Will customers buy into Oracle's modern-day mainframes?
How about that stack, Larry...
Oracle is making a big play to cash in on the simplification of enterprise IT environments with "engineered systems," the collection of vertically integrated appliances that debuted five years ago with Exadata.
While Oracle insists customers who enter into the Big Red cocoon will reap all kinds of benefits, some may be hesitant to buy into Oracle's one-throat-to-choke mainframe model.
Oracle's engineered systems are like modern-day mainframes. They include all the hardware-like processors, memory, spinning hard disks, flash-based hard disks, Infiniband connectors, and power cords and the software like kernels, operating systems, hypervisors, file systems, databases, middleware, management tools, and applications - all in one handy dandy container.
The IT giant says its engineered systems are "pre-integrated at the factory" in Oregon, where they're assembled using "best of breed building blocks".
While the hardware is mostly industry standard and commodity level, Oracle says its "secret sauce" is the design that goes into engineered systems, which are, in effect, private cloud platforms that Oracle will service and maintain for customers through a single "premiere" support agreement.
Since there's no need to cobble together IT pieces from different vendors, there's less validation and testing work involved, and future software upgrades are less likely to topple what would normally be a system very sensitive to change.
Patches are applied automatically by Oracle once a quarter. They also feature automated error detection at multiple levels of the stack, just like IBM mainframes, and a five-minute response time commitment from Oracle.
Best of breed
"We're taking those best of breed parts and vertically integrating them," Oracle president Mark Hurd said recently during an interview with Independent Oracle Users Group.
"We do that to deliver extreme performance and total cost of ownership. We design the technology explicitly for the stack. We fine tune it. We optimise it across all of those layers so that we can deliver better performance, better reliability, better security… more manageability, etc."
In an industry that breeds complexity, this mantra of simplifying enterprise IT components has a powerful appeal. And to be sure, Oracle isn't the only system vendor taking such an integrated approach. IBM, HP, EMC, NetApp, Cisco, and Intel all have irons in the consolidated server fire, which Gartner predicts will account for 35 percent of server sales (by revenue) by 2015.
Trends are cyclical in the IT business. Mainframes were supposed to die off 20 years ago, when the rise of the PC-led organisations to distribute IT processing capacity. Now organisations want to centralise IT processing again, hence the shift back to the mainframe model that made IBM a ton of money between the 1960s and the 1990s.
"Oracle's strategy, at the end of the day, is they want to be IBM," says R "Ray" Wang, principal analyst and CEO of Constellation Research. "On the high end, there's only a few players left [in the mainframe business], and IBM is one of them. And Oracle is going to be the other one if they keep doing what they're doing."
Do the sales numbers bear them out?
During the second quarter of fiscal 2012, the company says it sold 700 all-in-one servers, a 70 per cent increase over the previous quarter. Most of this is probably the five-year-old Exadata database appliance, but Oracle didn't break down the numbers.
Sales of Exalogic, which was designed and tuned to run Oracle Fusion middleware and Java applications, is also basically doubling every quarter, according to Oracle. Exalytics, which is pre-tuned at the factory for analytic workloads, was just released at the end of 2012.
The smaller Oracle Database Appliance is making headway with smaller customers, but the three other systems - Oracle Big Data Appliance, the ZFS Storage Appliance, and its latest Sparc T4-4 SuperClusters - have yet to make a big splash.
Engineered systems: a possible turnaround solution
The company is betting heavily on its engineered systems to turn around its hardware business, which has dropped precipitously since it acquired Sun Microsystems. While some of the components are there, especially around database, storage, and clustering, it still has some work to do with Fusion middleware and Fusion applications, analysts say.
When the stack is built out, it could be extremely lucrative for Oracle, which is banking that the "attach rates" of software, support, and service deals that go along with engineered systems sales will drive a lucrative, long-term stream of maintenance revenue. And that, of course, is where the real money is for Oracle, which recognises nearly half of its total revenue from software maintenance and support.
The benefits of engineered systems are clear for Oracle. As customers entrust more of their enterprise IT stack to Oracle, the California-based company benefits through growth in its high-margin maintenance revenue stream. It gets a shot at replacing HP, IBM, and Dell gear in Fortune 500 accounts that already run its software, and consolidating its footprint. It's a big time mainframe play, with a 21st century cloud twist.
But the benefits to customers are not as clear. Oracle contracted the Edison Group last year to write a whitepaper that tries to quantify some of the customer benefits of taking a vertical stack approach. In the paper, titled "The Optimized Stack: Reducing TCO through Vertical Integration," Edison compared Oracle's pre-integrated two-socket and four-socket servers against similarly equipped servers from HP and IBM.
Edison concluded that the three-year total cost of ownership of Oracle's two-socket machine was 61 percent cheaper than the TCOs of HP and IBM servers.
