The great divide: Is market consolidation creating super-corporations?

Having already acquired PeopleSoft and Hyperion Solutions, the agreement with BEA pushes Oracle further into the middleware market. As the vendor develops a stronghold in the business software sector, the fallibility of its ‘acquire everything’ strategy has been put into question.

“I believe they will continue to acquire technologies,” said Ullrich Loeffler, team leader Software Research, IDC Pacific. “The consolidation of the market is more or less a platform to provide an end-to-end solution. There are some customers looking for a one-stop-shop, while others prefer a best of breed solution.”

According to Loeffler, the gap between large enterprise and the smaller players in the Australian channel is widening. He claimed there are opportunities at the lower end of the market, however a trend is emerging whereby these businesses are being snapped up by fat cats like Oracle as soon as they establish a presence in their respective sector.

“There are lower end opportunities for smaller companies that can provide the missing links in Oracle’s portfolio and bring them a step closer to providing an end-to-end solution,” said Loeffler.

Looking ahead, Loeffler predicts that Oracle will continue to acquire new technologies and the Australian market will consolidate further. He anticipates Business Intelligence as well as technology relating to architecture and automation to be hot trends this year that Oracle may choose to expand into.

“Oracle has a strong presence in the database market, it has expanded into middleware and now it may go further into the application space,” he said.

Not all analysts are of the same opinion. Many are skeptical whether Oracle can maintain this buying spree.

“That’s it, they’re about done,” said Pat Walravens, analyst, JMP Securities. “At some point they’ve got to start delivering on the dream, and the dream is ‘We’re the only vendor with a [software] stack, and because of that more people are going to buy our stuff.’”

Although past acquisitions have served the vendor well and helped boost Oracle revenues by 36 percent in 2007, as the market stabilises and key players cement their place in it, a more sustainable strategy may be required.

“You get to a point where there’s no way to make a sizable acquisition to get bigger,” said Ian Finley, analyst, AMR Research.

The one area that Finley sees acquisition opportunities for Oracle is in security software. However, he added “there isn’t a BEA equivalent, but there are lots of little companies they could acquire.”

At Cowen & Co., analyst Peter Goldmacher acknowledged that BEA is “sort of the last of the big deals,” however he added that, “it doesn't mean they don’t necessarily have room to move into new markets.”

Analysts do agree that a slow down in the growth rate of the market will not significantly affect Oracle. So it appears the vendor may stick to a good thing for now and continue to acquire companies that can contribute to the Oracle portfolio.

“I would be surprised if they didn’t continue with this strategy in 2008,” said Loeffler.

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