At the highest level, Oracle and IBM have similar strategic priorities, in line with the Innovator’s Dilemma/Innovator’s Solution issues I keep mentioning. That is:
- Oracle and IBM sell mainly to large enterprises with complex IT needs.
- Oracle and IBM sell mainly to their respective existing customers.
- Oracle and IBM are looking to preserve and expand revenue, margins, and share-of-wallet at those large existing customers.
- Oracle and IBM rely on and encourage customers’ desire to consolidate purchasing among as few vendors as possible.
- Technical implications include:
- Oracle and IBM invest in features that only large, complex enterprises care about.
- Oracle and IBM offer many kinds of technology and services, which they strive to make work fairly well together.
Of course, there are major differences in the two companies’ product and service portfolios. Some of the biggest are:
- Oracle is still young and focused enough to be named after its flagship product. IBM has been a diversified supplier for longer than anyone can personally remember.
- Accordingly, Oracle is making a serious effort to integrate most or all of its products into a more or less coherent whole. IBM has so diversified product portfolio that such an effort would be hopeless, a point it sometimes even seems to realize.
- IBM has been a/the leader in computer hardware for as long as there’s been such a business. Oracle recently bought one of the more accomplished — but ailing — hardware also-rans.
- IBM is a leader in various software categories where Oracle either doesn’t contend, or else is focused only on Oracle environments. But Oracle, unlike IBM, is a top-two player in enterprise applications.
- IBM has remained more aggressive in professional services than Oracle has.
But while the two companies’ histories and specific choices are different, their general strategies are quite similar.
Now let’s drill down on the part about selling mainly to their existing customers.
- To some extent, it’s a tautology; given Oracle’s and IBM’s overall market share, most large enterprises are their “existing customers” in some sense.
- But further, Oracle and IBM are focused on selling to their major, committed existing customers. Even those bases are large fractions of the market.
- Ripping out an existing system is forbiddingly hard, except at two extremes:
- Simple upgrades that don’t change significant application functionality. (New releases, virtualization/consolidation, etc.)
- Major functionality upgrades that require something new, and offer a large payback to justify the effort.*
*Even then, certain classes of system tend to stick around in some guise. In some product categories, true rip-and-replace is very rare.
Combining these points, it would make sense that:
- The worst thing that can realistically happen to IBM or Oracle is losing out on new projects at existing committed customers.
- The simplest path to profitable revenue growth at IBM and Oracle is winning new projects at existing committed customers.
For example, in the DBMS category:
- Only a small fraction of DB2 or Oracle transactional databases are ever shut down.
- The same goes for DB2 or Oracle data warehouses.
- Even so, IBM and Oracle have come under huge competitive pressure in analytic DBMS for new projects, from Teradata (over several decades), Sybase IQ (ditto), Netezza, Vertica and others. Responses included Oracle’s creation of Exadata and IBM’s acquisition of Netezza.
It’s been ages since I talked with an enterprise considering a first-time purchase of Oracle or DB2 … or that I’ve advised an enterprise to make one. If you’re not already an Oracle or DB2 user, then you’re likely to find those products to be expensive and complicated.
However, suppose that in fact you already are an existing user. Then:
- You may well have some kind of volume purchase agreement. Hence, the product is cheaper for you than it would be for a new user.
- You surely have expertise in how to use and administer it. Hence, the product is simpler for you than for a newcomer, and hence has a lower TCO (Total Cost of Ownership).
So there’s a fighting chance that your best course is to buy more of what you already have. What’s more, suppose you really are better off with something more modern — well, Oracle owns MySQL now, and IBM will gladly sell you some Netezza.
Truth be told, I think large vendors focus on their existing customer bases even more than they should — sometimes consciously, sometimes otherwise. But I’ll defer spelling out that argument until another time.