Ellison bets on hosted ERP apps and services

Oracle plans to leap ahead of its current competition -- and to begin competing with a broader swathe of the information industry -- by becoming a super online provider of enterprise platforms, services, and data and application hosting, chief executive officer and chairman Larry Ellison said here yesterday.

Oracle is now the largest application server provider (ASP) in the Americas and Europe, and has teamed with global telecommunications companies, internet data centres and independent software vendors (ISVs) to vastly expand its online reach and breadth, Ellison said in a press conference atop the World Trade Centre.

Oracle Business OnLine (BOL) is the company's response to large companies that no longer want to run their own data centre and install their own enterprise resource planning (ERP) suites, as well as to smaller and emerging companies that can't afford the upfront costs of installing large systems.

By paying Oracle on a monthly per-user fee basis, averaging about $US300 per employee, BOL will host Oracle and other partnering vendors' applications to perform critical business functions over virtual private internet networks, or via the open Web.

BOL running on the Oracle Application Suite of products -- which includes tools, databases and vertical ERP applications -- from data centre locations worldwide, will dramatically reduce the overall cost of implementing and running such systems and alleviate the training and labour crunch that hobbles many IT efforts and their efficiency, Ellison said.

Moreover, the convergence of large systems software providers such as Oracle with the ASP online hosted model will drastically change the computer industry itself. All surviving software companies will have to become ASPs eventually, or be wiped out, Ellison said.

"Everyone else has got it wrong, and we have it right," he said. "Every software company will have to become an ASP. ... Does everyone who wants to do computing have to hire experts? It's a strange notion. We think we're early to the party with BOL. Your software has to change. You can't take your existing SAP and put it on the Web."

By taking Oracle on a shoot-for-the-moon voyage of competing with many of his potential and current customers and channels -- such as ISVs, ASPs, resellers and even an enterprise's existing infrastructure and IT managers -- Ellison is continuing his tradition of being bold and innovative and certainly not risk-averse.

"Sure we are competing with our customers," said Ellison, adding that "Oracle everywhere" is better than "Microsoft Windows everywhere" because Oracle's centrally hosted way using mostly Oracle products and services is cheaper, more reliable, better leverages the internet, is inherently mobile to clients and is based on standards.

Oracle's bold new world also portends some risks. The California-based database leader, for example, will not sell any of its ERP and vertical applications to any other ASP. Oracle alone will sell the services, obviating the role of resellers. Oracle will need ISVs to join it to provide the richest set of services, yet will compete with the ISVs if those ISVs host their applications themselves or elsewhere.

"We need to tell ISVs to build for the Web, not for Windows: that's the pitch. We love our network partners, but we live or die with the ISVs," said Ellison, adding that BOL will be half of Oracle's business in a few years.

At the same time, Oracle has a competitive stance toward many ISVs that will need to carefully examine their relationship to Oracle.

"Unless I'm fired, we will never sell Oracle applications to other application service providers. I don't want to be mushy on this," said Ellison. "We're going to outsource ERP and compete with the other ERPs, the ASPs," as well as try and out-Web the application platform makers, such as Microsoft, Sun/Netscape and IBM.

One analyst said Oracle's decision to be the sole provider of Oracle Applications may limit its ability to make Oracle Applications the standard for hosted applications.

"The idea [of a sole provider] goes against the story of the internet, which is all about propagating technology and freedom. To only have one licenser goes against that, and they'll lose market share in the mid-market as a result," said Dean Davidson, program manager for Meta Group's service management strategies group.

So far, IBM has backed off from using its products to create an ASP infrastructure, preferring an original equipment market approach to selling the means of building ASPs, rather than competing with potential customers.

Microsoft and Sun/AOL have portal sites that they have hinted will have a role with their platform offerings. Sun also recently bought a suite of productivity applications from Star Division to build a hosted applications service.

But Oracle will also begin competing with internet portals and original content Web sites because users of BOL will have targeted advertisement directed at them as they use their Oracle applications from Oracle's hosting servers. A purchasing manager, for example, could be specifically targeted by sellers of products during the order cycle.

Ellison's view, in short, casts asunder the conventional business structure of the way IT products and services are sold and supported. Oracle could win big, but could be ostracised and surrounded by enemies, too.

"Software is on the way to becoming a service. If you don't understand, this you're going to be in a lot of trouble. Your customers will only be the three ASPs, and that's not the business we want to be in," said Ellison. "This is a fundamental change in the delivery platform."

But Clare Gillan, an analyst at International Data Corp, said that pressure from startups and customers will force Oracle -- and other software providers -- to alter its business model and rent, rather than sell, software.

"Their strategy indicates that they want to be the world's number one ASP because they're willing to host other people's applications, but I question their long-term business model. Right now they're very dependent on software licenses," said Gillan, noting that all software vendors are going through the same transition.

Meta Group's Davidson also noted that the ASP industry, while garnering interest from many vendors and users, is still immature. Basic operational issues and processes such as governance, security policies and the help desk are still not up to the level of outsourcing services from established firms such as EDS and IBM.

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