Oracle and Innovation: Passing the Buck Back to the Customer

My friend and colleague Vinnie “the Deal” Mirchandani took aim at a lackluster PR release by Oracle as emblematic that Oracle has lost the art of software innovation, in favor the art of acquisition. That’s a rough synopsis, read the full post and Karen Tillman’s well-tempered responses here. As someone who tries to keep a finger on the pulse of innovation, particularly with companies like Oracle, I’m going to beg to differ. Though much of the innovation that comes from Oracle these days is through acquisition, there are a couple of pretty significant pieces of innovation either already released or waiting to be released by Oracle, and more on the way.

The main piece of innovation, still very much in the hopper, though definitely delayed vis a vis its initial, rather optimistic, timetable, is Fusion Applications. We could argue ad nauseum whether what analysts and Oracle Open World attendees saw last Fall was truly innovative, but I can assure you the art of coding, to use Vinnie’s term, is hardly dead at Oracle. As I’ve written elsewhere, the presentation to the analysts was three hours or so of mind-numbing detail, delivered in dry, mind-numbing fashion, that showed that considerable progress had been made on Fusion Apps, with a lot of functionality and a lot of interesting new user interface work in evidence, to say the least. The fact that Oracle hasn’t been running full tilt to the market with Fusion Apps may be more due to the pipeline-killing effect that something that new can have on existing product sales than anything else (for more on this, read my column in Managing Automation here.)

More innovation is coming out of Anthony Lye’s CRM group, in the form of the very interesting social CRM apps, also well-documented and reported on. I’ve had a number of briefings over the last few months, and I would say that innovation is alive and well at Oracle, and anyone, particularly a competitor, who thinks otherwise is seriously misjudging Oracle in the marketplace.

The remainder of Vinnie’s post begs a relatively complex question, which is whether Oracle’s customers have gotten enough value for the $75 billion they have spent on Oracle in the last five years. Vinnie makes a complex problem a little too simplistic by lumping all customer spend in one big bucket that includes net new customers, existing customers who are buying net new functionality, and everyone who is paying for maintenance and service. IMO it’s a little too big a bucket to support a discussion of whether customers are getting enough innovation from the company.

But that’s not to let Oracle or anyone off the hook regarding the value of their spend with their vendors, particularly the 22 percent entitlement, I mean maintenance, fee that is now the norm in the industry. Every vendor needs to think hard about what it’s doing with not just their customers valuable maintenance dollars, but more importantly what they are doing with the much more valuable customer relationship on which this spend is based. If Vinnie is right, that there is little to show for that spend, then shame on the vendors for gouging their customers, and, shame on customers for putting up with that gouging. If he’s wrong, then, it’s the vendors’ job to show that all those revenues actually result in something positive for the customers, instead of just something positive for investors.

I think in the specific case of Oracle, there is something to be said for how they spend their R&D budget, based on Fusion, social CRM, and other new application innovations in manufacturing, finance, and logistics, to name a few. I suggest in particular that Vinnie be given an updated version of the Fusion mind-meld I was part of last Fall. And then let’s have a debate about whether Fusion Apps are innovative or not. Knowing Vinnie, that would be a lot of fun.

4 thoughts on “Oracle and Innovation: Passing the Buck Back to the Customer

  1. Josh, of course, there are some innovations coming out, but take 5 years, and over $ 75 billion as the baseline and it is shockingly low payback

    first, there is the complexity issue. Never in the history of our industry or other complex sw environments including NASA has so much diverse code been brought together. It is daunting and demoralizing to any one told to develop any semblance of standardized solutions or support…so any innovations will likely be tweaks and only apply to a small percent of the customer base.

    then there is the funding issues – 95% of revs go towards SG&A, fixes, and margins…and so little towards new product development and engineering

    then it is the culture where financial, strategy, sales and BD types dominate …there is little tech/product leadership

  2. Hi Josh. Really interesting thread with one big thing missing – customer satisfaction. Vinnie bases his argument on what customers get for their spend with Oracle but he misses the biggest indicator of their satisfaction – their commitment to Oracle. If customers truly felt they were not getting value from the relationship they would leave. They would cancel maintenance and go with one of the many third party firms and be done with us. But that is not what is happening.
    The fact of the matter is that according to our sat surveys, customer satisfaction is increasing. Our customers like the acquisition strategy –it brings what Dennis gripes as ‘tuck in’ applications and they love that. They love that they do not have to upgrade their core ERP, SCM or CRM to get additional processes covered. They are also happy with the Applications Unlimited strategy. Enhancements go beyond UI and bug fixes to deliver new products, better workflows and, as Karen points out, more certification with FMW. While PeopleSoft customers familiar with PeopleTools, may not be able to tell Vinnie what that means, that doesn’t mean that there is not value in these certifications. Overall, customers who extend reliance on FMW can reduce their costs by leveraging a single technology for multiple services across a diverse portfolio of applications. While some customers, particularly LOB users, have no idea what the value of say certification on Enterprise Manager by all their Oracle Applications means, an educated CIO can explain how that takes millions of cost out of his budget – and in today’s economy, that’s worth continuing investment.
    Just my two cents.

  3. There’s a couple of things I think Vinnie has overlooked in his arguement above – first, yes, there is a lot of complexity in managing different code lines. No one would argue that – and many of our customers live with that everyday. As you know, it more common than not to have a customer run just a single vendor system. So, because we know have control of the code bases for ORCL, PSFT, JDE, SEBL, etc., we can work on solving that complexity for our customers. That’s pretty significant.

    I also think you are overlooking some of the major innovations on the technology side of the house that directly benefit the applications. I don’t think you can disagree that there are massive innovations taking place in Database and Middleware- Grid, Exadata, 11g…all benefit the apps as well.

    And I’m trying really, really hard not to throw the “lack of innovation” at SAP, following Business Suite 7. But, I won’t get into that. 🙂 One can of worms I’ll let someone else open.

  4. Josh, my focus was not just on innovations, it is also on continuous improvement in the base product and quality as I wrote in this follow up.

    http://dealarchitect.typepad.com/deal_architect/2009/02/oracle-not-just-about-innovation-also-improvement.html

    If I can see graphs which show continuous improvement in service SLAs, bug rates, cost per ticket that to me is a far better indicator of Oracle performance than Cate Lochead’s point about “commitment to Oracle”

    To Karen’s point – she obviously missed the EI’s feedback when we were in New York for the BS7 announcement.

    But how does that help or hurt Oracle’s own performance for the $ 75 billion it has been paid over the last 5 years?

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