The bulk of the savings came from lower licensing and maintenance costs for the operating system and hypervisor components of Oracle's systems (Oracle Linux and Oracle VM) compared to the IBM and HP servers, which used Red Hat and VMware.
"On a two-socket system, these two expenses alone [OS and hypervisor] can represent as much as 71 per cent of total TCO over a three-year period," the report states. "Why pay for virtualisation when it comes for free?" Oracle asks in its brochure.
However, it's unlikely that bundled price savings alone will entice customers to adopt Oracle's engineered systems. Despite the sales pitch, Oracle isn't giving away its Linux OS and hypervisor software. Big companies never pay list price, especially when buying from Oracle, so it's not fair to assume they wouldn't bargain with Red Hat and VMware for better terms.
Industry observers say the biggest challenge that Oracle faces with engineered systems is convincing customers that putting all of their enterprise IT eggs in Oracle's basket is a good thing.
"The danger is, it's one throat to choke, and you're becoming more and more dependent on Oracle," says Wang, CEO of Constellation Research.
"Oracle wants to be able to get to this point where customers are saying, 'Look, you're already a super strategic supplier to us' and here's what you do.' [But] it'll make it harder to get off, because everything is there at the infrastructure layer."
Wang says the customers who are most receptive to "one throat to choke" are Oracle's die-hard Red Stack fans who face huge integration headaches and costs.
"These folks are never going to leave Oracle,” he says. "They started with a database. They adopted the financial apps and then they bought the middleware. For them now, it's a complete IT consolidation play. Soup to nuts, these are die hard fans, and they're saying, 'Oracle, thanks for putting this all together. We're eliminating five other vendors, and delivering it for less than the cost of five other vendors'."
But what do the acquired customers think of the lock-in?
Less receptive to the engineered systems approach are customers Oracle obtained through acquisition.
"These guys say, 'I bought the best of everything. There was a reason I wanted Sun or I wanted IBM or HP,'" he says. "Then Oracle comes in, like a rude guest, and says, 'Oh, by the way'."
"That vendor lock in is scary," says a former VP in Oracle's engineered systems program, who asked not to be named in this story. "I don't think that's any customer's real desire. To be locked in scares customers in a significant way. They want to have strategic partners. They want somebody who understands all the different components in a highly virtualised, highly heterogeneous environment. [They don't want somebody] saying 'Hey everything has to be a Red Stack or a Blue Stack.'"
The most likely Oracle customers to give engineered systems a try are net-new customers, and those ready to make the move to Oracle Fusion Apps. After all, two-thirds of Fusion Apps deployments are being made on Oracle's cloud, which is composed in part of engineered systems.
But there are only 400 Fusion Apps customers out there, compared to tens of thousands of E-Business Suite, PeopleSoft, JD Edwards, and Siebel customers. These are the customers that Oracle needs to adopt engineered systems, but don't expect rapid adoption.
Whether it's fair or not, Oracle has a reputation that precedes it, and the question of lock-in is not something to be taken lightly. While it backed off its initial plan to eventually consolidate its business apps on Fusion when Fusion launched in 2005, it has ruffled the feathers of some of its acquired customers, notably JD Edwards EnterpriseOne customers who run their ERP on IBM fully integrated Power Systems (AS/400) servers.
In 2010, Oracle announced that, at the end of 2013, it will no longer sell the Blue Stack of software (WebSphere and DB2) needed to run the ERP system on IBM gear, and from September 2016 will no longer take support calls for Blue Stack software issues. This is a powerful incentive for EnterpriseOne customers to move to Oracle's stack.
JD Edwards and PeopleSoft customers will approach the consolidate Oracle stack slowly and cautiously, says Jeff West, the president of the Quest International Users Group. "Replacing any or all of the components can be expensive for existing customers and has to be weighed against the potential benefits of a unified Oracle stack," West says.
Existing customers probably won't consider the engineered systems approach until their next hardware refreshes and system upgrades, he says. "For net new JD Edwards or PeopleSoft customers, the value proposition may be slightly better and an easier transition to make since they are already making a sizeable investment in a new ERP and may be able to realise the unified stack benefits quicker," he says.
Oracle has the size and funding to play the long game with engineered systems. That may actually benefit its enterprise software customers, which are stretching their system upgrade cycles to five years and beyond, and like making strategic architectural decisions about as much as a root canal.
"Whatever evil image of Oracle people have, they're not forcing customers," Wang says. "Oracle is one of the few [tech] companies with a big R&D team. They're actually developing and building. Other people buy companies and don't build on top of them. They just let them die.
"Whether you're looking at cluster or storage, or looking at the database appliance or Exadata, what Oracle is really saying is, 'Look, we're just dropping these in for you. And if you're not getting cost savings, nobody would buy it to begin with'."
The Register approached Oracle to comment on this article, but it was unable to respond by the time of publication. ®