Oracle Chairman and CTO Larry Ellison turned what was expected to be a routine announcement of the latest generation of Oracle/Sun Microsystems X5 Engineered System last Wednesday into a declaration of war on EMC and its converged systems partnership with Cisco called VCE.

Oracle will sell its latest generation X5 Engineered Systems hardware, which is Oracle’s term for converged systems, separately from Oracle applications on Linux or Windows at a significantly lower price than market leader VCE’s comparable systems. Ellison announced list prices that are half of VCE’s discounted prices. And he said “We will negotiate. We will discount.”

Ellison also announce an all-flash array that’s part of X5 but sold as a stand-alone unit. Again, the list price is one-third of the price of what Oracle said is a comparable EMC XtremIO array. Significantly, he did not announce a stand-alone server or network switch, although these are also X5 components. While this might seem to indicate that Oracle is not going after Cisco Systems, Ellison took aim at Cisco as well, saying Cisco has done well in the market for integrated systems and Oracle believes it can do better.

Always an industry shark, Ellison clearly sees EMC’s large storage installed base within Oracle shops as a lucrative opportunity.  He is not alone. IBM, Hewlett-Packard Co. and upstarts like Pure and Violin have been attacking EMC with all-flash arrays in the latest attempt to gain share against the dominant market player. As the industry transitions from spinning disk to flash, EMC has the most to lose, which is why the competitors are licking their chops. EMC, for its part acquired XtremIO, an Israeli-based all-flash startup which has allowed EMC to take a leadership position in this emerging space (according to Gartner and others).

So far, Oracle’s never been perceived as an aggressively priced competitor. In contrast, Oracle claims its pricing is very aggressive in both flash arrays and converged systems,  and Ellison repeatedly referenced his technology’s superiority to EMCs, a common theme with Oracle announcements. The new products are available immediately.

Market Disrupter

With a high-quality reputation and low-price strategy, Oracle is seeking to commoditize the converged systems and all-flash array markets at a stroke. By making price a major factor in purchase decisions, Oracle is seeking to force CIOs who do not include the company’s hardware in RFPs to have to answer to their CFOs.

This is a huge threat to VCE and EMC in particular, but also to HP. It is less of a threat to IBM/Lenovo’s PureSystems converged systems only because those are often sold with the IBM applications pre-installed as a single SKU, which, as Wikibon CTO David Floyer has pointed out, provides differentiated value. In the same way, Oracle’s converged stack running its applications on its middleware on its X5 Engineered Systems provides compelling extra value over a piece-parts system running the same Oracle software on commodity hardware. Ellison promised that Oracle will be the low-cost provider in the converged systems market and that its products will specifically outperform VCE.

This is the start of a price war in the market, and Oracle has an advantage. VCE is fundamentally a hardware company. Oracle makes most of its profits from software.  It can afford to sell hardware as a loss leader and make its profits on higher level middleware, such as its hypervisor, and on its software licensing.

Furthermore, the Oracle X5 systems will likely deliver higher performance because they are based on Solaris RISC processors that are much faster than the Intel processors in the VCE, HP and lower-end IBM PureSystems products. They have all-flash disk drives, and all internal networking is via Infiniband, which is the newest, fastest, and most reliable network technology. The network is also software-led, so adding nodes is a matter of making the physical connection and editing the configuration file. External networking to the rest of the data center is either Ethernet or Fiber Channel. They are built to Oracle-level quality standards, which are among the highest in the industry. And X5 is available immediately.

Oracle vulnerabilities

Oracle’s reputation remains a company that delivers high value at a high price. It remains to be seen if Oracle can sustain a position as a low cost supplier. Moreover, while Oracle’s value proposition is compelling, most of its customers are mixed shops with a strategy of not getting locked-in to a single vendor. Many customers remain cautious about putting all their eggs in an Oracle basket.

Furthermore, Oracle’s integrated hardware and software strategy, in part, is designed to lock out certain competitors such as EMC. For example, Oracle touts its Hybrid Columnar Compression and claims it can only be leveraged will an all-Oracle solution. This strategy may catalyze cooperation between other hardware and software makers and make the collection of competitive software (e.g. Microsoft SQL Server) with industry hardware (e.g. EMC, Cisco) as more open and functional relative to Oracle solutions.

Another open question is whether this hardware market grab will steal attention from its core software markets at a critical time in their evolution. Oracle has dominated core areas such as corporate financial software for decades. Now, however, several forces are combining to disrupt this market, among them, cloud and Big Data.

The CFO’s role in the enterprise has also been evolving, from guarantor of the security and accuracy of the company financials to business strategist and advisor to the CEO, but the traditional in-house tools have not grown with that change. Saugatuck Technology predicts a “third wave” of cloud services is coming focused on next-generation financials. A new survey of CFOs across multiple verticals conducted by Radius Global Market Research and funded by Host Analytics, Inc., which is one of  a new breed of Web-based financial analysis service providers, found that financial professionals are frustrated with legacy on-premise systems to the point that 65 percent of respondents indicated they are planning to eventually switch to a new solution, with between 20 and 30 percent planning to do so this year.

If that’s true, then Oracle may see the start of significant erosion in one of its core markets. Oracle has so far dismissed such SaaS offerings as Host Analytics and Workday, Inc. which has a major financial analysis component, as annoyances. But if CFOs start switching to these services in numbers, and particularly if a major competitor such as IBM or Microsoft acquire financial SaaS providers, that could change.

However, the company brings huge amounts of cash to a two-front war as it buys or develops its own new-age cloud financials while pursuing an aggressive hardware market grab strategy. Those who have watched Ellison’s strategic moves in the past, and in particular Oracle’s unfriendly takeover of PeopleSoft in the early 2000s, know he is not given to backing down once he has committed to a strategy. His sights are definitely set on hardware companies like EMC, and the question is how far he will go.

Oracle Engineered Systems image courtesy Oracle Corp.

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