While Oracle has been branching out from its database roots into application areas such as enterprise resources planning (ERP) and Internet commerce, Microsoft has been breathing down its neck in its core database segment. Ray Lane, Oracle's president and chief operating officer, spoke with IDG's Elinor Mills recently about how the software company plans to protect its database market share while pushing into new arenasMills: With the success of Windows NT and Microsoft's move into Oracle's core market, how does Oracle plan to fight Microsoft off?
Lane: First of all, Microsoft is a leader - and in fact has maybe become a monopoly - in operating systems for the PC. We are the leaders in enterprise databases.
You have to start with a position that we are in very different market spaces in terms of product and customer requirements.
Then you look at where we're both going, where we are targeting our products. And I think there's quite a bit of overlap when you look at where we are targeting if you look at, say five years from now, and that is in two markets.
One market is enterprise platforms and applications where we certainly see ourselves as a leader. And I think Microsoft, at least in the platform space and personal productivity applications on PCs, will compete.
The other [market] is Internet access to infrastructure and applications, products that allow Internet access. And that might include consumers, although Microsoft would have a larger consumer business than we do.
Now your specific question about databases . . . Microsoft acquired the source code a long time ago from Sybase, and has enhanced a product called SQL Server, which is a relational database that has fundamental database capabilities. There's no one that would agree, that would evaluate the products, that would say that Oracle7, now Oracle8 which has just been delivered to the market in July of this year, and SQL Server are comparable products.
Our product does a lot more than Microsoft's product does. And in fact, when you get to a certain level in the enterprise its product doesn't handle the requirements, nor does it scale and provide what a customer needs.
The further you go down in the enterprise, the fewer users you have and you only need the fundamental SQL abilities of the database - then Microsoft competes because it competes on volume and price.
So, to say that Microsoft is competing in the database business is true. But it's not competing adequately against Oracle's capabilities, and that's been proven a number of times. It doesn't have the features. It doesn't have the scalability in most of the market, in the middle and high end of the market. It can compete at the low end. That obviously will change over the next several years. But we think that our core competence in building data management products, data servers, will keep us ahead of Microsoft.
Now there's not been a lot of time to evaluate this so far. But Microsoft has had the product for several years. We've now got data to measure it, and on the NT platform, which is the only operating system for SQL Server, we have a higher market share. According to the latest IDC figures Oracle is at 34 or 36 per cent and Microsoft is 33 or 35 per cent. It's actually lost market share. This last year has not been good for Microsoft in the database market. But it's not its core market. It obviously wants to be successful in the database market, but it's more important for Microsoft to be successful in the operating system market.
Mills: Are there plans for Oracle Applications to take over a major part of Oracle's business from Oracle DBMS?
Lane: We really are in two businesses today. One is a business that we characterise as "systems infrastructure", where the database is the most important piece. But also in there is Web Server and Interoffice, [as well as] our tools for building applications. It's all systems infrastructure, as we are trying to stick with the main goal of lowering the cost that a customer spends on infrastructure.
The other business is "business applications" - high value business applications, and they're pre-packaged. I don't think of one eating into the other. I do see one business growing faster than the other does so the mix of Oracle's business will change.
Today, if I leave the services business out of it, in other words just measure the products, the database business is probably 60 per cent of our business, maybe 65 per cent. The applications business is 20 to 25 per cent and the rest is the tools business - middleware and tools. So I would expect that over the next couple of years applications will move up to maybe as much as 40 per cent, databases to come down to 50 per cent or maybe 45 per cent, and the rest will remain tools.
So the applications business is the fastest growing business at Oracle and I expect it to be so for some time.
In the database business we've just delivered the strategy - Oracle8. There is not another database product in the marketplace that can come close to Oracle8's scalability, features and functionality.
So we feel we've delivered a strategy into the marketplace which will compete very effectively for the next couple of years.
In the applications marketplace we're now number two worldwide in this market, SAP is number one, and Baan and PeopleSoft would be at three and four. We're about half SAP's size. PeopleSoft is about half our size.
So the challenge is to catch SAP and we're doing two things to do that. One is to Web-enable the applications so that they are easier to install and customers can take advantage of these applications without huge investments in PCs. Today, with all of the client/server applications, the biggest expense is the investment you have to make in PCs and all of the management systems needed to support the PC environment. So, as of December or January, when we deliver it, users will be able to buy any Oracle application like financials, manufacturing, human resources, sales and marketing, any of these pre-packaged applications can be run on a server and accessed with a standard browser. That will greatly lower the cost of deploying these applications.
