By Matt Hines
Tuesday, July 26 2005 11:31 AM
URL: http://www.zdnetasia.com/news/software/0,39044164,39245347,00.htm

newsmaker When database and enterprise software giant Oracle announced in January that it had finally won its battle to buy rival PeopleSoft for US$11.1 billion, its acquisition hunger was hardly sated.

Over the next several months, Oracle's rivals, most notably SAP, used the massive acquisition as a central marketing tool. They said Oracle would need years to get its operations back in order, and that the entity created through the deal would be a bloated company with too many different products. Industry analysts agreed that in the period of uncertainty created by the megamerger, Oracle's competitors would likely siphon away valuable customers.

Flip forward to late June, and Oracle delivered fourth-quarter earnings that widely surpassed Wall Street estimates, driven by sales of the business applications it was supposed to struggle with. The result stands as a resounding victory in perception for Oracle and for Charles Phillips, the company co-president tasked with keeping the software maker's operations on track.

Phillips recently sat down with CNET News.com to discuss the curving path his company recently traveled and its expanded road map for the future. In addition to detailing Oracle's plans, the executive said rumors of a potential departure are as baseless as the market's dire predictions regarding his current employer.

Q: There was so much noise in the market regarding the extent to which Oracle would struggle to retain customers and win new deals while it was working too integrate PeopleSoft. With the better-than-expected applications performance in the fourth quarter Oracle reported last month, is it fair to say that those perceptions were disproved?
Phillips: Yes. I think the perception that there would be customer defections was more a wish by SAP, and maybe smacks of little bit of desperation (since they) spend more time talking about us than about (their) own strategy. But we have not seen that happen and, in fact, the maximum period of uncertainty probably would have been last December, on the first day we announced the deal.

I think what people are forgetting is, as long as you believe that all applications will have to migrate to some service-oriented architecture, that means all applications will have to change and anything that has been written in the last 10 years is going to have to change. So SAP will have to change their architecture as well.

How do you expect that SAP might approach that challenge?
Phillips: (SAP) says "we are going to get your services-based architecture, give you all this new functionality, all this new architecture, but we are not going to change anything." You can't have it both ways. Either they're going to do the same thing that we are doing or they're going to say, "We are not going to change anything, we are going to stay stuck with the architecture of the last decade"--and they can't say that.

Our numbers are getting better. We're happy; I'm happy.

So both things cannot be true and customers are figuring that out as they listen to SAP talk about services, architectures and components. They have thousands of people working on changing the architecture. So the only questions are: Who has been more transparent about it? (which would be us) and who has the resources to get there, and who has built infrastructure like this before? On all those accounts, we come out way ahead. I think this whole discussion around services is a middleware-based discussion.

So it comes down to a debate over who has the best applications middleware strategy?
Phillips: Our applications server in middleware strategy is beyond debate the best in the industry…I think the whole discussion favors our strength: the fact that people are talking about architecture again underneath applications. Once we go through that with customers, we find that they are pretty excited about where we are leading them.

Are you saying that customers are buying with the knowledge that in the relatively near future, they will need to change the architecture under their applications?
Phillips: They're buying with the knowledge that the architecture will evolve in an evolutionary way over time toward something they think is pretty exciting. We have told them the pace at which it will evolve, and what exactly it will evolve into.

SAP is saying at the same time theirs won't evolve, but maybe it will, and that they are going to get into same endpoint as Oracle is describing--but that nothing will change. It's just not credible.

So customers understand that there will be significant changes that they need to make to keep up?
Phillips: We get them to the next generation. That has been part of the strength of Oracle. That's why we have so many customers. We have been through many generations of technology. These will be upgrades, not

migrations, and once we explain how we plan to do it and that we have done it before and give them examples, (customers) say "OK."

We have given a guarantee that on the existing architectures that customers are running, if they don't want to move at all, don't do that and you know that you can stay where you are until 2013, at least. We're telling them you don't have to upgrade, so there is no downside, it's all upside.

SAP appeared to impress a lot of people with its enterprise services architecture strategy, with big third-party companies like Cisco Systems, EMC, IBM and Veritas Software signing on. SAP is essentially saying that their middleware plan is cooked and that they are already building third-party products with it. Does that give them a lead on Oracle?
Phillips: I wouldn't be fooled by that. Remember, we have 7,000 (independent software vendors) who are using these products I'm talking about, not just signing press releases. Getting EMC or Veritas to say that (they support) your middleware strategy is almost irrelevant. That's not what customers are buying middleware for. IBM has to support SAP, and we are partnering with IBM as well.

We've gotten so much publicity that a lot of ex-Oracle employees want to come back.

But our focus has been on enabling partners to actually deliver products, so we have thousands of ISVs. We have all the integrators behind us as well. That's where the action is, between integrators and ISVs. And they are behind us and have been for quite a while.

