Oracle Targeting Niche Applications

NEW YORK — Oracle is going after the market for in-house software development in an effort to replace corporations’ proprietary systems and offer niche applications built on its middleware lines.

During a meeting with financial analysts Monday, Oracle President Chuck Phillips, citing stats from Forrester Research, said applications for smaller verticals represent approximately 38 percent of its available software market opportunity.

Phillips allowed that major enterprise resource planning (ERP) applications such as human resource management and supply chain management have been lucrative for Oracle. But the market opportunities for in-house software development consist of vertical, line-of-business applications that help a company grow and scale.

“These areas are harder to get into, and the barriers to entry are higher but we like that because the investment can yield a higher return,” he said.

“Right now, most of these areas are led by smaller companies, lots of niche companies,” he continued. “If we can come up with packages in these key areas and some key verticals, customers have told us ‘we’re willing to buy from you.’… That’s where the game will be played and the battle will be fought.”

The strategy underscores Oracle’s efforts to make headway with its applications offerings, which came in part from its acquisitions of technology from PeopleSoft and J.D. Edwards.

The applications could certainly be built with the help of Oracle’s Fusion lines, which include Oracle’s Application Server 10g, Application Development Tools and J2EE Application Server, as well as Web Services infrastructure, Business Process Management and Activity Monitoring. The Fusion suite also includes security products from Oracle’s recent acquisition of Oblix as well as its Oracle Data Hubs and Collaboration technology.

The middleware products would be the foundations for creating Service Oriented Architectures that deploy such niche applications for Web services.

Of the 38 percent total market opportunity for new line of business applications in niche markets, Phillips said: “If we could get half of that, that’s a huge opportunity.”

Mike Jones, CIO for Oracle customer Circuit City, joined Phillips at the meeting to chime in with his observation that big companies are looking to rip out existing software systems and replace them with systems that can work with other vendors’ systems. He noted that while proprietary software development might have worked for Circuit City in the 1980s and 1990s, it’s time to change. And that often means deploying middleware that helps systems talk to each other, no matter the platform.

Jones lauded Oracle’s decision to buy retail applications maker Retek, calling the vendor a “pearl in the retail market” that could help Circuit City flesh out so-called “best-of-breed” software. He said he was happy Oracle beat out SAP for Retek and encouraged Phillips and Oracle to grow its applications business.

The endorsement was a subtle, yet clearly staged shot at German giant SAP, a company Oracle is fervently trying to gain ground on in the applications market. SAP is still the market leader despite Oracle’s torrid acquisitions of applications vendors.

In other aspects of the business, Phillips said Oracle’s Fusion Middleware business is enjoying the fastest growth, with 27,000 customers and $853 million in sales projected for 2005.

This business includes the Redwood Shores, Calif., company’s application server, development tools, ID management and enterprise portal software.

Oracle continues to see great growth in license revenue overseas in India at 32 percent for 2005 and especially in China, at 52 percent for the year. He attributed the upshot in India business to the recent stake in iFlex.

Phillips also clarified a recent comment from Oracle CEO Larry Ellison, noting that Oracle plans to average 20 percent growth over the next five years through acquisitions and organize growth.

He said Oracle would look at additional acquisitions, noting that the company would probably look to acquire “medium- to modest-sized” companies in the wake of larger deals such as PeopleSoft, J.D. Edwards and Siebel Systems.

“There are not a lot of large things left to buy,” Phillips said. “The scale depends on what’s available but what we don’t know what’s going to be out there in five years.”

Meanwhile, Oracle’s biggest revenue stream continues to be its software support and maintenance business, at $5 billion a year.

Oracle will announce second quarter fiscal year 2006 earnings in mid-December.

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