Inside Oracle’s Plans to Conquer the SMB Applications Market

Oracle has made no secret of its plans to “focus on the midsize applications space,” as Tony Kender, the senior vice president of Oracle’s global Accelerate program office, puts it. Like its rival SAP, Oracle wants to broaden its appeal to small and mid-market decision-makers looking to invest in IT.

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While accurate, the word “focus” just doesn’t seem to adequately capture the aggressive and competitive spirit that Oracle is best known for. In the case of the SMB opportunity, however, Oracle’s actions and go-to-market strategies have, so far, spoken louder than any of its executives’ words.

Since 2007, Oracle has introduced a multi-faceted SMB strategy, called Accelerate, that could help it gain sizeable shares of the vast midsize and small-company market. (For more on competitor SAP’s SMB strategy, see “SAP Pays Partners, Goes with Gusto for SMB Customers.”)

Oracle’s core message to SMBs is simple: faster, easier, cheaper. “In the big scheme, Accelerate is the overall program to bring more SMBs into the market,” says Ray Wang, a principal analyst at Forrester Research. “Accelerate has many components that include favorable SMB pricing, rapid implementation methodologies, partner ecosystems and targeted [marketing] campaigns.”

Most notably, Oracle has made the guts of the enterprise applications for which it is best known—E-Business, Siebel, PeopleSoft and JD Edwards—also available to its SMB customers, something Kender passionately claims the competition does not readily do. (Oracle defines its midsize and small application market as companies with less than $500 million in revenues; it claims 24,000 SMB business applications customers, which totals approximately two-thirds of its applications customer base.)

“Most software companies will say: I need to create this special ‘small-business, watered-downed, less-functionality-so-that-it’s-easier-for-you-to-acquire-implement-and-keep-your-costs-down software,” Kender says. “‘And don’t worry, when you grow, you can just pull that out and buy another package that we have—you know, the Big Boy software. And then you’ll pay a bigger price. But don’t worry about the extra cost of re-implementation, because we have a special package for you because you’re special.”

Kender’s sarcastic explanation might be a bit over the top and self-serving, but his point is valid: Why can’t a midsize manufacturer use the same Big Boy software that GE uses? “In the past,” Kender says, “there were serious barriers to doing that: the cost of large enterprise software, the way it was priced and the requirements to implement it made it too costly.” (For more, see “Software Licensing and Pricing Is Still Too Complex and Costly.”)

Oracle thinks it has solved this problem with its Accelerate program, which Kender leads, and by tailoring software to very specific industries and by pricing its software at more reasonable rates for SMB organizations.

What Is Accelerate?

In 2006, Oracle President Charles Phillips wanted the company to start placing a greater emphasis on the small- and medium-sized business market. “We really didn’t have a coordinated effort across everything,” Kender recalls.

Key to the Accelerate program is the enterprise-equivalent applications that are easier to implement and reduce the onerous costs for the SMB customer. Warren Wilson, a research director at Ovum, notes that Oracle is “aggressively discounting its software” for SMB customers, as it typically does when it enters a new market space.

Kender claims that Oracle makes the applications easier to implement because of what’s called Business Accelerators: preconfigured, automated, rapid-implementation tools and methodologies that are based on more than 1,200 “business flows” specific to customers in a particular industry, which Oracle has developed.

The shift in targeting applications by industry, or vertical, rather than by company revenue appears to be the way of the future in the applications market. Oracle’s Accelerate partners now deliver services in industries such as health care and oil and gas, as well as industry sub-segments, such as chemicals, electronics contract manufacturing, and logistics.

Oracle, as well as SAP and Microsoft, “recognize that the concept of a defined ‘SMB market’ is misleading—SMBs differ so greatly in size, geographic focus and industry expertise that they actually constitute a vast collection of sub-markets,” writes Wilson in an Ovum report on Oracle. “One result of this fragmentation is that all three vendors are increasingly seeking to tailor their offerings for specific industries and niches.”

Oracle’s Kender says it just makes more sense. “If we know 80 percent of what your business flows already are, just by virtue of the fact that we know what your industry is,” he says, “I can create those business flows by industry, and I can prepackage those so that I can help my partners and consultants implement quicker and faster.” The other 20 percent unique to each customer’s operations is configured by a front-end software wizard which allows customers and consultants a necessary level of customization, Kender says.

“What once took months, now takes weeks,” Kender claims. For example, with the Oracle E-Business suite, “which is a complex suite of software,” Kender notes, “we have seen implementations in less than 60 days.”

Oracle Seeks Best-Friends Status with Its Partner Base

The success of the new Accelerate strategy depends mightily on Oracle’s partner base. Not only does Oracle expect its partners to get the marketing word out in the SMB space, but Kender says that its most successful Accelerate partners have developed their own Oracle application “solutions” specific to industries they know well.

