Larry Ellison leads Oracle with a dramatic, and often insightful, flair. Last week it was president Mark Hurd who spoke to Oracle’s strategy and trends in the market. Per usual, Oracle’s perspective doesn’t necessarily exactly reflect the current state of Oracle’s product portfolio, but it shows a keen grasp of the direction of the market.
“Headed to the cloud,” Hurd said of Oracle’s ERP applications. As he also put it, “I’m telling you, we’re going to be the company there first with the best stuff.”
Gigaom Research has covered the slow development of cloud ERP, particularly in manufacturing, and Industry Week outlined this week how new, smaller manufacturers are using the flexibility of cloud ERP to challenge their more established competition.
A two-tiered, or divisional, approach to the enterprise
“We’re aggressively in midmarket right now with our cloud ERP offers,” Hurd further detailed on Oracle, “and you’ll see us taking some major companies’ divisions to the cloud this calendar year. We’re going very aggressively to the cloud. We see this as a once-in-a-career opportunity.”
Picking off a few divisional implementations is how the early cloud ERP vendors for the manufacturing market (e.g., Plex, Infor) have started infiltrating the enterprise market. NetSuite, with its more services- and e-commerce-oriented cloud ERP, has reached a little further into the Global 1000, though still typically as part of two-tier implementations.
As NetSuite CEO Zach Nelson commented on last week’s earnings call, “In the true enterprise organization, the vast majority is two-tier of some way, shape or form. It might be, as in the case of Williams Sonoma, two-tier e-commerce, right? So it can be a functional two-tier, as well as, okay, a financial multi-company consolidation sort of play. So — and, frankly, I think if you look at all SaaS software, by and large, the way it’s entered the enterprise is they didn’t call it two-tier but departmental is probably what they called it, right? You put this into the — around the core systems and then you begin to subsume them.”
No great Oracle and NetSuite partnership
For those who looked too deeply into Oracle’s announced alliance with NetSuite last spring, Nelson offered this perspective:
“The Oracle relationship has been really the same over the history of our company. We’ve been a big customer of Oracle, certainly, and we’ve built a great application on top of their great database and application servers. So that’s going to, obviously, continue. More recently, we have done some interesting partnerships on the HR front, and I think there are some other opportunities, certainly, in Oracle’s portfolio. For NetSuite to partner there, you certainly — we’re just going to talk a little bit on marketing automation. Oracle is doing some very powerful things in marketing automation, so that might be a nice place to look at partnerships. So I think it will be more the same, at least, certainly, from our perspective, in terms of how we are a customer of Oracle, how we partner with them. And then, of course, obviously, where we compete with them in the marketplace, we’re going to do everything we can to win those deals, but that’s not unusual in the technology space to be a customer and a competitor at certain times. So that’s really how we think of the Oracle relationship, not really much different than what it’s been today.”
The importance of systems integrators
Deloitte was also part of that Oracle and NetSuite announcement, and Nelson did note the importance of the major systems integrators in cracking the enterprise market:
“Our organization matured materially, especially in how we engage with large enterprises now using NetSuite to run key elements of their business. Internal investments by our services and support teams and our strong partnerships with large SIs like Accenture, Deloitte, Capgemini and McGladrey have enabled us to go beyond the expectations of this very demanding class of customer.”
A thanks to the legacy providers
Finally, Oracle has the good fortune with its JD Edwards product and customers to be second only to SAP in a base that can wait out a mature, cloud-based follow-on or complement to its manufacturing ERP offerings. And, it looks like the leading legacy providers are going to need the full extent of that patience to develop or acquire mature cloud manufacturing solutions. Here, Nelson did ease up on the firm by not listing Oracle among the legacy providers still scrambling for such a product:
“I also feel I must thank our legacy ERP competitors as well. They continue to talk about how important the cloud is, how they are all in on the cloud, all the while having little in the way of cloud native ERP products to deliver on the rosy picture they’re painting for customers. So SAP and Microsoft, thank you for creating all this demand. And keep it up, our data centers are standing by.”
Implications for IT buyers
So what does this mean for IT buyers? A few points:
- Cloud ERP is bringing new flexibility to manufacturing in a way that the market will not be able to ignore.
- Much of the shift to cloud ERP, especially in manufacturing, will be incremental and piecemeal, as part of the so-called ‘two-tiered’ strategy.
- The legacy players are still coalescing their competitive answer to cloud ERP, contributing to the slowness with which the market has developed.
- In many cases, buyers must evaluate the trade off between earlier solutions from startup companies and, if they have a leading legacy product that allows them to wait, further patience for their current vendor’s more strategic, rather than immediate, solution.
- Trusted SI partners can help to mitigate the risk with a smaller vendor.
- A migration strategy for some type of cloud solution will, however, increasingly be required beyond the HRM, CRM, and other peripheral applications more widely adopted today.