Oracle recently changed the name of its ASP business from Oracle Outsourcing to Oracle On Demand. This Oracle business unit will operate IT systems on behalf of customers. InfoWorld Editor at Large Paul Krill recently spoke with Oracle's Tim Chou, president of Oracle On Demand, about where the business is heading, the status of Oracle On Demand, and what the proposed PeopleSoft acquisition might mean.
So Oracle On Demand is hosted applications, correct?
We do both models, I think, from how people use that phrase -- hosted. We will do everything. In other words, it's what we call the at-Oracle model, meaning we'll manage the software, we'll provision the hardware, we'll put it in a very cold room. Today about 75 percent of our customers exist in that environment. We are probably running the largest Linux/Intel grid in the world today, doing that in the at-Oracle model. We also will do this where the customer chooses a different location and potentially different hardware in what we call the at-customer model, and about 25 percent of our customers choose that. For any variety of reasons, it could be policy reasons that say, well, I need to keep the data in France. (Also, there are) networking reasons, as in most transactions are sitting inside Australia, so why route transactions all the way into the United States and back down to Australia? We offer both models.
So you changed the name to On Demand. Isn't that an IBM term, and aren't IBM and Hewlett-Packard both using that same term?
Yes, I think it's become, in some sense, an industry-accepted term. The other reason we did it is I think the word "outsourcing," which we used for a couple years, I think was a good word because it was an English language word.
It's become a bad word lately, hasn't it?
Well, and also for us it really didn't describe what we do because I think people think of outsourcing as, well, you're going to take over my people and my datacenter and my hardware. So it became all about people and hardware and buildings, and what we're saying is it's really not about people, it's about automation. It's really not about hardware, it's about software. It's really not about (fitting) your contracts with penalty clauses, it's about a flexible business model. So I think the name change also is reflective of really how we think about the business, which is really around a software as service, software on demand model. One of the things we did, actually, even three months ago as part of the name change is we changed our pricing model to a usage-based model. Today for US$150 a user a month, we'll manage the entire application database environment for a customer. (Per-user costs eventually fluctuate, Chou said.)
Can you say anything about where you're going and what your plans are as far as any announcements or expansions?
First of all, I think one of the things that we're going to come out with is a bunch more information around scale of operation. I don't think people actually realize today how big a system we're running. We actually have a little bit over a quarter million corporate-level users coming in from 25 different countries. We process actually, just to give you a snapshot of that, 5 million sales orders for our customers last year. So I think one whole conversation is around the scale we're operating at. Another conversation that we're going to have is really around the partner community. We're doing a lot of work with them in many different dimensions to expand the scale of this business. And then the third area will be new product service introductions over the next three to six months.
What are you going to introduce?
It will be things in the database area, in the integration area, potentially in the CRM area.
Will you be competing against salesforce.com?
In some sense today we don't really because a lot of what Salesforce has done is really targeted and built software, to their credit, and I'll call it really a kind of a small to medium end of the market -- where, let's call it ease-of-use dominates as the requirement and you can provide relatively niche applications. The tendency for our applications has been to operate with much more feature functions that are interesting to, let's say, middle to large-end customers and more integrated approaches. For instance, order management is actually part of, you could call it, the entire business process of when you go from an order to cash or (for) purchase to pay. It's really a matter of our software is actually operating with a higher degree of functionality and a greater degree of integration. So today I'd say we don't really compete.
Will you be competing with salesforce.com with this upcoming program or announcement?
You will see us be much more aggressive, I'll say, in a number of different areas. Maybe that's the easy thing to say. And as I just said, I think we'll come out with more specifics as time marches on.
What is the difference between Oracle's outsourcing program, or hosted services program, and IBM's or HP's or other companies?
Let's just touch on kind of the top levels of it. We have believed that the challenge of managing IT today is really a challenge of managing software. There's ample evidence that over 75 percent of the IT budget today is spent managing security, availability, performance of software. Gartner actually just came out with a report that said that the cost of managing SAP users was $16,000 per user per year. We have used a rule of thumb and Gartner has as well that the cost to manage software is four times the purchase price of software per year. So point one is we believe the challenge is around software, not hardware, and I think we are unique in that. And two, we see it that the major shift here is who better to manage the software than the provider, the builder of the software? Because we think it significantly changes how software is managed, as well as how software is built and developed. And I think in that, once again, we are coming at this from a very different approach, let's say, than IBM does, who, as an example, builds very little application software. Yes, IBM builds database software, but they have not approached it really from the standpoint of, say, this is really about a shift in how software is both managed and delivered.
What type of cost savings do you generate for your customers?
At least 50 percent lower cost, and we actually have a number of different case studies that we would be happy to share on that, but it's at least 50 percent.
What about the proposed PeopleSoft acquisition? How would that be factored into your On Demand program?
Well, as soon as that transaction completes, then we would then be going down the path of saying -- hey, who better to manage Oracle software than Oracle? To provide, in essence, all of that software in the On Demand model.
Do you expect that acquisition to complete, or is this not really your area?
Right now it's all in the courts. We'll let the courts have the conversation, right?
Do you have any closing remarks?
I think the whole database on demand space is very interesting.
Does the grid play into any of that?
Absolutely. Because of what we've been doing, we actually are operating a grid today because every customer who comes online onto our system is coming onto a Linux/Intel environment. We provision systems that way -- we allocate application tiers, database tiers on demand.
Will you be providing any new services for grid customers?
I think that will be part of the conversation.