During last week's fiscal first-quarter earnings call, Oracle's (Nasdaq: ORCL) candid CEO Larry Ellison talked smack about rivals. IBM (NYSE: IBM), Microsoft (Nasdaq: MSFT), and BEA Systems (Nasdaq: BEAS) all drew Ellison's ire. But he seemed to take the most pleasure in skewering SAP's (NYSE: SAP) new web-based platform, Business ByDesign. While none of this should surprise Fools, Ellison went even further, opining that the industrywide shift to web-based business software has been a bust.
Ellison claims that SAP's strategy to go after smaller customers is interesting, "but so far no one has figured out how to make any money at it." He points to Salesforce.com (NYSE: CRM), which he calls the best software company in the space, as an example of a money loser.
Ellison may need to check his math. In fiscal Q2, Salesforce.com reported GAAP earnings of $0.03 per share.
In addition, on Oracle's conference call, executives also discussed the company's CRM On Demand, which is web-based. Charles Phillips, Oracle's president, said there were some "key wins" for the offering. So how come Ellison's down on the whole endeavor?
Dig deep enough, and you begin to see the method to Ellison's apparent madness. First, he doesn't like competition, and he believes that buying rivals can be a good way to deal with it. Second, he wants to focus on large customers that are willing to write big checks for reliable solutions. So why charge lower subscription fees and reduce overall revenues?
On-demand software may present opportunities in small and mid-sized markets. But such an effort would probably be a distraction for Oracle, requiring new infrastructure investments. What's more, the company's previous forays into those markets have been lackluster.
Based on the results so far, it's hard to argue with Ellison's disinterest in shifting Oracle toward on-demand offerings. In the latest quarter, the company increased its license revenue by a hefty 35%, to $1.1 billion. Oracle also enjoyed a nice improvement in operating margins.
So although Ellison seems contradictory, his strategic vision is fairly straightforward. It makes sense for a large company facing a mature industry, and dismissing it as mere bluster is probably a small-f foolish move.
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