Oracle-Sun anniversary A headstone in Santa Clara carries the names of the fallen in Sun Microsystems’ once illustrious reseller channel – it is five years this week since grim reaper Oracle bought the server giant.
It’s not that these companies hit the wall, more that some realised quickly that an agreement with Larry’s lot wasn’t going to work out financially. It took others a while longer. For some of those remaining, Oracle no longer seems strategically important.
Oracle’s reseller channel in Blighty, for example, has shrunk from hundreds of Sun partners to between 80 to 90, with around a third buying kit on a regular basis from distribution, or so say our sources.
In another example of shrinkage, the Oracle Partner Guide for 2014 was published last week, and whereas it was once tens of channel types that advertised, there were just 14 in the most recent edition.
“What changed? The strategy around the systems, and that really affected a lot of the traditional partners and customers of Sun,” says Errol Rasit, research director at Gartner, which tracks server shipments.
Sun Microsystems' servers sales were already dropping before Oracle came in – and the 2008 credit crunch accelerated this trend, he adds.
According to market revenue stats, Sun had a 6.4 per cent share of the spoils in 2010. This dropped to 4.6 per cent in 2013 and rallied to 4.9 per cent in the first nine months of 2014.
Perma-tanned CEO Larry Ellison, now CTO, “re-ordered” the priorities, not seeing the system business as a volume play but rather a way to get the best of out its software by integrating the two together.
The so-called Engineered System, Exadata, first hit the market on HP hardware, but it was poorly marketed and only 100 customers signed up globally, said Gartner. Oracle’s version two on Sun hardware launched to more of a fanfare, and to date 4,000 businesses are on board.
“Sun system sales were declining and Oracle didn’t reverse that decline in the context of a shift in strategy to engineered systems. They are more profitable but don’t have the same impact in terms of revenue growth,” said Rasit.
Giorgio Nebuloni, research manager of European data centre group at IDC, said the majority of Sun partners made a living from selling hardware.
“In a pivotal move, Oracle tried to engage with companies that could deliver more value, particularly when it comes to the higher-end of the portfolio - sell engineered systems, integrate the database stack and consult. Sun partners didn’t have the DNA to do this,” he claims.
Larry likes profits – all CEOs do – but he seems more unwilling than most to share the spoils with a reseller channel, those that can act as its feet on the street. Under Oracle’s ownership, the Sun margin for partners collapsed.
One Oracle partner tells us that the rebates on the table from Oracle are half what they were under the Sun brigade – some say this is part of the reason why Sun was losing money, as it did continually.
“Comparatively speaking, the rebates dried up. The money in the Oracle ecosystem is with the big consultancy organisations, the likes of Deloitte, Cap Gemini and Accenture that run big projects. The money from selling hardware and software has declined substantially.”
Another told The Channel, “There isn’t a recognisable Sun channel anymore, it was decimated, and to all intents and purposes has gone.”
Sun had multiple sales programmes to cough fees, and many of these were shuttered. The Oracle Market Model, a deal registration scheme and Strategic Product rebates are in operation. Combined, these allow partners to make up to eight per cent in a sales rebate, assuming both criteria are met.
“It’s better than a kick in the face,” one partner told us, “but Oracle doesn’t value resellers because it is a big solutions company and as far as they are concerned their offer is unique, customers can’t buy it elsewhere.”
Customers can get no more than a 25 per cent discount on Oracle deals, irrespective of the pressure to win. If Oracle passes 20 per cent to the customer, the distributor and reseller share the remaining five per cent, our sources claim.
“Oracle’s margin doesn’t change. We are an inconvenient route to market,” said a channel partner of Oracle.
In contrast, HP, IBM and a raft of rivals leave room for channel partners to make comparatively more money on both the box and the sale of services. While they're not perfect, they are more reasonable than Oracle, our contacts tell us.
Oracle views standalone hardware and software as the “baked bean” end of the market, but considers those that design, implement and support its high-end products as the “caviar” set.
The trend over the past 15 years or so, given eroding product margins, is for resellers to move away from straight product selling, into solutions and services where they can earn a better crust.
But here too Oracle pulled the “rug from under the feet” of its channelites; 10 months after buying Sun, the company permitted just four resellers – Computacenter, SCC, Esteem Systems and Q Associates – to provide hardware support and maintenance when existing agreements expired.
Many had built a decent business around Sun maintenance, and only found out about the changes when they spoke to their customer, not from Oracle directly, though the changes was inserted into its policy document.
The Service Industry Association accused Oracle in early 2011 of trying to destroy third party maintenance by dis-intermediating Sun-support partners by initiating anti-competitive policies on hardware support.
The trade group lodged complaints with the EU and the offices of the Attorney General in 50 US states to challenge the measures, but the case withered on the vine.
Oracle has taken things a step further now, and we are told that those four services-based resellers are now only allowed to provide maintenance services on hardware they have sold.
“The service opportunity has largely disappeared. All the software support contracts are also back with Oracle. As the warranty renewal comes around, the contract transfers from a channel relationship to an Oracle direct relationship,” one partner told us.
If there’s one thing that ruffles the feathers of the reseller channel, it’s when their vendor paymaster rifles through the database and pilfers customers' accounts. Meg Whitman put paid to this early on as HP CEO, and managed to win over parts of her partner base that had grown disillusioned with the tactics under former exec Mark Hurd – now, er, Oracle CEO.
In this respect, Ellison set out his stall early on. He told channel partners days after the Sun sale was completed that Oracle was taking 4,000 of the largest Sun customer accounts direct. Sun had just 200 direct accounts.
“Our model is for our largest, most strategic customers that are making huge investments with us, they deserve to have a direct relationship with us. That’s what they want. We need to understand their business better. We need to be on-site,” Larry said.
The departure of global channel boss Judson Altoff in 2013, who was considered by partners to have their back, was also indicative of the prevalently direct sales culture at the company, sources told us when he left.
The sticky wicket for channel folk is that Oracle remains a profitable business, even though the core operation is not growing and it was late to the cloud market. But for all its channel shenanigans, the company made $2.5bn in net income in Q2 of fiscal ’15, up two per cent.
Alastair Edwards, principal analyst at Canalys, agreed Sun ran an “expensive channel network” but he thinks Oracle may have missed the chance to let its hardware business fly higher.
“Oracle could have taken share; they had an opportunity but they squandered it, they lost it,” he claims.
The comments from Canalys are more pertinent in light of last week’s announcement that Oracle wants to become the lowest-cost provider of data centre gear by unleashing the X5 engineered system.
At the high end of the enterprise, a channel is less important than in the volume markets, where someone like a, say Microsoft, operates. Maybe Larry’s attitude to resellers will change?
Edwards said the organisation had had plenty of opportunities to become “more channel centric” but “burned so many bridges and it will be be difficult to recover. Partners have and are moving to alternatives to Oracle in enterprise hardware and software.”
As he points out, there’s a whole lotta love out there from the likes of EMC, HP and others. Businesses that realised their fate and that of the services-based resellers are inextricably linked.
There is life after Oracle for resellers, but it seems there’s little life left in Oracle’s reseller channel. ®