Jan 30, 2003 (07:01 PM EST)
App Vendors Hope For Better Times Ahead

Read the Original Article at InformationWeek

Two big-time application vendors are hoping to buck the bleak projections painted for IT vendors in 2003 as they look to get more from existing customers and steal business from smaller competitors.

Oracle is optimistic about the future of its application business, which has been hit hard during the past two years by the economy and by negative feedback. The Oracle 11i app suite had a reputation for being low quality, and Oracle's sales force, which was accustomed to selling databases, wasn't skilled at dealing with non-IT business executives. All that has changed with a new dedicated applications sales team and improved outsourcing services, CFO Jeff Henley says, and the company expects growth in its application business later this year, after having seen app revenue dip as much as $100 million quarter over quarter during the past year. "We think the worst is over; we can see growth over the coming year," Henley says.

But growth is relative, says Jim Shepherd, a senior VP at AMR Research. "They're comparing against sales that occurred in a down economy, so comparisons become easier to show improvements on a percentage basis," Shepherd says. But Oracle has fixed many of 11i's problems, added functionality, and improved its sales and marketing. It's also done a much better job of matching functionalities and strategies between its database and tools businesses and the apps business, he says. "They've done a good job for the first time at capitalizing on the fact that they're both a technology infrastructure vendor and apps vendor, something they've been unable to do for the history of their apps business," Shepherd says.

Oracle will look to its installed base for new business, like athletic footwear maker Fila USA, a six-year database and tools customer that recently decided to replace its PeopleSoft Inc. human-resources applications with Oracle's HR, Advanced Benefits, and Employee Self-Service modules to escape increasing maintenance costs. "This was our first real hard look" at Oracle's apps, says Jim Allenbaugh, Fila's senior database manager. "When we saw Oracle's features and functionality, the app made the decision for us."

Greater business gains are likely to come from existing customers. This year, credit-card company Visa plans to augment its existing Oracle Financials applications with new account-management and business-intelligence capabilities. "My priorities are to continue to leverage the Oracle infrastructure and add more functionality," says Gretchen McCoy, senior VP of Visa's global business solutions. Visa is implementing Oracle's Accounts Receivable applications module, and it recently signed a contract with Oracle to build what McCoy calls a semi-customized billing application for its 21,000 member banks. Visa is also considering an Oracle travel and expense app.

Oracle isn't the only vendor benefiting from adding functionality to existing suites, AMR's Shepherd says--most full application-suite vendors are selling more to existing customers that want to cut costs, complexity, and integration woes by consolidating all apps on one vendor. "While Oracle will grow over the next quarter faster than the market as a whole, the same is probably going to be true for the Oracle competitors, but I don't know that we'll see that for the smaller vendors," he says.

SAP also expects to get more business from existing relationships and going after smaller competitors, the company projected last week when it reported preliminary fourth-quarter net income of $508.9 million on $2.4 billion in revenue. Tighter operations are credited with boosting net income 49% compared with the same quarter a year ago; revenue slipped 2% compared with a year ago.