Oracle Ouch
You gotta love loath Larry.
Ellison’s Oracle has been on a buying spree, snapping up enterprise infrastructure and application companies at a rate that makes even aged Silicon Valley watchers blink. Nothing, not even the Federal Trade Commission, could sate Oracle’s acquisition gluttony. Only Microsoft was outside of Ellison’s financial grasp (or perhaps simply dislikes peddling highly defective products).
The array of acquired companies is broad in scope. BEA, Hyperion, Agile, Siebel, PeopleSoft, Innobase … and the list goes on. Two common themes appear in these acquisitions: the acquired products are either essential to the management of IT, or a set of acquired products comprises all the top-tier competitors. Larry has single-handedly consolidated much of the industry and captured most of the server stack above the operating system.
In other words, Larry has the average enterprise CIO by the short-and-curlys.
Throughout Larry’s market-vacuuming process, many competitors and many more customers expressed fears Oracle was showing monopolistic tendencies, with the inevitable outcome being that prices would rise given an artificially shrinking market.
So, it is entirely unsurprising that Oracle is now jacking-up prices 15-20% … without adding any additional value. Polite people would call this robbery. What impolite people call it is not printable.
Marketing lesson #1: When the switching cost for your customers is very high, then you can steal from them … for a while.
WebLogic, a product acquired by Oracle in their recent BEA plunder, has some unique features that make application servicing more effective. Once these features are used, it is expensive (if not impossible) to implement a different application server. This is why Oracle bumped-up WebLogic pricing 47%. Databases are even more fundamental in the server stack, and Oracle’s DBMS prices were lofted 20%.
Such vendor lock-in drives a lot of revenue in the IT technology market, and is the one gripe most often uttered by CIOs and CTOs. Surveys conducted here at Silicon Strategies Marketing indicate that a prime driver behind IT adoption of Open Source is the liberation from lock-in. However, the higher the switching costs the less likely it will ever occur. For example, much of the banking industry’s current technology is the ugly remnants of 1960’s IBM mainframes — billions of lines of COBOL code are just too expensive to migrate.
Marketing lesson #2: Things do change, sometimes slowly.
One of the reasons enterprises love Linux is that they have faced the vendor lock-in problem for decades, and now have tools for avoiding it in the future. As businesses die and are born, the newcomers learn from the suffering of those who came before. Google runs almost entirely on Open Source as does Yahoo and other new millenia firms. Indeed, their business models could not survive if they had been the groom at an Oracle shotgun wedding.
Larry’s larceny will work — his customers simply don’t have a short-term choice. But it does add pressure (especially in these troubled economic times) to investigate alternatives. Existing companies will avoid committing new projects to Oracle, and new companies will run from Oracle faster than a politician runs from campaign promises.
This will accelerate adoption of more Open Source projects, and in the process improve them. These projects will rapidly come to parity with the commercial products, or even surpass them in functionality (anyone looked at Firefox lately). Larry will make a(nother) lode of lucre in the short-term, but …
Marketing lesson #3: Arrogance (and overly aggressive pricing) will aid your competition over the long-run.
Buy Oracle stock, but be prepared to dump it a couple of years from now.
