The long, drawn-out battle between one of the leading software and cloud computing providers on the planet, $185.9 billion in market capitalization Oracle (NYSE:ORCL), and the governmental resources of the state of Oregon is about to get ugly. And that's saying something, considering both sides have been at each other's throats over a botched website for Oregonians to enroll in Obamacare.
The money spent, and received, is staggering to be sure. But what's even more staggering is that after all the time, cost, and headaches, the state of Oregon still has nothing to show for its efforts. Oracle, on the other hand, has pocketed over $100 million in fees from the state, despite not delivering a working website. And that's why Oregon's governor, John Kitzhaber, is ready to take the dispute with Oracle to the next level.
How the tides have turned
It was just two months ago that the news surrounding Oracle, at least outside the state of Oregon, was nearly all positive. Gartner had just released its list of top 10 software vendors worldwide, leaving Oracle fans with something to cheer about other than CEO Larry Ellison's making a stunning comeback in the America Cup to win sailing's most prestigious race.
Like one of its primary competitors, Microsoft (NASDAQ:MSFT), Oracle is ideally positioned to benefit from the on-going shift to cloud-related software and services. Cloud hosting's recent price wars have brought costs down to mere pennies, making it evident there's no revenue growth to be had there. Software delivered via the cloud is where the revenues are, and both Microsoft and Oracle are positioned perfectly.
Oracle reinforced its software, and by extension cloud, strength in 2013, according to Gartner. While Microsoft still rules the global software roost, as demonstrated by its $65.7 billion in software sales in 2013 -- more than twice that of any other vendor -- Oracle is steadily moving up the ladder.
After being in a virtual dead heat with IBM in 2012 with $28.7 billion in software sales, Oracle jumped 3.4% in 2013 to $29.6 billion, passing IBM to take over the number two spot worldwide. Obviously there's a long way to go for Oracle to move up to Microsoft's league, but surpassing IBM in sales is nothing to sneeze at. But Oregon's recent grumblings could put a damper on Oracle's positive steps.
Oracle vs. Oregon
Even when the Cover Oregon website, managed by Oregon's Health Authority and its primary contractor Oracle, was nearly three weeks late meeting the Oct. 1, 2013 deadline, the two sides were still on good terms. Emails back and forth between the two parties were glowing despite the delays. There was even talk at the time, which in hindsight seems nearly unfathomable, that Cover Oregon may be the answer to problems the federal site, healthcare.gov, was having.
Fast forward to Feb. of this year. There's still no insurance exchange website for Oregon residents, and Oracle poured salt on Oregon's wounds by removing around 100 of its approximately 165 programmers from the Cover Oregon project. That, as it turned out, was enough. Having already paid Oracle $134 million in federal funds, another $25.6 million is still owed, but is being withheld. Oregon has since given up Cover Oregon and will use healthcare.gov, as many states already do.
All those good tidings between the two sides in Oct.? Long gone, and apparently forgotten, based on scathing statements issued by governor Kitzhaber, which were refuted just as harshly by Oracle representatives. No word yet on whether Kitzhaber will sue Oracle, though the mutually agreed upon date to withhold legal proceedings expired this past weekend.
Final Foolish thoughts
For a company the size of Oracle, a $100 million or $200 million lawsuit isn't likely to cause many problems financially. And Oracle rightfully states that Oregon agreed to a contract for its time, not results. But Oracle has had client problems before that resulted in a lawsuit, and bad public relations are never good. Three years ago Oracle ponied up almost $200 million to settle charges it didn't disclose discounts other clients received, following a software contract with the U.S. government.
It all looked so good just a couple of months ago, and frankly, Oracle's not likely to suffer much in the mid-to-long term because of the Oregon debacle. But don't be surprised to hear a lot more mud-slinging, from both the state of Oregon and Oracle, in the near future.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Gartner. The Motley Fool owns shares of International Business Machines, Microsoft, and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.