The headline for Oracle last week was that growth had stalled after the enterprise technology provider reported that its third quarter revenues had declined one percent while profits flat lined from a year earlier. Wall Street was not happy with this surprise, especially after a track record of consistent performance of late. Then again, opinion was mixed with some major equity analysts sticking with their enthusiasm for better results to come. For their part, Oracle investors have driven the stock down over $5 or 15 percent since the earnings announcement.
Oracle Co-CEO Safra Catz attributed this revenue miss squarely on the shoulders of the company’s direct sales team indicating that some of the new sales recruits seemed less motivated to close deals in the latest quarter. At the same time, it was also noted that sales commissions are determined in the upcoming fiscal year end quarter that ends in May. If you establish a bonus plan that delivers all benefits in the final quarter, why wouldn’t a salesperson hedge to assure all the gun powder was loaded to make quota.
We all kinda know that Oracle sales types are not noted for their bashfulness and laid-back style. The fact that Oracle Co-President Mark Hurd is the current corporate cheer leader of the sales team does not add any credence to a laid back style. In our coverage of Oracle’s annual Open World conference in 2012, we pointed out that Hurd hired an additional 3000 sales types and reorganized teams into product specialization vs. selling a collection of various product components. The new commission structure incents sales representatives to sell more cloud-based versions of Oracle offerings. And, if that quota stems from selling cloud, that’s what most sales teams will focus on.
In enterprise software, blaming unanticipated operating results on sales execution is often the way to deflect to other internal issues related to product strategy, pricing, and the most important of all, the buying motivations of customers. It wasn’t that long ago that SAP had an unanticipated revenue miss which it directly blamed on its North America sales unit. The leader of that unit was relieved, and SAP bounced back with positive financial results.
Business, social media and equity analysts are focused on more important indications, namely is demand for behind the firewall, packaged applications on the decline in favor of other cloud based options. They point to the reported 2 percent decline in Oracle software licenses and subscriptions as evidence. Oracle also incurred a 23 percent decline in hardware revenues from its Sun Microsystems unit, an indication that the messaging for engineered systems, combining hardware, software and infrastructure is not quite resonating at the moment. Enterprise cloud technology providers such as Salesforce.com and NetSuite continue to proclaim how manufacturers have adopted cloud computing options.
From our B2B network and supply chain lens, Supply Chain Matters views Oracle’s current challenges as applications depth, cloud computing roadmap and pricing. The supply chain focused suite of applications within the Oracle E-Business suite continues to make steady and noteworthy progress, but in the notion of depth of B2B cloud, the options are thin. Progress has also been made on the integration of product management and project-based management initiatives within and across the supply chain suite. However, Oracle lags in its depth of procurement and B2B applications support. SAP’s previous acquisition of Ariba and IBM’s acquisition of Emptoris have brought this weakness to light.
In October we noted that Fusion SCM, Oracle’s market response to supply chain business process support via the Cloud has lots of fairly interesting future capabilities but with an overall calendar rollout that will not likely gather the interest of technology deployment teams. While current SCM, cloud-based applications support currently exist, it is more focused toward light service industry support, and even then, an admission from Oracle that initial efforts were mainly focused on Fusion ERP integration. When we viewed presentations on the supply chain cloud computing roadmap, we had the real sense that Oracle SCM development teams have some significant challenges to solve with SCM in the Cloud and the web services platform. A mushy rollout calendar was in contrast to the customer panel we attended back in April 2012, where select Oracle SCM customers stated their expressed interest in utilizing an SCM Cloud based offering, but were frustrated by Oracle’s rollout timetable.
The other challenge is of course, pricing. Oracle has a well-deserved reputation for premium pricing, especially when multiple applications and computing infrastructure are bundled in a deal. That is not helping when prospects and customer can currently evaluate more cost-effective options.
In our B2B network and supply chain view, the takeaway for Oracle’s miss was a combination of highly weighted incentives to sell cloud computing when substance was thin. Compelling pricing to attract customer buying interest is a fundamental challenge needing to be addressed.
Oracle teams should internalize this latest miss as a sign that more depth of applications development execution is at hand, along with a rationalized pricing strategy.
Supply Chain Matters has been invited to attend Oracle’s annual briefing for industry analysts that occurs in mid-April where we hope to dig deeper into cloud deployment strategies for B2B networks and supply chain.