Oracle Aims to Make $1 Billion With New Outsourced Services

Adam Eisner, theWHIR.com

April 8, 2002 -- (WEB HOST INDUSTRY REVIEW) -- Last year, Oracle CEO Larry Ellison made headlines when he said his company saved a billion dollars by improving internal processes and implementing its own software suite.

Now the company is talking about that magic figure once again - but instead of saving it, the company is aiming to make it by offering a full line of outsourced services.

With a little bit of work, Oracle believes it can turn its new outsourced services suite in to a billion dollar business over the next few years.

Paige O'Neill, Oracle's senior director of online services marketing, says the billion dollar target was first set by CFO Jeff Henley during an analyst day in late march. "He thinks that we could convert 25% of our customers to outsourcing over the next five years, and that it could be a billion dollar business for us in that time frame," she says.

Most firms currently implement Oracle's software products, which provide companies with information management software, on their own IT systems. However, last week they said it would offer a full range of outsourcing services to Oracle clients that serve the company's popular database platform as well.

This means Oracle clients can now implement most of the company's offerings in three different ways: on an ASP basis, whereby Oracle serves its software from its own secure data center in Redwood Shores, California, and connects the client via a secure VPN; in a client's own data center; or in an approved third-party data center.

O'Neill says because customers have been able to use Oracle's outsourcing services for a limited number of the company's software suites previous to last week's announcement, Oracle now has a lot of experience in providing outsourced services. She says it also helped justify the decision to expand its outsourced offerings.

"We've actually been offering our e-business suite of applications outsourced for the last three years," she says. "We've been doing that for some time now, and it's continued to gain more and more traction."

O'Neill says that while the company has considered offering a broader range of outsourcing services for a number of years, things only reached critical mass a few months ago when demand began to pick up, and the company was able to fully determine customers could see great cost benefits through outsourcing. "We've suspected for years now that because we have the expertise to manage our own software that it would translate to savings across the board for customers," she says. "But now we're starting to come out with detailed cost savings."

The company says 200 "early customers" that outsourced their Oracle database software to the company have seen an average reduction of 46 percent in IT costs. O'Neill says one of the biggest benefits for companies comes in the area of staffing, as most mundane administrative tasks are now taken care of. "When we look at the breakdowns that companies give us... it always comes down to the routine maintenance, administration, upgrading, support functions - and that's all of the people functions," she says. O'Neill says early indications are that outsourcing to Oracle's can even change the face of a company's staff. "There's a whole new type of employee that's emerging within these companies that are going with the outsourcing model," she says. "The expertise that they need to do the job is completely different."

Oracle also reports that outsourcing customers are getting problems resolved 50% faster, and that the company can now often identify problems before the customer may even be aware of them. "The message that we want to send out to customers is that Oracle outsourcing can lower their IT costs, improve their employee productivity and... speed [up] their product support service," O'Neill says.

As the company looks to improve productivity and support for its customers through outsourcing, Oracle also realizes it could potentially have a big impact on the company's bottom line - a billion dollars is nothing to scoff at. As a result, the company believes its outsourcing proposition is mutually beneficial. "We really see this as something that is important for our customers," O'Neill says. "It's also a potential big source of future revenue for Oracle."