The second thing we're doing is concentrating the applications and adding to them industry capability. So we're either developing, acquiring or partnering industry-by-industry to make these applications very specific to the industry we want to go after.
For example with our financial and accounting systems, we acquired the assets from British Petroleum of all its downstream oil and gas systems and their people. So now [we can] go to an integrated oil company and we can sell them the financial accounting system, we can sell them all the upstream leasing accounting systems, and we can sell them all the downstream marketing-distribution systems.
In consumer packaged goods, we have partnered with a number of players to operate a full end-to-end integrated systems capability for the consumer packaged goods marketplace. And so on for financial services, telecommunications and manufacturing, and we have built worldwide businesses that focus on those industries and the biggest customers in those industries.
Mills: That leads to the issue of partnering. IBM recently signed an agreement with SAP to link IBM Net.Commerce server suite with SAP's ERP applications. Oracle has reportedly declined IBM's advances to partner on that. What is Oracle's strategy on this?
Lane: Well we have our own technology. SAP needed to do that because it didn't have an Internet commerce strategy or Internet Web server. So it needed to find somebody who had the technology to do that, that also was not a competitor. We're the only applications vendor that has our own technology underneath the applications. So, in the same way that SAP would have to go out and find a database, it would have to go out and find the Web technology to be able to offer its applications on the Web. We could do it with IBM. We would just now have to build our applications to a second set of APIs. We haven't done that in the database business, so we're not likely to do it in the Web server area. We basically build our applications on our own technology.
Mills: What are Oracle's plans for Internet Commerce Server and e-commerce in general?
Lane: So far, if you look at the market for Internet servers and server software, the market has focused on HTTP servers - basically servers that process static pages of HTML. We see a much different game. I think if the market stayed there we wouldn't even be in it because you can do that with PC servers with pretty easy-to-build software. What we see is a market that is going to be full-blown electronic commerce where you're actually building secure, scalable applications using the Web to deploy them. That says you need all the technology and all the skills that it takes to build client/server technology now, building it for the Web.
That is a very important market to us so we have developed and put into the market and won sev-eral awards for having the best Web [application] server in the marketplace. The Internet is very, very important. We have focused all of our product development groups - database, Web server, all of our communications software and database messaging software, our tools, our applications - on the Internet.
Now what does that mean? The data server is able to manage multiple data types - very important for the Web. Our tools - which in the past built applications on a Windows or Unix client and would talk to an application server that had data integrated on Unix or NT - can now partition tools. You can partition the application all back to the server, move all the code back to the server, and now all you need is a browser to access these applications. You don't need a PC.
The pre-packaged applications like financials and manufacturing all operate on Web application servers that you access with a browser over the Internet. So we are taking the core competencies that Oracle has, which is to build industrial strength software, and we're pouring that into the Internet products.
I think that would be the main difference between us and others that are building Internet software with their core competency being a PC background. So Netscape or Microsoft would be coming from a PC background and would be accustomed to building applications on the Internet moving static pages around and HTTP servers.
We're looking at it a much different way, integrating the database, accessing data, having messaging systems that don't replicate every message and every attachment, but have one copy per server and you access them. So, if I send you an e-mail and we're on the same server, that e-mail comes to your PC or NC. The e-mail that's referencing an attachment is actually looking back to the server.
It doesn't get downloaded, doesn't get sent across the telephone line. So, it is a very elementary example of how we are thinking through the architecture and building an industrial strength software. That one thing that I just said would allow our software to scale on a server at least 10 times and probably more like 40 or 50 times over what Microsoft has.
The e-mail systems that we both run today run their e-mail system on at least 10 times the number of servers that we use to run our e-mail system. And that's a result of not having scalable software.
Mills: What's Oracle's strategy with regard to Web Applications Server? Are there plans to implement Sun's forthcoming Enterprise JavaBeans layer into it?
Lane: The focus of the Web Applications Server is basically the changing, expanding needs of business applications. It's an integral part of most of our customers' strategies to use Web servers and electronic commerce to expand their business. It's really a very hot topic right now, and again our core competency is to build these servers to offer more industrial strength and more features than our competition. So you get more manageability, more scalability and more reli-ability out of our Web Applications Server. You get applications that can support things like transaction security, failover and scalability on parallel servers. Microsoft and others don't have that. We're the first to offer distributed processing, the first to provide end-to-end security integration.
