Last Thursday Oracle reported its Q3 2010 results and continued its strong performance trend. Generally for Oracle Q3 is somewhat weaker from a seasonality perspective but the Oracle team delivered a strong quarter with results that seem to indicate they are pulling out of the recession faster than many competitors. Showing growth both in new licenses (up 10% y/y excluding Sun) and overall revenue (up 7% excluding Sun) Oracle's field continues its strong execution focus. Overall new license growth was distributed regionally with the Americas growing 22%, Europe 3% and Asia / Pacific at 12%. Database / Middleware new license was up a total of 11% y/y with the Americas growing at 20%, Europe at 2% and Asia / Pacific at 9%. Applications was up 21% y/y with the Americas growing at 26%, Europe at 7% and Asia / Pacific at 29%. This particularly strong showing in Apps seems to indicate both that there was some typical end of year effect from customers as well as an overall strengthening of software spend.
Last year was tough for all the on premise and hybrid software companies. In general Cloud apps companies held up exceptionally well as customers shifted spend to non-capital intensive investments and as Cloud adoption moved mainstream. All of these Cloud apps companies though are working off a much smaller base revenue number than mega-vendors like Oracle. Oracle proved that the hybrid model could perform well in a down economy as well. At IDC we track performance on a calendar basis and just finished updating vendor performance. For Oracle the 2009 calendar year was slightly negative for apps (~ -2%) and slightly positive for database and middleware (~ +2%) to end up overall slightly up in total revenue (total almost $20B) for the year.
So why did and does Oracle's apps business continue to be strong when other apps competitors are struggling? I believe that several factors are responsible:
- Oracle's broad product portfolio, leveraging something like 61 acquisitions in the last 5 years, allows its salesforce to meet a much broader set of needs for its customers so if a market cools they can simply shift focus to more in demand offerings.
- The strategy to acquire / build out deeper vertical product offerings has proven to be one of the biggest strengths of its continued performance and gets much of the credit for new license sales over the last year.
- Oracle's cross sell / up sell strategy is a strong asset as the overall install base grows with every acquisition.
- Three or so years ago the field organization set out to minimize churn and establish a longer term view of managing customer relationships that is paying off with stronger same account sales.
- Oracle's more channel friendly stance over the last three years is producing strong partners who are growing their business.
- The On Demand business is getting much more attention and is growing in importance in the overall strategy.
This year should continue to be strong for Oracle's apps business especially as the new Fusion applications roll out mid-year. In the earnings call Oracle CEO Larry Ellison validated that the Fusion apps (which were built with multi-tenancy capabilities) will be available in both on premise and on demand offerings from launch. I've previously talked about the strength of the offering and with both delivery models available I believe Fusion apps have the potential for good upside to its apps business over the next few years.