What's CEO Larry Ellison's day-to-day involvement?
Phillips: Obviously there are a lot of people who he can rely on who report to him. Perhaps he doesn't need to get into getting every detail the way he once did, but nonetheless, in all the key decisions he's definitely involved.

Has your responsibility shifted somewhat maybe in the last year? Obviously with the addition of Greg Maffei, things changed a little bit.
Phillips: Zero, I'm doing the same things. Greg's role is basically what Jeff Henley's once was, and what Harry You's was for a short period of time.

What about some of the PeopleSoft executives? Where they are fitting in the organization?
Phillips: Well, we gotten a lot of executives from various companies, that's one of the fun things that's happened over the last three or four months. We've gotten so much publicity, and we've had such a great quarter, that a lot of ex-Oracle employees want to come back. And we're seeing a lot of SAP people too. In terms of attracting talent, we are bringing in probably the most talented group of people we've had in a long time. We have PeopleSoft executives in the sales force and in development, playing key roles.

Has your role with Larry changed much, and is there any feeling or pressure on your part to leave the company?
Phillips: I'm not sure where that idea is coming from, but no, I'm doing the same thing that I was 18 months ago. I have the same responsibilities, and the relationship hasn't changed. Our numbers are getting better. We're happy; I'm happy.

When will your previously announced Fusion Middleware become available as an option for J.D. Edwards and PeopleSoft applications?
Phillips: September of this year.

One question about acquisitions: We heard recently about the ProfitLogic deal. Should we expect more deals of that type--smaller, more focused buys--or is Oracle thinking about larger acquisitions?
Phillips: I can't give you a single pattern, because given our size, we can do small, medium and large acquisitions, and multiple deals. We have a

pretty good process down now, and in fact, where people calling us to ask us how we did (the PeopleSoft deal) so quickly.

I think, given the skill set that we have, we're not limited, we don't have to focus on one size deal or the other. I do think we'll be opportunistic when price makes sense. Obviously we have an ongoing process; we're reviewing a lot of those opportunities, but nothing has really changed, and we don't have to limit ourselves.

Do you feel like you've digested the PeopleSoft acquisition completely?
Phillips: I think that we've digested it. I mean, we didn't have one of these plans where we evaluate everything for nine months and slowly start to make changes. We made the changes in the first 30 days. And people are again still asking how we did that, so I think the speed served us as well, because it gave clarity to customers. I think it gave clarity to employees too. We're able to get out in front of the customers quickly and not be bogged down in internal meetings.

So, that was done in the first 30 days, and then the last remaining infrastructure pieces on the back end of the IT stuff was done a couple of months ago. So, there's not anything remaining. We're operating as a single company and moving forward.

Do you see any need to kind of realignment along vertical lines, and are you forced to sell slightly differently than you have in the past?
Phillips: We're doing that as we get deeper into selected verticals. So we're not doing a wholesale reorganization the way IBM did. We don't need to do that, and that's disruptive. But certainly, as we build our products and verticals, or make acquisitions like Retek, we create organizations around them.

Retek has been run as the Oracle retail business unit, and that's a vertical business unit within Oracle globally. We'll do more of that, but build it incrementally over time. It doesn't make sense to do that until you have more content in any particular industry.

So it's safe to say that acquisitions might fill in the content that you're talking about, with one company serving as a point for a particular vertical?
Phillips: Yes. The important part of our strategy going forward in terms of acquisitions will be adding more vertical market content and getting people in who are very strong in those verticals.

You take a guy like Duncan Angove, who came from Retek and who now runs the Oracle retail business unit. All he has done in his entire career is retailing, and he just speaks a different language. That's very helpful for this organization, because they connect with customers in a different way than someone walking in and talking about NetWeaver.

One of the things we heard about the PeopleSoft acquisition was that existing JD Edwards and PeopleSoft customers were going to hold off on buying new software. Have you already been able to sell new applications to some of the existing customer base?
Phillips: Yes, we had a very good quarter last quarter, and that wouldn't have happened unless those customers stepped up and said, "I like what you're doing, I'm comfortable."

And I personally had lots of meetings with groups of CIOs one-on-one, just explaining the strategy, and once they hear it, they're fine. They've also heard about what we're doing in middleware and the database market. So, we were able to educate a lot more people on the kind of broader, bigger Oracle that perhaps they didn’t know about.

Has software purchasing within big companies loosened up a bit in the last six months, or a year or so? Is there still a long sales cycle involved with enterprise software?
Phillips: It's still a test market, it's still very competitive, and customers are just much smarter buyers than they were years ago. There's no getting around that, and I don't think that's going to change, but I will say that their pattern of buying has changed in a sense that they want to buy from large companies. They're reducing the number of suppliers, and they're going to select a stack to build around and plan their architecture around, and have gotten out of this "best of breed" mentality. They see what's happening in the industry, and industry is consolidating, and smaller companies are having a tough time.

So, while the pie is slowly expanding and we can always use more, the bigger driver right now are that the shifts within the pie favor us.