With its $5.3 billion purchase of Micros Systems (NASDAQ:MCRS), a maker of business software for the hospitality and retail industries, Oracle (NYSE:ORCL) proves, if not already, that it remains grounded in offering any software that a business may need, rather than getting caught up in the excitement of delivering software from the cloud. The deal is the largest since Oracle's $5.7 billion purchase of Sun Microsystems and ranks fourth among its 100 or so acquisitions in the last decade, together worth about $50 billion.
Oracle has amassed a number of cloud-focused software providers to help it adapt to the growing trend of software subscriptions based on SaaS, or software as a service. However, the size of its investment in Micros, a provider of many on-premise software installations, suggests that Oracle will continually rely on its traditional software licensing business for growth in the foreseeable future by targeting businesses in new industries.
While offering certain cloud-based software and hosting services, Micros installs its software on-premise at far more business sites, compared to the number of business customers to which it delivers cloud applications. For example, in 2013, Micros' main food and beverage enterprise applications software systems, known as Simphony, were run from workstations or servers at over 10,800 food and beverage sites, while only about 1,000 such sites used its hosting service to access applications from the cloud.
Large enterprises running complex, on-premise back office servers for on-site software installations can feel burdened at some point and may prefer to switch to an off-site cloud-computing environment, making them potentially less likely to continue to embrace Oracle's old model of installing and licensing software. But restaurants, retail stores and hotels, the core clientele of Micros, can probably make do with scaled-down IT operations for handling on-premise software installations, which makes them easier targets for Oracle's software installation business.
The software licensing model has served Oracle well and appears to still be more cost effective at this time, compared to building and running data centers to deliver software from the cloud. Expanding software offerings to industries that have less practical demand for cloud services because of their manageable size of back-office IT operations, Oracle may see a quick boost to its software sales.
Despite all the talks about companies moving to the cloud, installing software on customers' own computing systems still represents an overwhelming portion of Oracle's software business. During its fiscal year 2014, revenue from cloud-based software subscriptions was only around 10% of its total software sales, while software installations for licensing contributed almost 90% of the software business.
Cloud computing that requires deploying networking gears and managing date centers is only a means to deliver software, and a software maker has to be also concerned with what kinds of software that it can offer customers. Thus, software companies may view differently the issue of software content vs. software distribution.
Inevitably, some software companies may focus on better software content and others may work more on software distribution. For example, with its initial software product in customer relationship management, known as CRM, Salesforce.com (NYSE:CRM) was launched with a goal to innovate on how the same software could be distributed to different companies and industries of all sizes through one network connection and from the cloud.
Over the years, Salesforce.com added only limited software products, most noticeably its sales and marketing applications of general purposes. It seems that Salesforce.com is less about what software it has but more about selling whatever it can offer to as many customers as possible by building more cloud computing infrastructure for better software distributions. One latest move by Salesforce.com is to open a data center in Germany for its online software delivery to more European customers.
On the other hand, Oracle has seemingly chosen to be more on the software content side, which fits well with the company's own software development history. Started as a software maker for database management systems, Oracle has expanded its software offerings far beyond its original database lineups, and today, is the second-largest software maker by revenue after Microsoft.
Oracle's business applications cover most operating disciplines of customers' operations, from human capital management and supply chain management to enterprise resource planning, enterprise performance management, etc. The goal here is to provide a software solution for every business need. Some software products are made available through acquisitions, allowing Oracle to expand its software content pool more quickly.
Innovative software distributions from the cloud may carry more sales in the long term, but diverse software contents will always be a valuable source of revenue. While Oracle should gradually build up its own cloud platforms to transition to future software delivery, it must constantly examine what new software it can still offer.
As Oracle keeps increasing the number of its software products, it can become more challenging to search for new software solutions for unmet business needs. Oracle's industry-specific strategy of developing specialty business software, industry by industry, may be one way to help it achieve sustained growth in software sales.
Along with its newly acquired Micros' software for the hospitality and retail industries, Oracle's other products, such as clinical trials management, banking industry solutions, intellectual property management for the media and entertainment industry and solutions for capital projects, facilities and real estate can all serve as clues about just what potential business fields that Oracle may continue to tap into on its way to become a software superstore for all businesses.
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