On Thursday Oracle, one of the strongest enterprise software vendors, reported weak earnings, as reported by The Wall Street Journal. Most troubling is Oracle's first year-on-year decline in new software sales in five years, with license revenue falling by 3 percent from 2007.
Some of Oracle's struggles relate to a strengthening dollar, as CNET suggests. But with more than half of its revenues coming from maintenance, Oracle needs to forage for new customers paying for new license deals, rather than simply consolidating the industry to buy its way into new customers.
In short, Oracle needs to expand its open-source strategy.
By this I'm not referring to Oracle's work with open-source projects. Though I've harshly criticized Oracle on this score in the past, Oracle contributes significant resources to advance a range of open-source projects, as it details in its "Oracle Corporate Citizenship Report 2008" (PDF):
Oracle provides choices for end users to achieve flexible and low-cost computing. It invests significant resources to develop, test, optimize, and support open source technologies such as Linux, Xen, PHP, Apache, Eclipse, SASH, Spring, Berkeley DB,
and InnoDB. Hundreds of Oracle engineers participate in open source communities and develop code that is freely available.
In fact, the open-source Xen virtualization project announced Oracle as an advisory board member on Thursday, an important step for Oracle. In this way and others, as The 451 Group recently noted, Oracle is becoming a better open-source citizen.
But this all relates to development, and the open-source strategy that Oracle additionally needs to adopt is one focused on distribution. Open source is a far more efficient distribution methodology than traditional proprietary software models, which depend upon a long and expensive sales process. In the case of my company, Alfresco, we routinely close six-figure deals...over the phone...with a relatively junior inside sales force...in 60 to 90 days. (In fact, our average sales cycle is 68 days.)
Open source offers Oracle and other vendors an efficient way to discover new customers at low cost. It is not a prescription for poverty, either: IBM uses open source offerings like Apache Geronimo to get new customers in the door, then upsell them on more expensive, proprietary offerings like WebSphere. There's no reason that Oracle couldn't do the same, rather than playing high-cost customer ping-pong with SAP.
Open source is increasingly a capitalist's game, which should make it a perfect fit for the uber intelligent and aggressive Oracle culture. If I'm Larry Ellison reading the earnings report tea leaves, I'd be seeing opportunities to discover new customers with open source.