We kick off tonight's Break Down with a quote from always-entertaining Larry Ellison, the visionary leader of business software powerhouse Oracle (Nasdaq: ORCL). But, before we serve this hot dish, we want to be sure you've had the appetizer. Today's column builds from yesterday's, so please flip back a day if you missed the setup.

On to Mr. Ellison. In Oracle's most recent earnings release, this recognized industry sage made the following statement:

"Our E-Business Suite is the first complete and integrated set of applications that automates all aspects of a business. The Oracle E-Business Suite competes in marketing with BroadVision, sales with Siebel Systems, service with Clarify, supply chain with i2, Internet procurement with Ariba, exchanges with CommerceOne, manufacturing and accounting with SAP, and in human resources with PeopleSoft. So, customers can buy all these applications from all these different vendors, and then hire a consulting firm to assemble the different applications and try to make them work together. Or, customers can buy the Oracle E-Business Suite, where all the applications already work together -- on the Internet."
On top of this end-to-end, integrated, business software vision, Mr. Ellison built yet another core offering, Oracle Business OnLine, which serves his E-Business Suite for a monthly fee, over the Internet, according to the Application Service Provider (ASP) model. Together, these two offerings -- the E-Business Suite and the Business OnLine ASP -- frame Oracle's much-hailed reinvention as a full-service, Internet-based, e-business software provider.

Not only did Ellison add credibility to these visions through his product development plans, he also recently hinted that his vision might be getting away from him. After swearing, last fall, that his E-Business Suite would be sold to competing ASPs only "over my dead body," Ellison recently relented, announcing plans to sell his software to some outside ASPs. Is Oracle afraid of missing the boat on a promising future sales channel?

Who might Oracle be afraid of? Might it be tonight's Breaker candidate, USinternetworking (Nasdaq: USIX)? Let's pose the question in the form of a Break Down:

Top dog and first-mover in an important emerging industry
Last night, I laid out eight disruptive forces in the world of business computing. I can find only one business model that addresses them all -- the enterprise ASP model, plus integration tools and outsourced data storage. Aside from Oracle, the first company to bring the bulk of this vision public was USinternetworking.

USinternetworking does Larry Ellison's vision one better, offering the same end-to-end suite of integrated business applications, but substituting software industry leaders for each of Oracle's second-class knockoffs. In particular, USinternetworking offers e-commerce from BroadVision (Nasdaq: BVSN), customer relationship management from Siebel Systems (Nasdaq: SEBL), procurement and marketplace platform from Ariba (Nasdaq: ARBA), and back-office from PeopleSoft (Nasdaq: PSFT). All these mega-applications are tied together behind the scenes and served hassle-free to the customer. Still want that Oracle package?

Aside from Oracle, USinternetworking's only real competitors are Breakaway Solutions (Nasdaq: BWAY) and Corio (Nasdaq: CRIO). Breakaway's strength is in the critical realm of software integration. Unfortunately, though, it elected to cut short the end-to-end vision on the sell-side, skipping marketplaces, procurement, and back-end functions. This cuts off a fruitful sales on-ramp, namely the marketplace-building activities of Ariba and CommerceOne.

Corio also appears sound technically and has strong ties to Microsoft. Relative to USinternetworking, though, it's tough to call Corio a first mover. USinternetworking went public more than a year ahead of Corio, which just had its IPO a few weeks ago; and Corio posted just $10 million in second quarter revenues, versus $26 million for USinternetworking.

Sustainable business advantage
Christopher McCleary, co-founder and Chairman of the Board, staked USinternetworking to its first-mover advantage by seeing -- and executing -- before anybody else. Only Larry Ellison had a comparable vision, but he appears to be trumped because he missed one vital dimension -- the best e-business software money can buy.

In the world of business software, there are two major revenue streams -- software use and software support. Via its hosted solution, USinternetworking can essentially corner the market on these two revenue sources for each customer it brings on board. Once a company has outsourced complex integration and customization work to the ASP, guess who it'll call for ongoing support? Guess how likely it is to find another ASP and start over?

The ASP model will enable planned growth by providing a captive monthly revenue stream. Finally, there is the strong connection to red-hot Ariba. Small to mid-size buyers and sellers -- most without significant IT installations -- are scrambling to enter Ariba's early online marketplaces. USinternetworking offers the cheapest, quickest, most risk-free path.

Relative strength above 90
Nope. A few weeks ago, I eliminated USinternetworking for posting sub-par stock price results over the last year (before I had my eight-point epiphany). With a relative strength in the range of 30, it's clear that Wall Street is not yet behind this model.

Good management and smart backing
USinternetworking's board features telecommunications executives from US West (now Qwest) and AT&T, and Mr. McCleary was most recently CEO of early Internet service provider Digex (Nasdaq: DIGX). These three appointments show a strategic focus on the key link in the business plan -- reliable broadband service.

The greater the consumer brand, the better
The ASP model threatens to replace the dominant desktop machine of today -- Microsoft-based PCs -- with simpler desktop devices sporting highly customizable, but simple, Web browsers. In effect, the new operating system will be the ASP. Behind the scenes, the Linux geeks at the ASP can run amuck on the servers. It won't matter to the desktop user, as long as she sees a consistent, reliable, smoothly integrated user interface to her business applications and files.

When our desktop user picks up her phone for support, the voice on the other end will answer "USinternetworking," even if she's calling for help with Ariba's software. In the world of business software, this is as close as it gets to a consumer brand.

Financial media says it's overvalued
Nope. At just 23 times trailing 12-month revenues, USinternetworking's market cap doesn't shock anybody. Ariba, for example, is priced at more than 150 times revenues. All I can say is that, not only does Wall Street not "get it," neither does anybody else.

Is Buster mental?
At this point, you are probably asking yourself, "Why did this guy suggest a Rule Breaker candidate that falls flat on its face on not one, but two of the six Rule Breaker criteria?" Apparently, only Larry Ellison, Christopher McCleary, and now Buster share the dominant ASP vision. Do you? Feel free to return me to my rightful seat in the peanut gallery on the Rule Breaker Companies discussion board.


Related Links:
  • Break Down: Beyond B2B, Rule Breaker Portfolio, 08/09/00
  • Is Ariba Worth 3x CommerceOne?, Rule Breaker Portfolio, 07/28/00
  • USinternetworking's Website
  • USinternetworking Guide to ASPs by CEO (.pdf file)