Oracle: Search Will Not Reverse the Downturn

December 20, 2011

The financial news about Oracle is typical bad news with the happy bunny hop. Navigate to “Oracle Falls Short on Weak Software Sales” or any of the stories reporting the financial basics. Here’s a taste of the December 2011 financial report:

The company reported a profit of 54 cents per share on $8.8 billion. The results fell short of the consensus view that Oracle would report sales of $9.23 billion and a per-share profit of 57 cents. Oracle shares, which had risen by 56 cents, or 2 percent, during the regular trading session, to close at $29.17, fell sharply in after-hours trading. As of 4:15 pm ET, Oracle shares were trading down $1.72, or 6 percent, on the news. In the plus column, Oracle said its operating margin on a non-GAAP basis improved to 45 percent, and that it expects those margins to keep rising. Operating cash flow grew by 45 percent, as well, to $13.1 billion.

Financial PR speak is tough to figure out. My hunch is that Oracle squeezed out costs to pump up the profit. Going forward Oracle has to do better. Once the downturn takes hold, it costs a lot of money to reverse the slide. Maybe Oracle will work magic with search? The company now owns and has to pump support and research resources into:

  1. Secure Enterprise Search or SES11g
  2. Triple Hop, if it still is around
  3. Endeca, the $1.1 billion bundle of MBA inspired search applied to ecommerce, the enterprise, business intelligence, and just about any other niche the B-School brigade can identify
  4. RightNow, a content and search service for customer support which, as you know, I interpret as “methods for preventing a customer to communicate with an informed human”
  5. InQuira, the blend of two search firms which is in the natural language processing game as applied to customer support. See item 4 above
  6. Oracle’s structured query language which is the database administrators’ favorite method of locating an item within an Oracle table.

The role of search at Oracle is to drive services, customization, opportunities for upselling and cross-selling, and “synergies”.

Will search provide a stream of significant revenue stream for Oracle? No. The deterioration of traditional database revenue, in my opinion, is part of a structural shift in computing. The search acquisitions make it easy for the 1,000 new sales professionals to get appointments, but a meeting is not a sale. Oracle’s hardware business may make Endeca-powered systems run with more speed, but will Endeca’s customers opt for an Oracle server or bite the bullet and look for an alternative like Lucid Imagination, PolySpot, or some other open source centric search solution? Endeca touts its analytics, but based on our work, next generation analytics vendors like Digital Reasoning make Endeca’s methods look a little like a 1998 Buick next to a 2012 Ferrari 458 Italia Spider.

Search will help, just nor deliver a gusher of cash. Search is not the answer to Oracle’s revenue challenges. I hope I am wrong. So do our customers who are dependent on Oracle and looking at options which appear to cost less.

Stephen E Arnold, December 21, 2011

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