ORACLE NOTES
About Oracle: Oracle Corporation develops, manufactures, markets and distributes computer software that helps its customers manage and grow their businesses and operations. The Company's offerings include new software licenses, software license updates and product support and services, which include consulting, advanced product services and education. The new software license line of business is engaged in the licensing of database technology software and applications software. The software license updates and product support line of business provides customers with rights to unspecified software product upgrades and maintenance releases, Internet access to technical content, as well as Internet and telephone access to technical support personnel during the support period. The consulting line of business assists customers in the rapid design, implementation, deployment, upgrade and migration of the Company's database technology and applications software
1) SWOT Analysis
Strengths:
-Strong, charismatic, and motivated leader in Larry Ellison
-World leader in supplier of software for information management
-Offers consulting, education and support services for its customers
-Strong sales distribution channels both domestically and internationally
-Offers a single suite (Oracle 11i) which integrates all major areas of e-business into one package – one stop shopping
-Experience and knowledge in the areas of data storage, business applications and e-marketing (see opportunities)
-Strong balance sheet and financial position with both cash and assets, little long term debt
-Non-union employees, little chance of work stoppage, and good overall employee relations
Weaknesses:
-Ellison has a no holds barred attitude which alienates people and can be a control freak
-Less control over some international operations than domestic because of reliance on partnerships and alliances instead of direct involvement
-In 1997 Oracle was having problems with its application business. Ellison found that different departments of the company used different products and that information sharing and exchange was difficult. Set out to offer a standardized suite of products to seamlessly integrate all aspects of operations.
-Raymond Lane, President and COO resigned recently, some speculate because he and Ellison did not get along due to Ellison’s desire to control the company and did not allow Lane to operate freely
Opportunities:
-Data Storehouses- 40% market share in a 10.5billion a year market… recognized leader. Dominates the database software realm. Database software for storing and analyzing corporate date, inventories and customer info.
-Business Applications- Distant second behind SAP. 26billion a year market, Oracle’s 1999 3rd quarter revenue was about $199 million. Oracle plans to release the most comprehensive package of business applications available, and has a good chance of gaining significant market share. For everything from accounting to customer management to web sales.
-E-Marketplace- Market is 3.9 billion in 1999, predicted to be 18.6billion in 2003. Oracle is an early leader in the market, and has agreements with Ford, Sears and Chevron. Web-site and internal software for transactions between companies, including auctions.
Threats:
-Competition includes major players such as IBM, Microsoft and Sun Microsystems who all have massive resources and large cash positions.
-Ellison had predicted a few years ago that PC’s would be completely obsolete and be replaced by small appliances. Also recently predicted that Oracle’s new suite package would replace current applications, but many analysts had their doubts.
-Ellison known for using ‘dirty’ tactics, such as hiring an investigative firm to sort through trash at competitors (such as Microsoft) to find information about them.
2) Strategy & Financial Analysis:
-Very strong cash position. Huge amounts of assets and little debt and manageable level of liabilities.
-Plenty of cash available for an aggressive marketing campaign to introduce the new application suite
-Total revenue grew by over 15% for each of the years in 1998, 1999 and 2000.
-Growth experienced in all areas of the business (sales, support, consulting, education)
-By integrating all areas of Oracle business operations into a single platform, Ellison was able to achieve over 1 billion in savings
-Able to cut support staff significantly, further reducing operating costs
-Board of Directors recently approved repurchasing over 500million shares of common stock
3) Porters 5-forces model
-Most important is Competitive Rivalry between Existing Players. Oracle faces stiff competition from existing competitors in all areas of its businesses. Primary competitors are IBM, Microsoft, Sybase, PeopleSoft, SAP, and Informix. These area all large companies with the resources capable of competition with Oracle on even footing. Oracle benefits from brand recognition and loyalty as well as a reputation for providing outstanding service and support to its customers.
-2nd most important factor is threat of new entrants. Currently, not all of the competitors Oracle must deal with have product offerings in the various areas that Oracle has business in. However, companies like Microsoft and PeopleSoft are looking to expand their product lines and introduce new ones to further increase rivalry and try and gain market share away from Oracle. Although there are high initial investment costs to enter new markets, and brand loyal towards Oracle is strong, these companies have the resources required to pose a significant threat. Oracle also benefits from high-switching costs and well established distribution channels
-Threat of substitutes is also important for Oracle. Although Oracle is developing a new application suite designed to integrate all aspects of business for its customers, many smaller businesses may not need such a large collection of programs and the costs associated with it. There are a number of smaller products which are more specialized and less costly that businesses without the resources to implement such a massive change may be more willing to purchase.
-Bargaining power of customers: Oracle has recently standardized pricing for its products and makes its entire line of applications available via its online store. Discounts are given for volume purchases, and government or educational purposes, but other then that there is very little discounting on products that Oracle offers. Oracle recently cut its staff of people who handle discount inquiries from 250 to about 4 people. Except to make its products priced so that they can be afforded, Oracle is under little influence from bargaining power of customers.
-Bargaining power of suppliers: Because Oracle develops, manufactures, markets and distributes its own products, it has a very limited number of suppliers. Mostly they deal with partners and alliances in international markets instead. Oracle has complete control of their product pricing and so are under very little influence from any suppliers they might have.
4) Recommendations on strategy & why
-I believe Larry Ellison has a strong and accurate vision for the future. As a co-founder of Oracle, he has taken a leadership role in the company since its inception, and has so far had a very successful track record
-Ellison is very aggressive in his tactics, but they have proven to be effective in achieving goals
-My recommendation is for Oracle to continue on the course charted by Ellison in releasing its new Oracle e-business suite (Oracle 11i), and to accompany it with a strong and strategic marketing/advertising campaign
-Oracle has also gradually increased its budgeting for its research and development department which is important if it wants to continue being an industry leader in the future because of increasing competition from companies such as IBM and Microsoft (among others)
-Oracle realizes it cannot ‘beat’ Microsoft in PC or IBM in mainframes, but believes it can be the number one provider of software on the internet, and should focus on its existing strong position in that area.
5) Would I like to work for this company, and why?
Personally, no I would not, because I feel I am a creative person who is able to get things done on my own without much direction from superiors, and I may find myself somewhat stifled by the influence of people such as Ellison who tend to want to control things and do them their own way all the time…