Today, there are more than 120 of these Accelerate solutions available to Oracle SMB customers in 18 countries, with another 200 in development, Kender says. For instance, Oracle partner GoEngineer recently launched new manufacturing-industry product lifecycle management (PLM) capabilities that extend Oracle’s Agile PLM tool. (See “Under Pressure, ERP Giants Struggle to Innovate,” for more on why vendors need the innovation help.)

Kender says Oracle reviews all new partner-developed application add-ons, such as GoEngineer’s PLM tool, and has to “bless it as an Oracle Accelerate solution—that it’s not just on PowerPoint,” he says. “We make sure it runs properly and that there are references.”

One potential snag in the Accelerate plan for those partners developing the software, points out Forrester’s Wang, relates to Oracle’s penchant for making software acquisitions.

“The challenge we’ve heard from independent software vendors (ISVs) working with Oracle is they are quite concerned as to what areas Oracle will not be competing in,” he says. “If there isn’t a clear understanding of what is the partner’s ownership versus Oracle’s, a partner is hesitant to invest in developing out a last-mile solution, especially if Oracle ends up acquiring that functionality after a year of hard work by the partner.” (For more on Oracle’s acquisition strategy, see “Oracle’s Merger and Acquisition Strategy Gets Some Respect.”)

In addition, the lingering question of just who owns the intellectual property (IP) on the Accelerate solution is critical. Wang says the agreement could take one of three versions: Oracle pays a partner for new IP; a partner builds IP with an understanding that they have first market advantage and Oracle assumes code at a later date; or a partner takes an existing solution and adapts it for Oracle and maintains IP.

Oracle spokeswoman Jessica Moore says that the partners own their Oracle Accelerate solutions, and Oracle provides Oracle Business Accelerators to its partners at no additional cost. As to the partners’ margins on the sale, Moore says that Oracle doesn’t disclose that amount.

Oracle also offers a referral program that pays cash—5 percent of net license revenues for up to a total of $50,000—for qualified SMB leads. (SAP also does the same.) Kender says Oracle is casting a wide net for leads: applications partners, database and infrastructure partners, industry consultants and non-traditional sources such as “a banker, a CPA; anybody who comes across an opportunity can register that lead,” he says.

Ovum’s Wilson notes that Oracle also created a loyalty program that “rewards top-performing partners with resources such as training, event funding and, in certain cases, co-branded marketing campaigns—a first for Oracle,” he notes.

Overall, industry analysts conclude that Oracle’s partnership strategy has potential. “Oracle is signaling a ‘work with, not work against’ strategy with partners,” writes Simon Jacobson, in an AMR Research report, “but how partners respond to the new branding will ultimately determine the initiative’s success.”

Big Love for SMBs

Oracle, of course, is not alone in its pursuit of the SMB market. Its chief rival, SAP, has also identified the SMB territory as highly desirable, to say the least. The enterprise software vendors have reluctantly realized that there are only so many Coca-Colas and Wal-Marts to sell to.

“Oracle and SAP have recently been bickering more heatedly than usual, using each earnings release or acquisition announcement to challenge one another,” notes Ovum’s Wilson. “Much of their rhetoric reflects the importance each places on SMBs to fuel growth as the large enterprise market becomes saturated.” (See “SAP’s Push Into the SMB Market Is Creating a Skills Gap for IT Departments,” for the “downstream effects” of SAP’s SMB plans.)

And then there’s Microsoft and its burgeoning Dynamics product line that targets the SMB space with a mix of ERP, HR and CRM software options. (See “Microsoft Launches On-Demand CRM Software into a Crowded Market.”) “This mid-market competition between SAP and Oracle is among the fiercest in the industry,” Wilson adds, “although both vendors increasingly have to look over their shoulders to make sure Microsoft isn’t gaining on them too quickly.”

To make sure that doesn’t happen, Oracle (and SAP, for that matter) is aggressively trying to get the word out that Oracle applications are as much for the SMB as it is for the Fortune 100. “It’s awareness that these companies know that we exist and that they can use that same software that a large enterprise might use,” Kender says. The campaign, Kender notes, includes a grassroots-level marketing push by Oracle and its partners, co-branded campaigns with other hardware vendors and technology partners, and meetings with industry analysts.

The goal, of course, is so that Oracle can “get to the table” with these SMBs who are evaluating their software options and might not be thinking that Oracle has anything for them, Kender says. “It’s our biggest challenge today.”

Again, Oracle executives will lean on their partners to help open SMB doors. “They have local knowledge, local feel,” Kender says, “and that’s where they can step in and get to that customer, talk their language and talk about what they’ve done for companies their size.”