Oracle's ( ORCL) strategy of selling specialized "vertical" applications moved into high gear this week, as the database giant launched a fleet of new programs and asked Wall Street to get on board. At a meeting with investors in New York, Oracle President Charles Phillips said that horizontal applications, such as enterprise resource planning and customer relationship management, now account for only one-third of the market. "Growth," he said, "is coming from industry-specific applications." Applications, fueled by an expensive spate of acquisitions, are already a big part of Oracle's business. In the second quarter they contributed $1.06 billion to the top line, or a bit more than 25% of the company's total revenue. Redwood City, Calif.-based Oracle has reorganized part its applications business around four industry areas -- financial services, retail, communications and utilities -- each with its own sales force and P&L responsibility. Phillips on Tuesday said that Oracle will outflank German software giant SAP ( SAP) by selling more and better industry-specific applications. SAP, the world's largest seller of business applications, has generally stuck with a more typical, horizontal approach. On Wednesday Oracle announced new versions of key applications programs including Oracle's E-Business Suite Release 12, Oracle's PeopleSoft Enterprise Release 9.0, Siebel's CRM 8.0, JD Edwards' EnterpriseOne 8.12 and JD Edwards' World A9.1.
Phillips' pitch and the subsequent product release got a mixed reception on Wall Street. Sanford Bernstein analyst Charles Di Bona said that "while Oracle's strategy may have some longer-term merit, we think the available data, while admittedly incomplete, is not encouraging." According to Di Bona, Oracle applications revenue declined 14.6% in the second quarter relative to the pro forma combination of Oracle's and Siebel's license sales the year before. Oracle management, he said, "explains this discrepancy as the result of temporarily depressed revenues from the acquisitions as they recover from drained pipelines and implement new, stricter revenue recognition policies." Di Bona, whose company does not have an investment-banking relationship with Oracle, concedes that the argument may have some merit, but adds that "the company does not currently provide any supporting data." Other analysts, including Kash Rangan of Merrill Lynch and Peter Goldmacher of Cowen, were more positive about the plan, but shares of Oracle slipped 11 cents Tuesday, and in recent trading Wednesday they were off 17 cents to $16.99. Merrill Lynch has an investment-banking relationship with Oracle; Cowen does not.