Sunday, February 13, 2005

Oracle's new reseller strategy and speculation on the future of JDE

Details are emerging on Oracle's new reseller program, which is of great interest to the 40 resellers of its combined products. Furthermore, it has important implications for the future of the J.D. Edwards products.

But first, some background. Oracle held a big partner meeting at the Moscone Center in San Francisco on January 29-31, and here's the bottom line, based on discussions with several individuals who were there: Oracle is building a reseller channel for its E-Business Suite and wants to strengthen the existing reseller channel for the JDE products. There will be no resellers for the PeopleSoft products, and Oracle's direct sales force is being discouraged from selling them, except in a few specific industries.

Key elements of Oracle's reseller strategy
Oracle does not seem to have made any public announcements about this yet, and might choose not to do so. Nevertheless, here's what I've been able to piece together:
  1. Oracle has signed up 16 channel partners that are allowed today to sell Oracle's E-Business Suite to companies up to $75M in annual sales. Starting June 1, the bar will be raised to $100M. These resellers are authorized for specific geographic territories, which avoids conflict between resellers.

  2. The 24 JDE partners that PeopleSoft kept on board will continue to be allowed to sell the JD Edwards products (Enterprise One and World), to companies under $100M in annual revenue, which was the bar that they've always operated under. However, on June 1, that bar will be raised to $500M. Unlike the Oracle resellers, the JDE resellers are not restricted by geography, meaning they can hunt for new JDE business anywhere. A few of these partners are also authorized to sell Oracle's E-Business Suite in certain territories to companies under $100M.

  3. Interestingly, the Oracle direct sales force is not allowed to sell the JDE products, except in a few industries where JDE has particular strength over Oracle, such as homebuilders. Otherwise, only the resellers are allowed to rep those products. So, if you are a company over $500M in revenue, you won't be able to buy JDE products, unless you are in a few selected industries.

  4. The local Oracle direct sales force will be compensated on JDE partner sales, however, which will help mitigate the problem of competition between Oracle's direct sales force and the JDE partners.

  5. PeopleSoft, prior to the JDE acquisition, did not have a reseller channel, and Oracle does not intend to create one. So, if companies want to buy PeopleSoft applications, they will have to go direct to Oracle. However, Oracle has previously announced that it will steer new prospects away from PeopleSoft applications in favor of Oracle's E-Business Suite. Oracle is now making a few exceptions to this policy, in industries where PeopleSoft is particularly strong, such as higher education.

  6. For JDE Enterprise One customers that are not running on Oracle technology (i.e. those running on Microsoft SQL Server, or IBM's iSeries), Oracle wants the resellers to "nudge" them toward Oracle's database and middleware. No surprise here, and I predicted this would be a key objective in Oracle's acquisition of PeopleSoft.

As a side note, individuals who were in the partner meeting were surprised by Oracle's evaluation of its product strengths versus those of PeopleSoft and JDE. For example, Oracle initially indicated that its own HR applications were as good as PeopleSoft's, and that Oracle's offerings for the engineering and construction industry were as good as JDE's. The partners, many of whom have deep real world implementation experience, scoffed at both assertions. One source told me, however, that Oracle's position seemed to soften toward the end of the partner meeting, indicating that they are working things out as they go along.

Assessment of Oracle's reseller approach
Oracle is notorious for poor channel relationships, changing partners and strategies at the drop of a hat. It was just a few years ago, after all, that Oracle had partners reselling its applications to small and mid-sized businesses. Around 1999, Oracle suddenly decided to switch back to a direct selling model and put many of those resellers out of business or forced them to find something else to sell. Now it has decided that resellers are the way to go: a six year pendulum swing. To be fair, Oracle indicated in the partner meeting that it is aware of its poor reputation for partner relationships and wants to do better in the future.

On the other hand, if Oracle can build and maintain the channel relationships that it has, I think it has a winning strategy in place. I especially like the fact that they are moving the bar up to $500M for the JDE partners. The JDE partners were always chafing under the $100M limit, which left the better deals for Edwards's direct sales force. Moving the bar up to $500M gives the resellers a lot of room to work. Too bad Oracle is not doing the same for its E-Business Suite resellers.

However, there may be problems with Oracle and JDE resellers competing with one another for the same deal. Our consulting firm, Strativa, often short-lists both Oracle and JDE in the same deal, and based on Oracle's apparent interest in selling JDE, we'll continue to do so. But I wonder what Oracle will do in cases where there is an Oracle reseller and a JDE reseller quoting on the same deal. Hopefully, they will let them both chase the deal and let the buyer decide who wins.

Speculation on the future of the JDE products
Putting all of these points together, it's hard to avoid the conclusion that Oracle is making it easy for prospects under $500M to buy either Oracle's E-Business Suite, or the JDE products (Enterprise One and World). But it won't be easy to buy PeopleSoft's Enterprise product. It's not clear why Oracle is treating the PeopleSoft products differently from the JDE products, but here's one possibility: Oracle wants to preserve its option to sell off the JDE products sometime in the future.

Oracle clearly wants to move as many of the PeopleSoft and JDE clients as possible to Oracle's E-Business Suite. Failing that, Oracle would like to "nudge" them to run those applications over Oracle technology. Failing that, Oracle would like them to upgrade to Project Fusion when it is available. Failing that, Oracle will continue to support the PeopleSoft and JDE products until 2013.

However, maybe at some point, Oracle decides that those JDE customers that are not willing to get with the program are worth more to someone else. This would be especially true with the older JDE World product, which runs exclusively on IBM's iSeries platform. At that point, Oracle might decide it would be better for everyone involved for Oracle to sell off the JDE products and the remaining customer base for them.

Now, if Oracle does decide to sell off the JDE business in the future, it will fetch a much better price if there is a robust reseller channel in place. This might explain why Oracle is building the reseller channel for JDE but not for PeopleSoft.

Further bolstering my speculation is the fact that Oracle is reviving use of the J.D. Edwards name, reversing PeopleSoft's move to brand the JDE products as PeopleSoft. Once again, Oracle appears to be preserving a separate identity for the JDE products, which would be important if in fact Oracle ever decides to spin off these products.

If any readers have additional information or corrections regarding what I have outlined in this message, please feel free to leave a comment on this post or email me privately.

Related posts
Oracle to steer new customers away from PeopleSoft products
Oracle: no plan to spin off JDE product lines
Ellison outlines direction for PeopleSoft and JDE product lines
Oracle, IBM, Microsoft battle for technology infrastructure of PeopleSoft customers
IBM is a loser in Oracle/PeopleSoft deal

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