Oracle Keeps Plugging Away at Office Software

The company releases a second version of its suite competing with IBM's Lotus and Microsoft's Exchange.
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Almost a year before

Oracle

(ORCL) - Get Report

set its sights on buying

PeopleSoft

(PSFT)

to boost its lackluster applications business, it challenged two other formidable competitors --

IBM

(IBM) - Get Report

and

Microsoft

(MSFT) - Get Report

-- in another application arena.

Analysts initially had their doubts about Oracle's plan, unveiled a year ago, to take on the two behemoths with a new product that manages email, calendaring, voicemail and other applications in a single underlying database. But as Oracle prepares to release the second version of Collaboration Suite, analysts now say the company may have seized a new opportunity, though it's unlikely to be the gold mine Oracle needs to return to high growth.

"This notion that companies like Oracle have to have more products to upsell to keep revenue growing is a really strong reason Oracle is selling this product," said Joshua Greenbaum, a principal and technology consultant with Daly City, Calif.-based Enterprise Applications Consulting. Greenbaum called that opportunity to upsell Collaboration Suite to Oracle's base of thousands of customers "enormous."

But "my bias is that technology like Collaboration Suite is interesting but not essential," Greenbaum added, explaining that he doesn't see enough differentiation among applications, such as email, to prompt a major migration to Oracle.

The latest version of Collaboration Suite, release two, is scheduled for Monday and includes one major new feature -- Web conferencing. With that addition, Oracle is also taking on the likes of

WebEx Communications

(WEBX)

. Since its first release in September, Collaboration Suite has signed up more than 500 customers, who together have purchased more than 1.5 million seat licenses.

But that's still small potatoes in the scheme of Oracle's overall revenue -- not to mention in comparison to Microsoft Exchange's estimated 90 million to 100 million users. Oracle would not disclose how much revenue has been generated by Collaboration Suite. But consulting and market research firm The Radicati Group has estimated the average seat cost at roughly $65. Multiply that by 1.5 million seats and the total revenue comes to almost $100 million -- about 1% of the $9.5 billion in revenue reported by Oracle in fiscal-year 2003.

To be sure, Oracle still has only a tiny piece of the market, estimated by IDC to total 250 million users. IDC forecasts the collaborative application software market will be worth $4 billion in 2003, according to Mark Levitt, research vice president of collaborative computing.

Oracle cites Gartner figures saying it will have 20% of the market by 2007. The market is largely mature, so assuming no growth (which is probably overly conservative), 20% market share could amount to $800 million -- still just 8.4% of Oracle's current revenue in 2003.

Levitt characterized the collaborative application software market as a "zero sum game." "They have to steal business away from Microsoft or IBM or

Novell

(NOVL)

," he said.

There are a couple of things going for Oracle to enable it to accomplish just that, Levitt acknowledged. First, Microsoft customers are in the middle of a product upgrade. As they weigh upgrading to the newest version of Microsoft Exchange Server, they could decide to go with Oracle instead.

If a company already has other Oracle products, it might switch to Oracle Collaboration Suite from Microsoft Exchange or IBM's Lotus Notes because the same staff assigned to an Oracle database for customer-relations management, for instance, could also handle email and voicemail in Collaboration Suite, Levitt added. In addition, Oracle cuts down on the number of servers needed to handle email.

Finally, Oracle's average cost per seat of nearly $65 is less than half the cost of IBM, estimated at $151, and Microsoft, at $221, according to Sara Radicati of The Radicati Group. "Obviously, it is too early to say if they will really grab a major chunk of the market, but there is some very strong interest," she said.