Oracle: Girding for A Niche War
June 26, 2008
Superplatforms like IBM, Microsoft, Oracle, and two or three other firms with big ambitions have been drifting in the last three or four months. Oracle, fresh from record profits, seems to be lining up an assault force to go after the insurance segment of the financial services industry.
Oracle acquired Skywire Software, according to an Oracle news release dated June 23, 2008 here. Oracle did not disclose the terms of the deal, and in its official statement said:
Oracle announced it has entered into an agreement to acquire Skywire Software’s application software business. Skywire Software is a leading provider of insurance and document management business applications. With Skywire Software and the pending acquisition of AdminServer, Oracle is expected to accelerate the formation of the most complete software suite for the insurance enterprise to include Oracle’s database and middleware for technical infrastructure, Oracle applications to support general business and insurance-specific functionality, plus Skywire Software and AdminServer to further support insurance policy life cycle management. In addition, Skywire Software’s customer communication management and document automation capabilities will expand Oracle Enterprise Content Management.
Skywire makes “glue software”; that is middleware that hooks together people and information working for an insurance company. Some of Skywire’s products touch upon enterprise publishing, a domain that begs for a search-and-retrieval solution. The company also offers various analytic components, which brushes against the text analytics business. Agents, brokers, actuarial consultants, and employees use many different communication media, and the idea is to get a common system to minimize the inefficiency that is rampant in most insurance companies. You can learn more about Skywire’s content management, business process, and business intelligence systems here.
The company bought AdminServer in May 2008. This company provides management systems to help insurance companies herd ducks; that is, policies that could return more profit with better administrative tools to manage them. You can learn more about AdminServer here. Timothy Morgan does a good job summarizing the technical nightmare that many insurance companies face when trying to manage their policy data and then trying to figure out what opportunities or liabilities certain paper presents. (I know what you are thinking, “How can an insurance company not know about its policies?” The reason is that large carriers have dispersed and fragmented data sets, and most don’t have a way to look at the big picture quickly.)
These acquisitions add to the mind-boggling range of products and services already in the Oracle stable. When I read the announcement, several thoughts crossed my mind; specifically:
- Oracle, like IBM and Microsoft, seems to be moving toward offering tightly focused solutions that do not necessarily drag the Oracle database and Oracle applications along with them. My hunch is that these niche companies provide Oracle a way to call on a company and make a sale. An upsell to more Oracle products and services will come along later in the sales relationship. If this is true, Oracle’s overhead is going to go up. Most sales professionals with many products in their carpet bag sell what generates commissions. Specialty products require a dedicated sales force, and it may be tough to get high margins in a niche that other companies will sure chase.
- Confusion is likely to be an issue. Oracle’s marketing has, in my opinion, not done a good job of explaining what the company offers, the benefits of the often overlapping products, and how the different pieces of the Oracle puzzle fit together. Oracle runs the risk of diluting its brand and confusing its customers. IBM and Microsoft face this problem now, and I think both of these companies are better at marketing than Oracle.
- The price hikes that Oracle announced give the company room to negotiate. Intense pricing pressure is evident in the market, and I am not sure how niche products can priced to pay for the R&D, the marketing, and the sales work that is going to be needed to keep niche firms growing quickly. Niches run out of cash gas pretty quickly, and a cloud based solution seems a more practical way to address some of the wacky data management problems that shackle insurance companies.
Oracle has an opportunity to bundle search, analytics, and data management with Skyline’s and AdminServer’s products. The company has to prove that it can do more than collect niche companies the way my mom used to gather figurines of girls with flowers.
Agree? Disagree? Use the comment section to set me straight.
Stephen Arnold, June 27, 2006
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