The launch of Oracle’s 2008 Fusion Applications is nigh, and there looks to be no end to the company’s acquisition spree in sight. Angela Eager gets to grips with the applications giant’s latest strategy.
The clock is counting down at Oracle. The launch of Fusion Applications is scheduled for some point during 2008, yet even as CBR went to press, Oracle announced yet another potential acquisition: this time making an unsolicited, $6,7bn bid to acquire middleware vendor BEA. So is the company still able to explain its strategy to customers and prospects, and will it be able to deliver on its Fusion Applications vision?
Larry Ellison, Oracle CEO
Oracle has remained quiet on the Fusion Applications front since January 2006. "We are already halfway through the development process of Oracle Fusion Applications, and we remain on track for the 2008 target delivery of Oracle Fusion Applications," said Oracle president Charles Phillips, at the time.
"We have defined Oracle Fusion Architecture and certified all Oracle applications on our world-class Oracle Fusion Middleware, which includes a set of mature tools that are being used to develop the Oracle Fusion applications. Additionally, we have defined the data model and mapped the functionality that is planned for future releases of Oracle Fusion Applications."
Alfred Chuang, BEA Systems
chairman and CEO
Fast forward to 2007 and material news about Fusion applications is scarce. Even the Oracle Applications User Group conference in April provided a platform for the albeit important Applications Integration Architecture (AIA) announcement rather than an update on the new application suite.
There has been a distinct change in Oracle's positioning. January 2006 saw it confidently forecasting that 80% of users would move to Fusion Applications, although it did not specify the time span. Now the emphasis is on customers moving how and when they want to, while reiterating there will be no forced migration. Indeed, the combination of the Applications Unlimited initiative, road maps and major updates for all five business suites, plus the AIA platform launch, could all be significant migration disincentives.
Oracle's activities could suggest it is having difficulty with the last half of its development work or that it is alleviating user concerns over forced migration. Alternatively, its maintenance-heavy business model might mean it does not matter what applications are used so long as customers are retained and remain on maintenance.
The AIA initiative is particularly interesting in the context of disincentives and customer retention. It was essentially Oracle's announcement of an integration platform - including a composite application framework - based on Fusion Middleware. It touches several strategic points. It may encourage Fusion Middleware adoption, which will ease the path to Fusion Applications.
It should enable integration of old and new applications and architectures, which will benefit Oracle as much as its customers. It may also be Oracle's acknowledgement that customers are unwilling to move to a new application and architecture just to access new functionality. The fact that as CBR went to press Oracle initiated an unsolicited bid for one of the biggest middleware firms, BEA, for $6,7bn, shows that Oracle is more than serious about middleware.
CBR met with Oracle president, Charles Phillips, last month, and was able to ask for a Fusion update. "We continue to make progress and are where we should be," he said. However, he did indicate that the early middleware-related progress was paying off. "Development is three to five times more productive because there is more contained in the metadata [layer]. A lot of the plumbing is being done automatically in the meta-data. That is allowing us to make the progress.
The key to Oracle's overall business application strategy is Fusion Middleware and the AIA. Although the company has multiple product lines, it has a single integration platform, which includes a BPEL orchestration layer and an object model, that reaches across all of its business applications including Fusion Applications progress."
Understanding middleware is to understand the applications, advises Jan Wagner, chairman of the independent Oracle Applications Users Group. "Users are still confused about Fusion Applications and Fusion Middleware. Fusion Middleware is here and it is the way to understand what Fusion Applications are and what Oracle is doing to develop the next generation of applications."
This is how Phillips explains it: "A lot of customers have the same problem of complex systems built over the years that they have failed time and time again to integrate.
"They have tried different ways... but everyone has come to the same conclusion that standards-based integration is the primary way to solve this problem.
"Having as many applications as possible pre-integrated when they buy is the second aspect of that strategy. That is exactly what we are doing. We are providing a standards-based platform for integration around a middleware stack and on top of that, pre-integrated applications. It is also important to do it in a standards-based way so they can extend those integrations and not get locked into a proprietary integration platform."
As a result of it making free with industry standards, Oracle cannot be called proprietary but it is binding customers to its technology stack. "Major customers can take the Fusion Middleware platform for their applications," says Phillips. "They may have a ton of legacy applications but as long as they can expose services in the legacy applications they can participate in the integration platform. That's the beauty, we can accommodate everyone."
The UK customers we spoke to did not appear to have issues with Oracle's middle-ware-heavy application strategy. "Most of our middleware is [built] in-house and we would rather it was not," said one. "We use lots of Oracle applications so it is not a problem," said another. Both preferred not to be named in the press without an internal PR approval process too lengthy to accommodate for this article.