And all of this has been recognised by the market. And the JavaBeans - we fully endorse Enterprise JavaBeans in all of our server products. We've worked very closely with JavaSoft on specifications of JavaBeans. It fits into our strategy to be very scalable and very robust in the transaction server marketplace.
Mills: How does Oracle think top management in corporate customer companies perceive it?
Lane: I think we are still largely viewed as the leading database company in the world. I would say our reputation in our core product has improved immensely so that most companies would say, "We're going to build an application, either for client/server or network computing, and it's a database application, so we should evaluate Oracle, and in fact it would make sense to standardise on Oracle as a database platform."
I would say a lot of customers - there are 5000 of them - that have installed the applications, would view us as an applications supplier. In other words, they've dealt with Oracle and have implemented financial and manufacturing applications and they don't care so much about the underlying database.
They know Oracle's in there, but they didn't select their applications because of Oracle. They selected the applications because they thought they were the best. And I think a lot of companies would say Oracle is leading the charge on network computing with the network computer and Internet products.
I also think there would be a lot of customers who recognise Oracle as offering a tremendous amount of value-add because we have database, application and professional services. And when you have that much value-add and that much critical mass in products and services, customers evaluate you as a strategic partner to help them solve problems. And that's certainly where we're headed.
We want customers to view us as a partner that can help bring our technology, our applications, our partners' applications and professional services, to help them get something done.
Mills: Is Oracle happy with these perceptions?
Lane: Yes, because five years ago I would say that the recognition of Oracle would be only as a database company and would be only recognised by Unix developers - a very, very small part of the market.
Now the recognition is by all enterprises on Unix, NT, every operating system, and by business users that are buying applications that evaluate us against SAP, and by the consumer in general who is now starting to say "Who is Oracle?" because they see Oracle's TV commercials advertising the network computer or they see Larry [Ellison] or myself out talking about network computers that will save them a lot of money.
I did a survey five years ago of Wall Street Journal readers regarding what our recognition was. Now this is kind of unfair because we weren't trying to build a brand name at all. All we cared about was developers. Among developers of applications we had 75 per cent recognition of our capabilities. Among non-technical people we had 4 per cent recognition. Today that recognition among non-technical people is 62 per cent. So there's a much higher recognition of Oracle for both its applications and network computing.
Back in 1992 we were losing share to some of our competitors. Now those competitors are not growing any more. They've kind of lost the database race. So we feel like we've distinguished ourselves as the best database provider.
Mills: So you're not worried about being considered a technology-only vendor, or even a one-technology vendor?
Lane: No. I think we have worked very hard to build these other businesses like applications, and being number two in the applications market is pretty good positioning. With most customers that are going to evaluate enterprise applications, they would invite SAP, Oracle and PeopleSoft to that evaluation and only SAP and Oracle have all of the products. PeopleSoft does not have any manufacturing capabilities and Baan doesn't have very good financials capabilities. So really SAP and Oracle have capabilities on all of the horizontal applications - financials, manufacturing, human resources, sales and marketing. And the big enterprise applications evaluations tend to be between SAP and Oracle. So I'm pretty pleased with that recognition. About 85 per cent of SAP's implementations are on Oracle database. We want to win the applications business. But if we lose it, we don't lose the technology business.
Mills: What are the company's plans for "push-like" publish-and-subscribe efforts with your Network Computing Architecture?
Lane: We've got a number of efforts going on in this area. We're push-enabling the database to make it an active source of information. The database will publish events. We've had this capability for a long time, actually: we've had a capability called "alert" which automatically pushes information out to users. It did it seven or eight years ago. It still does it and competitors haven't replicated it yet. We're also working on providing a range of solutions for delivering published information.
Mills: Is there anything as far as positioning and strategy that we haven't covered?
Lane: We adopted as our strategic intent network computing, which to us is a three-tier architecture that separates the data into a data server and manages it separately; an applications server that most likely will be a Web applications server that is both the development and runtime environment for the applications; and then a browser to access the applications across the Internet.
We think that is the only model that is going to drive down the cost of the infrastructure significantly enough that customers are going to basically switch to a new computing model. The cost of deploying client/server applications compared to the cost to administer a PC is too great. So we have basically changed product strategies to go this direction and we have changed our culture - the way people sell, the way people develop, the way people interact with each other.
We've got all 30,000 people at Oracle retrained to think about our mission, which is to bring network computing applications and technology to the marketplace.