Oracle Corporation (ORCL): Better Late Than Never

In my last article on tech behemoth Oracle Corporation (NASDAQ:ORCL), I had stated that merely blaming the company’s sales staff for its poor third quarter performance (when the results missed analyst expectations by a wide margin) was not the true picture as presented by the company’s management. And it seems like my words have come true as revenue came in below Street expectations as part of the company’s fourth quarter results once again, and that too, in the company’s traditionally strongest fourth quarter, when sales people attempt to close as many deals as possible in the hope of securing a year-end bonus. This time, however, management has decided to opt for the economy as its newest scapegoat.

But, as company shares plunged slightly more than 9% upon the results, it has become evident that these explanations are unlikely to have a soothing effect on increasingly jittery investors. And distributing goodies in the form of doubling the quarterly dividend or going for a massive $12 billion share buyback may just not be enough to control the situation. So how about blaming Oracle Corporation (NASDAQ:ORCL)’s slow moving culture and flawed revenue strategies for a change? Especially when smaller rivals such as salesforce.com, inc. (NYSE:CRM) and Workday Inc (NYSE:WDAY) are increasingly taking a major share of the pie, something which Oracle is finding real hard to control, even with its string of recent acquisitions that include Taleo Corp., RightNow Technologies and Eloqua.

The cost factor

So what is the real reason behind the meager 1% rise in the company’s new software licensing and cloud subscription-based revenue? Well, as is evident in recent quarters, the answer lies in the fact that customers are simply unwilling to go for the expensive costs and licensing renewals associated with Oracle Corporation (NASDAQ:ORCL)’s engineered systems – combinations of hardware, software and databases that it’s originally reputed for. And while it’s definitely true that Oracle’s software tends to be better and much more sophisticated than its smaller rivals and even compared to traditional rival SAP AG (NYSE:SAP) in some respects, people are just not willing to pay the high prices that are inevitably associated with such advancements.

While that may be an aftereffect of the economic slowdown that has forced corporate IT departments to go on a cost-saving spree, the fact remains that customers will always be drawn towards the fact that companies such as salesforce.com, inc. (NYSE:CRM) and Workday Inc (NYSE:WDAY) offer Software-as-a-Service (SAAS) based applications at a fraction of the cost that Oracle Corporation (NASDAQ:ORCL) charges, not to mention eliminating the need to install expensive on-premise hardware. These companies bundle their charges for installing software and providing maintenance support into a single, affordable fee, taking it to a level that simply turns out to be unprofitable for big companies such as Oracle.

Small is better

In fact, some of them such as salesforce.com, inc. (NYSE:CRM) are even willing to run at a loss for some time and grab more customers from behemoths like Oracle Corporation (NASDAQ:ORCL) in the process. And even though this led to Salesforce reporting net losses to the tune of $270 million in the previous year, the gains are evident as Oracle slips into second place behind the former in terms of SAAS-based applications. At the same time, salesforce.com, inc. (NYSE:CRM)’s offerings in the realms of human resources, customer service management (CRM) and accounting continue to be as diverse as possible.