Oracle (NASDAQ:ORCL) is boasting stable or rising margins, while overseas rival SAP AG (NYSE:SAP) tells us to expect margin declines. Oracle CEO Larry Ellison has a KISS principle in his pocket, should the German software giant come asking for his advice. That's KISS, as in Keep It Simple, SAP.
In his company's third-quarter earnings conference call, Ellison explained that SAP offers four distinct application product lines that do basically the same thing for different market segments, from very small businesses to the megacorporations. Each of these lines gets marketing and technical support budgets, and as SAP makes a move into the small-business market, it takes more effort and money to land increasingly tiny contracts. It doesn't help that mighty Microsoft (NASDAQ:MSFT) is deeply entrenched in this segment, either.
By contrast, Ellison touts his company's one-product strategy, where the modular Fusion framework is intended to work in any reasonable setting. Also, Oracle is happy to stay with its existing customers and "sell them more value," getting them to add extra modules, one by one, atop their existing application infrastructures.
These established customer relationships save Oracle from making cold calls and hard sells. So far, it appears that the strategy is working fairly well. "Our margins are going up, not down," Ellison said. "SAP has said that their expansion strategy requires sacrifice in margins. Well, we do not believe in sacrificing margins for growth."
Regarding middleware, Ellison said that Oracle has outgrown BEA Systems (NASDAQ:BEAS) but is still trailing IBM's (NYSE:IBM) WebSphere offering. But WebSphere is a complex set of separate tools, which Ellison thinks makes a poor comparison to the unified Oracle Fusion middleware tools -- well, maybe not apples to oranges, but at least Granny Smiths to Braeburns. You'll note how the Fusion name pops up across the various software categories, by the way.
With recent wins at companies like Subaru, Cisco (NASDAQ:CSCO), and Mattel (NYSE:MAT), Oracle appears to be on a roll. The competitive spirit is still alive and well, too: Out of all the new deals this quarter, management's favorite was the conversion of a longtime SAP customer "about two blocks from SAP's headquarters." Yeah, guys -- rub it in, why don't you?
Further Foolishness:
- Foolish Forecast: Dig Into Oracle
- Oracle Wants to Own Telecom, Too
- What Oracle Sees in Its Future: Fool by Numbers
Microsoft is a current Motley Fool Inside Value pick, and Mattel a former one. What happened to the toy maker? Find out with a free 30-day guest pass to our value-hunting service.
Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure always rules the roost.