Oracle is blurring the boundaries between applications and middleware in the same way it blurred the database-to-middleware boundary. "There is not really [a hard boundary between] technology and applications functionality, but a grey area," says Wagner.
He thinks users and user groups will have to work to understand how to deal with the change. "I do not think there will be boundaries [in the future]. It will take some pressure for our user group to collaborate with the technology and database tools user groups to make sure we all understand that boundaries do not exist. We have to collaborate and talk together. We are doing that but we have to be more aware.
"As a user group we have to make sure we are looking after the users' interests not just the individual user groups' interests," he says. "In the past they have focused on upgrades, databases and so on but it is more important that we have people on the application side that understand it all. There will be a winning situation if you have people that understand [everything]."
In Phillips' view, the overall strategy aligns with the SOA-based concepts and web service-based approaches that companies have talked about for several years but are now able to start implementing. "Our major differentiator is that not only can we talk about them but we can deliver the applications and the integration platform. Second, we think customers believe our architecture has been adopted and that we are not trying to conserve something from the 1970s, the way SAP is."
When it comes to forward planning, the opportunities enabled through Applications Unlimited and AIA are a priority for most customers, according to Wagner. There is also a lot of focus on the new versions of the existing applications. For the E-Business suite, for example, debate centres on when to upgrade from 11.5.10 to 12. "At the moment, people are looking at it and waiting for the first upgrade experiences to come through. Users are focused on future and current issues: whether to stay [on the current application platform] and upgrade or wait for Fusion Applications," he said.
Although there is interest in Fusion Applications, the absence of a product means most attention is focused on existing applications and upgrade issues. There are more questions than answers among the customer base when it comes to factoring in the next generation of applications.
There are tricky choices over when to jump, admits one UK-based Oracle E-Business suite user, but he has no doubts that sooner or later that jump will be required. For the moment, having the required functionality available now provides a breathing space. Another user said he feels he understands what Fusion Applications is, but not what to do with it.
Phillips believes customers have grasped what Oracle is trying to do. "We have had a lot of great reactions to our strategy over the last year or so. What has really changed is that customers not only understand what we are trying to do but are totally aligned with it."
According to Wagner: "Fusion Applications is coming more and more onto the horizon. Most people see the benefit, especially if they use a variety of Oracle products, because they will come together in Fusion Applications. Fusion Applications is the future. We are communicating to Oracle and helping to demystify it.
"It sounds like things have gone quiet but there is a great deal of activity in the Fusion council. The architecture is new and it is a new generation of application, but you should not forget that it will be the best of all the acquisitions. People have the applications, now Oracle is bringing a new architecture, new functionality and bringing the best from PeopleSoft, Siebel and the E-Business suite. I can only be excited. I am sure that when they bring it all together people using a variety of applications will benefit."
There have been irrefutable changes to some aspects of Oracle's strategy, specifically its enthusiasm for industry-specific applications. So what is the play here? The company says it views ERP as a horizontal application and horizontals are just one part of the business applications market. It takes the view that customers are spending more on line-of-business applications than ERP and is backing its conviction via a series of vertically-oriented acquisitions.
Ovum analyst David Bradshaw classifies verticals as phase three in Oracle's acquisition strategy. "Phase one was the acquisition of a substantial customer base, through purchase of assets like PeopleSoft and Siebel. Phase two has seen Oracle building out its middleware strategy, filling in technology that needed to be enhanced. Phase three has seen Oracle building industry footprints, through acquisitions such as iFlex Solutions, Retek, SPL World Group, Hotsip and Netsure Telecom."
But Bradshaw wonders if Oracle is also entering phase four, which would see it buying horizontal applications. Its latest acquisition, of real-time governance, risk and compliance software provider LogicalApps, was in the horizontal plane.
The vertical rationale is that while companies need the core functionality of ERP, it is industry specific line-of-business applications like billing in communications and utilities, for example, that provide value. Oracle wants to use vertical line-of-business applications to increase its strategic and operational value, and its application footprint, within its existing customer base, and SAP's. If it provides these, it hopes customers will then look to it for their administrative applications.
Although Oracle still hopes to establish Fusion Applications as its premier business applications suite, it has reacted to customer sentiment and tempered its approach by delivering application upgrades and the AIA platform. It is also possible that it took this route in response to the difficult task Fusion Applications represents. The problem is that these developments could seriously retard adoption of Fusion Applications. But how much does that really matter? Above everything else, Oracle is a growth company, and its actions have shown its commitment to a pragmatic strategy, even if it has had to adapt it along the way. Its latest unsolicited bid for BEA, meanwhile, shows that the company will stop at little in its quest to dominate both software applications, and the software infrastructure that underpins them.