Friday Rant: E-Sourcing and Oracle — It's Not Even Close to Game Over

I know a lot of people looked at Oracle's announcement this week regarding their new On Demand and SaaS-based e-sourcing offerings and questioned, thinking to themselves, "if they get this right, is it game over for best of breed providers?" If someone asked me this, I'd respond by saying absolutely not. For a lot of reasons, I think the Oracle move, while shrewd, is anything but game over. Here's why.

First, I'm not sure if Oracle appreciates the need that a lot of companies have for bundling basic process and commodity knowledge and support along with back-office sourcing enablement (e.g., supplier training, surrogate bidding, etc.) Punting and outsourcing this to a third party (e.g., Archstone) is not necessarily the right answer. In my view, Oracle needs a one-stop shop solution if they're going to truly deliver sourcing on demand capabilities that meet the needs of what companies are looking for. Oracle could private label this. But my own experience suggests that customers want one vendor to go to. And with Oracle's main best of breed competitors, you can get this insight from a single provider. Oracle either needs to get serious about enabling sourcing services or needs to get out of that business entirely and partner with an Ariba, Emptoris or someone who can do it for them in a back-office capacity.

Second, Oracle's current offering is not at parity with the market. Granted, it's a highly usable application with a good track record of reliability and proven results, but it lacks a number of features that best of breed competitors have when it comes to supplier management, feedback mechanisms, negotiation/bid analysis and organizational (and third-party) knowledge capture/information sharing. A number of these capabilities are not "nice to haves" but are nearly essential, in my view, for conducting effective sourcing events and maximizing the potential savings on the table. Oracle's next release, 12.1, will address some of these shortcomings, but the application will still fall short of some of the capabilities that best of breed vendors have.

The third area where I think that Oracle is potentially missing the boat is price. $150+K annual minimum is a lot to pay for sourcing on a yearly basis as just an ante (especially considering you can get 50-70% of the functionality at 5% of the cost from companies like Ketera, or, as Michael Lamoureux pointed out on his blog, greater functionality from providers like Iasta at materially less than what Oracle is charging). If Oracle cut its list price point in half, it would have been a far more serious threat to the market. Still, Oracle is known for aggressive discounting off of their standard pricing sheets so maybe this point is moot.

The fourth and final reason why it is not game over in the e-sourcing market is because Oracle's actions suggest a lack of understanding of the partner landscape. For example, as much as I like the folks at E-Three who are providing support for Oracle's multi-tenant version, these guys are a small firm versed in full-service auctions (I worked with the two founders at FreeMarkets). But in my experience, small firms are anything but expert in scaling up to the requirements that Oracle might need. Perhaps Oracle is working with others here as well, but no one else I talk to has come forward and said anything to this effect. I am also not sure from my discussions with Oracle exactly where the line is drawn between internal and external resources when it comes to sourcing support -- something that could hamper the ability to meet customer needs.

I could go on, but I won't given how much this post has dragged on already. Don't get me wrong. I am bullish on the news this week. Oracle has got excellent potential to thrive in the e-sourcing market. But in my view, it's anything but game over at this point in time. Just as SAP made similar announcements a couple of years back (remember three full-service auctions for $10K?), Oracle is doing the same now, albeit with a few tweaks to how they're going about it. The good news is that customers will win as a result, having more choice and yet another On Demand vendor to toss into the equation.

Jason Busch

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