With any merger there is a period of time when the merging company is particularly vulnerable, and Oracle, with their Sun merger, has enjoyed a significantly longer time than most. Given that competitors in the enterprise space tend to move relatively slowly, this large window is starting to benefit IBM and EMC. Now both these tech titans are using this opportunity, taking distinctly different – but not mutually exclusive – paths to attack this Oracle.
This week I’ll start with what I think the exposure is that both companies are going after and conclude with a discussion on just how they are positioning the distinct weaknesses in Oracle these competitors see.
And, for some reason, I’m feeling musical this week, so I picked three songs that I think reflect all three firms (and they are great songs). So here we go, Oracle vs. IBM and EMC – with music. (How often to you get to read a multi-media column?)
In my view, it is becoming a common theme at analyst events to hear Oracle described as a firm that doesn’t care about customer satisfaction, a company using their heavy and increasing lock-in strategy to mine customers for money.
The impression being created is that of a firm that is largely working to increase Larry Ellison’s personal wealth and little else. Given this is a year where everyone is pinching pennies, to the extent that this message resonates with IT buyers, the more they are likely to be looking at alternatives. In a market defined by perceptions, in my opinion Oracle is painstakingly building a really negative set. Both EMC and IBM are salivating at the opportunity. I had briefings from both companies this week and their approach dovetails nicely.
IBM System Z: Only Nice Surprises
IBM’s System Z is so Mac-like it’s kind of funny. This is because it exists at the other end of the market from where the Mac lives.
It is the current iteration of the IBM mainframe and this system is positioned to carry massive I/O loads. It is ideal for large database offerings like the one that Oracle was initially built around.
What remains ironic is that Sun, now Oracle’s hardware unit, was instrumental in crippling IBM in the late 80s and early 90s by arguing that that the mainframe was dead. Yet currently IBM is seeing and projecting massive growth for this system, which remains one of IBM’s most profitable products.
IBM learned the hard way that taking advantage of a lock-in customer relationship to grow revenues is tactically smart but strategically stupid. The company had some highly challenging years. The firm institutionalized this lesson and now they are applying what they learned and passing on the cost benefits they are receiving as a result of lower parts and services costs to customers.
While this approach clearly has short term costs associated with it, strategically it strengthens the customer/vendor bond and creates a stronger partnership.
For instance, this week they announced they were are reducing pricing from 5% to 18% on related system software, a 75% memory price reduction (due to lower parts costs), a 15% to 27% price reduction on specialty engines, and a 25% reduction on hardware entry price.
These reductions are on top of performance increases to the platform on a number of key features. The subtle message from IBM – which has been putting in place competitive migration programs for most of this year – is: “come with us and we’ll supply favorable budget variances, and get yourself a raise, or go with Oracle and get unfavorable budget variances, and keep your resume up to date.”
This could actually be very powerful because IBM’s message speaks directly to the pricing concern that, in my opinion, are growing in Oracle’s customer base. IBM’s approach reminds me of the song “Hero,” in that it tries to showcase that if you can trust your partner, then lock-in is a benefit. That’s how IBM was built and why they are considered one of the most trusted vendors in the technology space.
EMC: Customer Loyalty
EMC is targeting a different Oracle exposure. For them the opportunity they want to exploit is the growing dissatisfaction they perceive in Oracle’s customer base.
One of EMC’s greatest strengths over the last decade has been an increasing and near biblical focus on customer satisfaction and customer loyalty. Jim Bampos leads the metrics side of this effort and Tony Kolish the services side. EMC recently bought the company Green Plum to help measure every part of the customer relationship and optimize for it. EMC not only will be using this technology heavily themselves but selling it to other companies that also want to reduce customer churn and increase loyalty.
One of the really interesting parts of this effort is a focus on getting information from line managers in customer companies. They are the only firm I’m following that actually seems to get that IT isn’t the customer, IT is a services organization internal to the customer and the line managers are the customer.
EMC is measuring the satisfaction and future direction of these line managers in order to define products that IT doesn’t even know they are going to want yet.
Pat Gelsinger, recent transplant from Intel to EMC, has been a huge advocate of this approach to customer loyalty. He quickly saw this very custome- focused approach as EMC’s greatest asset. This from a dyed in the wool product guy.
EMC will build on the contrast of not only caring what IT thinks but what IT’s customers think in order to create better product and services offerings. This should position the company nicely to take advantage of any potential growing perception that Oracle doesn’t care.
EMC isn’t bad mouthing Oracle, they are just creating a strong contrast of a company that loves its customers, and cares about what they think. It kind of reminds me of the song “According to You,” and EMC is on the right side of it.
Wrapping Up: Irony Squared
There is a lot of irony in these two approaches, particularly for IBM, which in the 80s went down a similar path of thinking that customer lock in no longer meant you had to focus on prices and customer satisfaction. IBM exists as a power today because they learned this lesson the hard way and are unlikely to make it again this generation.
Even bigger is the fact that Sun’s most successful attack against IBM was on the vector of price and leveraged the perception that IBM was gouging customers. This is the nearly identical strategy IBM is using against Oracle’s Sun unit today.
EMC simply remains the number one example of a firm that has figured out that customer loyalty, beyond all else, is a treasure worth protecting. There is no vendor in the technology space, not even Apple, that is resourcing turning customers into advocates more aggressively.
In the end, at the core of both strategies are the very Apple-like concepts of creating iconic products (System Z) and an unmatched base of customers who are also fans. The final irony is that if any CEO should get how Steve Jobs plays the game, it should be Steve’s closest CEO friend Larry Ellison. But instead it is Sam Palmisano and Joe Tucci. Go figure?
Oh, and one more song. I think Oracle’s strategy is best exemplified by Pink’s “Don’t Let Me Get Me.” Listen to it, if you are an Oracle customer, and let me know if you think this doesn’t present your perception of Oracle perfectly. I’m pretty sure it represents IBM and EMC’s thoughts exactly.
Hey, and worse comes to worse, you had a good business reason to listen to three great songs during work!