time as competition increases and the margins on deals become even skinnier. IBM has the most strength in this area, HP is adding their own capabilities through their purchase of EDS (and eventual morphing it into different areas), and I think Dell's Perot buy was in large part to get the capability to do these types of deals. Oracle has a lot of vertical industry expertise, which will serve them well here, and I would expect them to exploit it.
And, um, yeah, we listened to the meeting and we don't typically flip coins on this stuff. We have a massive array of Magic 8 Balls that we use to form the basis of our research.
If you look around, AC, you'll see our stuff on a variety of vendor web sites (IBM, VMware, and others, and also on our own site). We're not Gartner or IDC, but we do OK. However, your comments have me rethinking our entire business model. Hmm....we do independent, non-sponsored research (surveys and stuff) and then write about the results… but maybe we should GIVE the results and associated analysis away FOR FREE - just like all of the other analyst firms. That might work - and it might take away some of your objections.
While we're at it, we need to make sure we bury any survey result where customers say they prefer one vendor over another on a particular item. We need to be impartial and evenhanded, despite what we hear from real customers who live in the real world. So we’ll cut everything right down the middle: "All children are attractive, well behaved, and of above average intelligence.." Yeah, that's the ticket; we want to make sure we don't offend anyone. Then we’ll look a little more like the big guys, won’t we?
It's a source of constant amusement to me how some people regard us as Capitalist Pig Whore Sellouts when the research results don't agree with their perceptions. But when the results back up what they believe, then we're merely reporting and analyzing industry facts that are obvious to all.
Yeah, well I did appreciate the magic 8ball reference! :)
Problem is this sounds just like something I saw in the '90s. IBM had developed this myth of winning business at the board level, out on the golf course, etc, when in reality it was a lot more complex than that. I really noticed it when hp started insisting that they should have links between equals in their company and the one I was working at, meaning the UK head of hp talking direct to our CEO, and our head of IT talking to someone like the UK head of hp sales, and so on down the ladder of command. This rather bizarre request came in from the technical side of hp, which we actually had a good relationship with, and was treated with alarm by some of our senior bods. They definately did not want to spend more time with salesmen, no matter how senior they were. To back this push up, hp started sending salegrunts off to learn to play golf (which meant we could never get hold of them when we actually wanted to talk to them), and invites to all manner of events started winging their way to anyone the hp account team decided was an "influencer" or "purchaser". Our hp team admitted to me they thought that this was what IBM were doing in our account. The truth was a litle more simple - by chance, our CEO had gone to uni with an IBM senior manager, and they did spend time socialising playing golf and an hp salegrunt had happened to see him on the green in the IBM manager's company. But that same CEO was quite happy to sign off on hp's kit as IBM's as he was most interested in which was best value for money, would solve his business problems quickest and with the least hassle, and might give him an advantage over the competition. When he made those judgements, he used what hp and IBM might have referred to as "trusted advisers", some in our company and some in vendors and resellers. He definately did not buy an IBM mainframe just because he got a free game of golf once a fortnight.
Oracle is probably looking at the same problem as hp thought they were looking at then - IBM cosy in the boardroom and their own salesguys just not in that "trusted adviser" bracket (since when did anyone ask Oracle for advice on anything non-Oracle?). Larry probably thinks if he manages to wave enough wonga under their noses he can poach those top IBM and hp salesgrunts and have them wining and dining his target accounts in no time. As with the hp effort in our company so many years ago, those inclined will lap up the freebies, enjoy the golf, and then Oracle will take stock and realise the expensive wooing did nothing for the bottomline.
IBM has built up a services capability over decades, and has carefully used it as a tool to maximise their penetration of key accounts. Whilst behind IBM, hp have been working on the same idea for years, and the EDS purchase made them a lot more capable as well as putting them right into the heart of a mass of old Sun-only accounts. Sun hasn't done services to the same level ever, and neither has Oracle. As I understand it, both are highly reliant on channel partners and resellers to do services, and I've already pointed out why those guys won't be too keen on Larry's latest announcements. In short, Larry probably doesn't have any "trusted advisers" and building trust can take years. Despite all his bravado, Larry has a massive hill to climb.
A novel idea of firing all the partners vs. 13K employees but its not something you can build overnight like a software download site. The disaster will be shown when Oracle has to show their year end results in May.
Do you think they will show the infamous "billed revenue" chart detailing product line revenue?
Wall Street should demand that breakdown.
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