Oracle shoots for the middle

Even as Oracle battles for control of applications provider PeopleSoft, it has been investing in internally developed products, specifically in middleware--the back-end server software used to build and run business applications. The company's strategy is to build a comprehensive line of infrastructure software in an effort to better compete with specialist providers and industry heavyweights.

Next month, at its Oracle OpenWorld customer conference, Oracle will announce a content management server, company executives told CNET News.com. The initiative, code-named Tsunami, is meant to build on Oracle's existing database business by providing a specialized server for handling the reams of business information that are stored in document form, such as e-mail, spreadsheets and text documents.

Also at the conference, Oracle will discuss a revamped application server software suite, which will include a refreshed integration server, according to the company. Oracle will start selling various editions of its Java-based infrastructure software in an attempt to give customers more flexibility to combine individual software components, executives said.

Oracle's middleware business accounts for a small fraction--less than 5 percent--of the company's overall revenue. But regardless of whether it succeeds in acquiring PeopleSoft, building out a complete "stack" of infrastructure is vital to Oracle's long-term prospects, analysts said. Increasingly, corporate customers are looking to purchase larger "stacks" of middleware products from fewer suppliers.

"Plugging in technology that mortars the cracks in their stack--that's a good use of time and money and at a lot lower risk," said Charles Di Bona, an analyst at Sanford Bernstein.

Di Bona said Oracle's pursuit of PeopleSoft has been a "distraction" from a strategy of expanding its middleware line.

The middleware field encompasses all types of infrastructure software and tools for building business applications, such as portals and databases. These high-end products are typically purchased by central IT organizations and used by the programmers and administrators who build and maintain business systems.

The multibillion-dollar field is dominated by industry heavyweights such as IBM, Oracle, Microsoft and BEA Systems. Each provides a full suite of server software, rather than a single application server product, in an effort to provide corporate customers with a "one-stop shop." Open-source middleware "stacks" are also developing quickly.

Oracle sees server software, notably its application server and collaboration suite, as a natural extension of its database business, where it already has a large customer base.

Oracle "owns the machines that run the database--you dominate there," said Amlan Debnath, Oracle's vice president of server technology. "It's also important to own the footprint on machines that run applications...the so-called middleware layer."

Oracle was relatively late to the game in the application server field, but it's ramping up in that area. Earlier this year, the company said it would double its sales force of people selling its application server to about 420 people.

Di Bona said Oracle still has a way to go before it catches up with market leaders. "Its (application server) is used, but I don't think it's a marquee name in that space yet," he said. "They need to address that internally or through acquisition."

Di Bona recommended smaller purchases, rather than large multibillion-dollar deals, which he said have a poor track record for success, especially in software. During a court challenge to the Department of Justice's antitrust ruling against the PeopleSoft takeover attempt, Oracle disclosed that it was considering buying BEA Systems, a billion-dollar Java middleware provider.

Later this year, Oracle is expected to announce more targeted bundles of its application server line. One person familiar with the company's plans said Oracle will introduce five new stand-alone editions called Business Intelligence, Integration, Identity Management, Portal and Forms. These new packages will complement existing products, including Standard One edition, which is aimed at smaller organizations, and a Java edition

As part of the repackaging effort, Oracle is expected to alter its pricing. The company currently charges $20,000 per processor for the enterprise edition of its application server, which includes an application server, a portal and integration software. Oracle will charge $30,000 per processor for a new product called Integration edition, according to one person familiar with Oracle's plans.

The revamped Integration edition, which is currently being tested, will include different integration-related products, said Oracle's Debnath. He said it will have software specifically designed for business-to-business information sharing, along with an integration "broker," a product built on Java messaging standards and XML and called an "enterprise service bus" by some Oracle's competitors.

The new Integration edition will introduce a unified set of design tools that let programmers create applications for any of Oracle's server software components, including the application server and portal, Debnath said. The bundle will also have so-called business activity monitoring tools for gathering information on the progress of an application's operation, he said.

Oracle's content management product is built on the company's application server as well as its database. The product will have the same architecture as Oracle's Collaboration suite, an offering that includes e-mail, Web conferencing and other collaboration tools, said Rich Buchheim, senior director of Oracle's enterprise content management strategy.

With it, Oracle is trying to create a content management product "for the rest of us," Buchheim said. He said existing enterprise content management products are either too simple for large-scale corporate use or focus on the specialized needs of a relatively narrow set of complex applications, such as the drug approval process in the pharmaceutical industry.

Rather than target these high-end applications--where only specialists within a corporation are trained on the document software--Oracle is designing its content management tools for general use by thousands of people. The company will price the tools aggressively, Buchheim said.

Oracle is already ramping up its sales force to sell the content management software, which the company sees as a natural extension of its database business, said Robert Shimp, Oracle's vice president of technology marketing. Oracle's relational database is used to store data and handle transactions, and its content management suite can be used to store and manage "unstructured" data, such as e-mail, Web pages and documents.

"Our competitors, especially Microsoft and IBM, have stated strong interest but have stumbled out of the gate with either poorly scaling products or overly complex ones for specific industries," Shimp said. "We see it as a tremendous opportunity."

Alan Pelz-Sharpe, an analyst at research company Ovum, said he expects Oracle's first content management server to be released in the first quarter of next year as part of a major upgrade to Oracle's collaboration suite.

"I think this is a good move for them," Pelz-Sharpe said. "The issue is convincing the Oracle sales force that this is really the next big thing. The sales force understands transactional data--they don't understand this world."

Indeed, being a newcomer to the content management field could be a challenge to Oracle. Established companies include specialists such as Interwoven; Documentum, which was acquired by EMC earlier this year; and Open Text. IBM and Microsoft are pushing into content management as well.

"We rarely find customers that make the connection between Oracle and content management," said Seth Feeley, vice president of sales at Cintra, a systems integrator that works with Oracle software.

Oracle's overall middleware push--connected with its application server and collaboration suites--is meant to provide customers with a broader portfolio of back-end software and, as such, compete more directly with IBM and Microsoft. But that expansive product strategy could have its limits, even if Oracle succeeds in its acquisition strategy, said Pelz-Sharpe.

"Oracle has a lot going on, and although they are a big company, at the end of the day they are not IBM and not Microsoft," he said. "So they do need to focus."