Oracle wants application management handed over

Putting muscle behind the outsourcing model of application management, Oracle Corp. said it is starting an international campaign to persuade customers to hand over maintenance of their Oracle software.

“We have decided to go in and actively go after our installed base and tell them that this is a better way to do it (run Oracle applications),” said Jeff Henley, Oracle’s chief financial officer, speaking to financial analysts in New York on Thursday. “We will put the sales guys on it and invest heavily in capacity.”

Businesses can save significantly on IT costs and improve product service-response time by as much as 50 per cent by letting Oracle manage and maintain its own software, company officials said, citing costs savings of between 31 and 84 per cent from existing customers.

Oracle offers two ways of outsourcing: one whereby the software is hosted on Oracle systems in an Oracle data center, another where Oracle manages software installed on the customer’s systems at the customer’s location, said Timothy Chou, president of E-Business Suite Outsourcing at Oracle.

Customers who opt to have Oracle host and manage the applications pay 5 per cent per month of the list license price in addition to base license, product support, update and other standard costs. Those who choose to have applications managed by Oracle, but run at their own site on their own systems, pay three per cent per month of the list license price in addition to the other costs, Chou said. As a promotion for users signing up for the on-premises service, Oracle is offering unlimited software upgrades for the next five years.

Redwood Shores, Calif.-based Oracle will provide incentives for its sales force and invest about US$50 million in new data centres to push its outsourcing services around the world, Henley said.

“This is really the way most customers are going to want to have their software delivered over time. The bulk of our customers are going to operate this way in the not-too-distant future,” Henley said. “We offer much faster implementation, much lower cost and much better service.”

Oracle intends to approach all of its customers, but will especially target those that are in the process of upgrading to version 11i of Oracle applications, also known as the E-Business Suite.

“We have this epiphany opportunity here to talk to our customers,” said John Nugent, senior vice-president at Oracle. “If over the next twelve months we can move 25 per cent of our customers over, that is a tremendous business opportunity for us.”

Outsourcing today is a “relatively moderate” business for Oracle, according to Henley, “but we think it can be a multibillion dollar business over the next few years.”

Oracle currently has about 200 customers on its ASP (application service provider), or hosting, service, of a total of 12,500 applications customers.