Does the Oracle-Siebel Deal Hurt Overall IT Agility?

By Charles Garry  |  Posted 09-12-2005

Does the Oracle-Siebel Deal Hurt Overall IT Agility?

The long expected acquisition of Siebel Systems by Oracle was finally announced today. Somehow I don't expect the same cries of despair we heard from all concerned parties when Oracle was going to acquire PeopleSoft.

Perhaps the market had already seen this as inevitable. Perhaps PeopleSoft was just one of those beloved software companies that people hate to see go away. Perhaps enough people by now have actually used Siebel's CRM software. All right, I won't go there.

Anyone that has followed Oracle like I have has been saying for years that it desperately needs to diversify its revenue away from the heavy dependence on the database. Database related software has accounted for almost 30 percent of Oracle's total revenue and over 80 percent of its new license revenue while its application business has perennially brought up the rear contributing a mere 7 percent of total revenue.

Read more here about Oracle acquiring Siebel.

The database business is simply not going to grow enough to sustain Oracle. That space is under constant pressure from larger diversified competitors Microsoft and IBM. They are also under attack from open source software companies like MySQL. Certainly charging more for database software is not likely to be a winning strategy in the future and you can only sell so many options on top of the database before people say enough already.

So as Larry Ellison predicted, consolidated software stacks will kill the best of breed players. The consolidated stack is a mantra we have heard from all the major software vendors in one flavor or another. On one hand, users can now put the onus for integrating on the vendor and take it off their plate. Obviously, there will always be outliers that must be integrated but at least the big stuff is handled by the vendor. On the downside, best of breeders will lament the loss of functionality.

As for Oracle, they have announced plans for Oracle Fusion, a supposedly brand new application infrastructure built from the ground up on "open standards". Sounds good in the brochure but does it answer the questions that Siebel users are likely to ask.

For example I was speaking with John Van Decker a former colleague and senior vice president and principal research fellow at the Robert Francis Group covering the applications space. He mentioned that "Siebel has a number of SAP customers. This deal places them in an awkward position. Will Oracle's Fusion enable the CRM portion (presumably Siebel's) to run as a best of breed?"

Interesting question indeed. One that Oracle and SAP will both struggle with no doubt as these situations of co-habitation will occur rather frequently I would imagine.

As for integration, I spoke with a CFO of a $20M customer service outsourcing firm who expressed this sentiment: "I tell my IT people to go ahead and integrate the order entry and CRM systems and anything else, just don't hook it into my financial applications. I don't want an individual order showing up automatically on my general ledger. I just don't trust the software enough and I believe the IT people forget sometimes that there is a people process that must also integrate with the automated process."

So I guess users have a great deal of work ahead of them if the vendors want to achieve their vision. Certainly with consolidation comes less choice but will it force companies to be less agile as well. Essentially will an Oracle or SAP customer be tying much of their future IT capability to essentially a single vendor?

Next Page: Speaking of agility.

Does the Oracle

-Siebel Deal Hurt Overall IT Agility?">

When I speak of agility (in the IT sense) I mean the ability to continue to innovate at some different levels in the stack (the application layer being the highest) while maintaining the overall stability of the entire system? In other words can I easily change either the application itself or individual components on the lower infrastructure layer of the stack without compromising my availability?

Read more here about Oracle's Ellison paying $100 million fine.

If it doesn't, I will tend not to change anything and will lose my ability to innovate. These monolithic software stacks may not enable the change of one component without change to other components or at least significant coordination with other components (most likely). If that is the case, this deal signals a new and perhaps risky future indeed for end user organizations.

I think you have to ask the question, which vendor's approach affords my company the best shot at achieving at least some measure of agility" I mean whole computing paradigms have come and gone in less than a decades time. There is no reason to believe that this process of innovation will somehow stop. Is it reasonable to assume that a single vendor such as Oracle or SAP can out innovate individually focused vendors like Siebel had been? At least in individual areas? Do we care or is integration worth it?

One must assume that Oracle's Fusion approach is likely to encompass an Oracle app layer, middleware layer and database layer and is not likely to be open to other vendor components, at least directly. SAP on the other hand seems interested only in the application and middleware space and not the infrastructure space. Yes, I have seen speculation by some financial analysts that SAP might fire back by buying a database company. A ridiculous notion.

For one reason, the only one they could buy is Sybase which doesn't even support R/3. Besides what purpose would it serve for SAP to do that? They already believe the database is a commodity which is why they support an open source database option as a backend. No, my belief is that SAP continues to cultivate partners for the infrastructure layer which might provide at least some greater measure of infrastructure agility than Oracle Fusion.

The bottom line is that with this deal Oracle can realistically call itself an application software company. The combined revenue from PeopleSoft and Siebel along with Retek, on paper anyway, puts that part of the business finally on par with the database business. Only time will tell however if Oracle's gamble lifts or sinks it as a company.

I'm sure the sharks are in the water waiting for signs of an open wound. For the sake of many IT organizations, I hope it works out. If not, bon appetite.