Oracle buying spree may intensify integration issues

Oracle Corp.’s spate of acquisitions has, so far, failed to deliver the promise of significant financial gains and increased market leadership for the Redwood Shores, Calif.-based company, according to an industry analyst.

Oracle’s buying spree – JD Edwards, PeopleSoft, Retek, ProfitLogic and most recently, Siebel Systems Inc. – may also be spreading the company too thin, and causing uncertainty about its product roadmap, said Janet White, research analyst at London, Ont.-based Info-Tech Research Group Inc.

“Because Oracle has acquired so many applications, they [have to] spend a lot of time maintaining those giant, unintegrated systems and…trying to integrate them. They don’t have a lot of time to focus on innovations in their core product line, which is their database and middleware,” said White.

This, she said, could push Siebel’s mid-market on-demand CRM customers to switch to less complex CRM systems such as those of and RightNow Technologies.

White also said it is doubtful the industry would see a significant increase in Oracle’s revenue and market share as a result of the Siebel purchase.

“Oracle was certainly promising a lot of application licensing and revenue increases over the next few quarters, but we haven’t seen it at all. We didn’t see it with PeopleSoft and JD Edwards acquisition. We haven’t seen it with Retek and their other purchases, and I really doubt we are going to see it with Siebel either,” said White.

Oracle CEO Larry Ellison said the US$ 5.85 billion deal announced yesterday to buy Siebel Systems Inc. – a CRM applications provider based in San Mateo, Calif. – would effectively make his company “the number one CRM applications company in the world.”

With the purchase Oracle inherits Siebel’s 4,000-customer base with 3.4 million CRM users. This customer base – not necessarily instant financial gain – is what Oracle is after, according to Warren Shiau, senior associate at Toronto-based The Strategic Counsel.

He said Oracle has proven – through its PeopleSoft acquisition – that it intends to support its acquired applications. “If you speak to the PeopleSoft installed base, a lot of them are quite happy with the [degree] of commitment Oracle made to maintaining those applications and the support they have thrown behind them. I think [Oracle] would use the same strategy with Siebel.”

Unlike the PeopleSoft purchase, which has been described as a “hostile takeover”, Siebel’s acquisition is viewed as a logical move for both sides, Shiau said. Without a viable and solid platform, he said, Siebel’s CRM application would not stand a chance against well-fueled vendors such as SAP, Microsoft and Oracle.

Shiau said many users believe Siebel’s acquisition by a larger vendor – whether Oracle, SAP or Microsoft – would ensure a more stable, long-term future for Siebel, and this would encourage them to continue to use Siebel.

By embarking on all these acquisitions, on the other hand, Oracle is strengthening its market hold by integrating all its acquired applications and functionality on top of its platform, he said.

“The real issue at stake for controlling the market is controlling what people consider is the technology platform for their company. This is what Oracle, in the end, is after,” Shiau said.

By acquiring Siebel, Oracle may have also been trying to prevent rival firm Microsoft Corp. from making strategic forays into the ERP space. Prior to finalizing the Oracle deal, Siebel was also reportedly talking with Microsoft for a possible merger. And many industry observers were predicting a Microsoft-Siebel deal, Shiau said.

Describing Oracle’s move as both an offensive and defensive strategy, the analyst said by making the purchase, Oracle is also preventing a competitor from possibly pursuing the acquisition.

But if overtaking the competition is one of Oracle’s goals in buying out all those companies, according to Info-Tech’s White, it is having a hard time toppling SAP AG, a recognized leader in the ERP space, based in Walldorf, Germany.

In a report published by AMR Research, SAP AG remains as the top ERP vendor with 40 per cent market in 2004. PeopleSoft and Oracle were at second and third place with 12 per cent and 10 per cent market share, respectively.

“SAP has a really good strategy in terms of how they are moving forward in increasing their market share. And as Oracle takes out more and more CRM vendors, [SAP will] overtake Siebel in terms of its CRM market share as well,” said White.

According to AMR, Siebel’s 2003 CRM revenue of US$1.29 billion was only slightly higher than SAP’s US$1.28 billion CRM revenue. The research firm predicts a 12 per cent growth rate for SAP and three per cent growth rate for Siebel this year.