Oracle and SAP are no longer software companies that also sell
services; rather, they have gradually become services companies
that also sell software. How can CIOs ensure that those changes
benefit you at least as much as they benefit Oracle and SAP?
In its last four quarters, Oracle has reported total revenue of USD
24.18 billion. Yet less than one-third of that revenue—USD
7.143 billion, or 29.5 percent—comes from the sale of new
software, or what Oracle calls “new software licenses.”
The remaining USD 17 billion in revenue came from two categories:
“software license updates and product support” brought
in USD 12.71 billion, or 52.6 percent of total revenue; and
services/consulting brought in USD 3.86 billion, or 16 percent of
the total. So that’s about 30 percent from software and 70
percent from services.
SAP’s numbers tell a similar story. In its last four
quarters, which match up with calendar 2009, SAP posted total
revenue of USD 14.481 billion, with “software revenues”
contributing USD 3.5 billion, or 24.4 percent. Conversely, what SAP
calls “software and software-related service revenues”
came in at about USD 11.1 billion, more than triple that software
figure.
The days of mega-purchases of software are for the most part behind
us—and for SAP and Oracle to continue to grow, they must step
aggressively into new revenue streams.
Larry Ellison said as much on Oracle’s earnings call:
“We sell these applications a piece at a time rather than a
big rip-andreplace strategy, so when people aren’t doing big
ERP buys—by the way, ERP’s a rather mature
market—we think we’re competing very well in ERP, but
it is a mature market.”
Oracle’s diversifying into hardware but is also rapidly
cranking up the support/services side of that business with only
one choice for customers: premium level.
But aside from hardware, think of where Oracle and SAP have
terrific opportunities to impart new value to customers:
#1 Deeper industry knowledge, more insightful
best practices, more expertise in cutting-edge business
processes.
#2 SAP has created a database from 4,000 clients
revealing processes, best practices, and benchmarks. That could be
of incredible value to all CIOs.
#
3 With each vendor delivering and creating new
on-demand and other types of non-premise (as opposed to on-premise)
software, they’re beginning to sell even more services as
opposed to more software. #
4 Now that Oracle and
SAP have built the software plumbing used within hundreds of
thousands of companies, why wouldn’t those two information
experts try to become the owners/distributors of some of the
strategic content that flows through those pipes? It is said that
content is king, but distribution is the power behind the
throne—and in this case, Oracle’s and SAP’s
applications and other technologies give them ideal
distribution
I fully realize that Oracle and SAP are in the business of managing
and manipulating information and content, rather than owning and
marketing and enhancing it. But the IT graveyard is stuffed with
companies that failed to adapt to emerging needs. Plus, numbers
don’t lie—and the numbers say that SAP and Oracle
already are service companies.
Bob Evans is Senior VP and Director of InformationWeek’s
Global CIO unit.