Oracle faces tough sell

Oracle Corp. says it wants companies to outsource their entire IT departments to it so that those companies can better concentrate on their own core competencies. But Oracle itself has only been in the outsourcing business since 1999, and that leaves its value as a software services company in question, some analysts warn.

“That hasn’t been their (Oracle’s) core competency,” said Ben Pring, a chief analyst with Gartner Inc. in Boston, Mass. Oracle has traditionally been a software development, not a software services company, he said, although it has spent the last two years developing this capability.

Dean Davison, vice-president of Meta Group shares Pring’s concerns. The outsourcing business is a very different business than the software industry, he said.

“They (Oracle) are brand new into a fundamentally new industry, and I would be scared to death…I just don’t see what the benefit is to go with them,” Davison said. There are already a lot of long-time players in the outsourcing market, including IBM Global Services, EDS and CGI, he said, whereas Oracle is new to the business.

And while the company will likely be able to manage its own software as well as anyone else could, Pring wonders what value it can bring to managing third-party software.

Before Oracle will agree to take on a third-party app, it must be certified to run on the Oracle9i platform, said Brent Chin, the national solutions manager for Canada at the Mississauga, Ont.-based for Oracle Corporation Canada Inc. The onus for making sure that outside apps are compatible with the company’s 9i database and application server falls on Oracle’s customers. Any upgrades and updates of third-party apps must be delivered to the company in pre-packaged formats ready to run on the Oracle platform.

Companies that go to Oracle will be able to free their IT departments up to work on their core business expertise, Chin said. Many companies face IT staffing and skills shortages, which in turn effects their ability to service their customers effectively.

Pring and Davison agree that outsourcing can have many benefits.

“The advantages can be that you have a specialist providing your IT business,” Pring said. Often, that IT specialist can do it more efficiently, and sometimes more cost effectively than a company can in-house.

Outsourcing can also free up financing by turning IT from a capital cost to a recurring, predetermined cost.

But as with anything, there are also disadvantages. Some companies are reluctant to give up control of their IT to an outside party.

“They believe that they need to be providing their IT themselves, because they believe only they can understand their business. And there’s a certain truth to that,” Pring said. Going to a outsourcing company that understands your industry can help alleviate this problem.

Outsourcing also adds yet another element of uncertainty to a company, Davison said.

“More things can happen – good and bad,” he said.

Outsourcing can also add another layer of complexity when companies undergo change.