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Oracle Keeps on Making Deals

Oracle may be taking smaller helpings from the smorgasbord of software companies prime for purchase, but the software giant hasn't lost its appetite. On Nov. 16 it announced the acquisition of two small, privately held security companies Thor Technologies and OctetString.

Oracle didn't disclose the price paid -- likely the equivalent of a rounding error compared with multibillion dollar acquisitions of PeopleSoft and Siebel, the latter of which was approved by the Justice Dept. on Nov. 16 (see BW Online 10/26/05, "A Deeper Probe of Oracle's Agenda").

SALES PUSH. Including its two latest buys, Oracle has done or announced 13 deals in 2005 -- and the year isn't over yet (see BW Online 9/12/05 "Now Oracle May Finally Rest"). Most have been focused on buttressing Oracle's defenses against German powerhouse SAP (SAP).

In particular, as growth in Oracle's core database software business slows, the company has been eager to bulk up on the applications software that helps corporate customers manage all manner of tasks, such as accounting, overseeing sales, and human resources. Siebel and PeopleSoft give Oracle some superior technology -- and a big base of customers to immediately goose that line of business, while smaller deals like Retek, ProfitLogic, and i-flex serve to go deep in industries where there's no dominant player yet.

These two new deals, along with the purchase of Oblix in March, are different. For one thing, they're the only ones in security -- an area that Chief Executive Larry Ellison said at Oracle Open World in September his outfit would be emphasizing (see BW Online 09/23/05 "Oracle: Nice Guys Finish..."). Oracle will continue to invest in the acquired companies' products and upgrades. It was already doubling the specialized sales force that focuses on security, according to a conference call on the morning the deals were announced.

"IDENTITY MANAGEMENT." It's likely the deals are much more about improving Oracle's existing products than they are about turning Oracle into the next big security vendor, says analyst Jason Maynard of Credit Suisse First Boston. "It's just a part of what they are doing, not a separate market," he says.

The specific technologies acquired Nov. 16 manage access to a company's data and programs, called "identity management." It makes sure that the right employees have access to the right systems and that, say, a contractor or terminated worker can't get back into the system after work is completed. At large companies today, as much as 50% of the accounts don't belong to current valid employees, according to Christian Christiansen, vice-president of security products and services at IDC Research.

Simply put, if businesses are shelling out millions of dollars on software, they expect it to be secure. Identity management in particular is all the more important after Oracle's acquisition of PeopleSoft, a leader in applications to manage human resources. HR divisions in particular have to pay especially close attention to identity management. Oracle's share in human resources applications shot up to 21% from 6% after the PeopleSoft deal, according to AMR Research.

COMPLEX PUZZLE. To date, Oracle's products have been known for being pretty secure, with Ellison boasting during his Open World keynote that it was 15 years since an Oracle database had been broken into. But as the company builds out its vision to run all of a company's computing needs -- from the underlying database to the applications and everything in between -- security will become an ever-more-important piece of an increasingly complex puzzle.

So complex, in fact, that Oracle's need for security companies may not be fully sated. Although Oracle has signaled that it has finished with doing big deals, expect more of these small ones to fill particular technology holes. In security, that could take the form of intrusion detection or software that helps companies patch at-risk programs more easily.

But analysts say the biggest hole is likely business intelligence, which helps companies better understand the details of how their businesses are doing and make better decisions off of that information (see BW Online, 10/25/05, "Microsoft's Next Target: Business Intel".

MOUNTING PRESSURE. The company has emphasized how strong a role this kind of software will play in its ambitious Project Fusion, which weaves together the applications of Oracle, JD Edwards, PeopleSoft and -- when the deal closes -- Siebel. The big vendors here are Cognos (COGN), Business Objects (BOBJ) and Hyperion (HYSL), but there are dozens of smaller players Oracle could snap up to fill out both its own business intelligence capabilities and those being acquired from Siebel.

Oracle has a penchant for deals, in contrast to arch rival SAP, which generally prefers to build new products in-house or partner with smaller more innovative players. The more acquisitions Ellison & Co. make, the greater the pressure to make them all work together.


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