The Most Strategic Advantages and Disadvantages of Oracle Fusion

An Independent Oracle Fusion Financial Management Analysis

As part of a client ERP evaluation I had the chance to work with some Oracle gurus and really get under the covers with Oracle Fusion Financial Management. There’s a lot of innovation coming from Oracle in the forms of new products (Fusion, CX, etc.), enhanced old products (PeopleSoft, JD Edwards and Applications Unlimited), delivery models (SaaS, hybrid, hosting) and new bundled solutions (Engineered Systems), which collectively offer more customer choice and flexibility than at any time prior, but also create some confusion. So I’m going to use this post to identify the most strategic advantages and disadvantages of Oracle Fusion, and get into some deeper application software issues in a later post.

Oracle Fusion Becomes the Flagship Solution

From the efforts of 8000 developers over 6 years, Oracle Fusion was released in 2011 as a suite of seven apps, sold modularly, including Fusion CRM (Customer Relationship Management), HCM (Human Capital Management), Financial Management, Supply Chain Management, Procurement, Project Portfolio Management and Governance/Risk/Compliance, and since that time some clear benefits and concerns have emerged.

Oracle Fusion Benefits

On the plus side, I think the most strategic Oracle Fusion benefits include modern technology, open standards, choice in delivery and cloud portability. Oracle is raising the bar with regard to cloud ERP in terms of delivery options. Fusion can be procured as a traditional software license and installed on-premise, subscribed to and delivered from the cloud of customer choice (i.e. from Oracle, an Oracle partner or a public cloud (Amazon Web Services)) or deployed in a hybrid combination of both cloud and on-premise. Cloud portability takes this customer choice a step further by permitting customers to change their cloud networks based on changing business conditions – and gives customers the option to not just choose the best application software but also the best cloud delivery for their business requirements based on factors such as uptime history/assurance, information security, data center proximity, Service Level Agreement (SLA) or cloud provider credentials (i.e. SAS70/SSAE16, ISO 27001, Safe Harbor, etc.)

Cloud portability doesn’t get a lot of notice, but should. ERP and financial systems are mission critical applications, and consequently incur large investments that even when acquired through subscription (thereby reducing CapEx in favor of OpEx) incur big investments in system integration, software customization and complimentary apps development.

Buyers are understandably reluctant to be locked into a single vendor’s cloud, or be denied the ability to switch to a public cloud (i.e. Amazon, Rackspace, etc.), and certainly don’t want to invest in custom developed extensions, add-ons and integrations with their vendors' platform as a service (PaaS) tool that only works on the vendor’s cloud and doesn’t work on any other cloud. Oracle and a few select other ERP software vendors are responding to requests for portability with both delivery choice and cloud transferability that gives customers the option to move the vendors ERP software to the their cloud of choice and better protect their investments.

Oracle Fusion Concerns

Oracle Fusion concern areas include a slow market adoption, high Total Cost of Ownership (TCO) and technology choices which may impact software innovation and ROI.

Oracle announced their Fusion release at OpenWorld 2011. One year later at Oracle OpenWorld 2012 the company announced that it had acquired 400 Fusion customers, near evenly allocated among CRM, HCM and ERP with about two-thirds being deployed in the cloud. As I commented in the Oracle OpenWorld take-aways, progress was evident but far from setting the woods on fire. Now one year later Fusion adoption shows near linear progress.

Forrester released a report titled "Oracle Dilemma: Applications Unlimited Versus Oracle Fusion Applications" which suggests that Fusion has incurred "low levels of adoption by existing Oracle customers, in part, because Oracle's Applications Unlimited policy has provided them with little incentive to migrate."

For reference, the Oracle Applications Unlimited program was announced in 2006 (after acquiring PeopleSoft/JD Edwards in January 2005 and Siebel in January 2006) as a commitment to continue enhancements and support to these acquired products beyond the delivery of Fusion.

While Forrester’s main assertion is 100% correct, Oracle aggressively challenged the report and correctly reminded that Fusion is not designed as a replacement to existing Oracle ERP solutions such as the E-Business Suite, PeopleSoft and JD Edwards, but a compliment or extension to these systems. Fusion apps are designed to co-exist with Oracle legacy systems, thereby extending customer investments while at the same time permitting adoption of more modern business applications in a less than wholesale transition.

While market adoption of Fusion is slow, it’s important to remember that customers reluctantly change ERP systems based on their internal requirements and not based upon new product availability. Further, at a more macro level, Oracle now earns over $1 billion annually in Software as a Service (SaaS), which has quickly elevated Oracle to become the second largest SaaS company in the world (behind Salesforce.com). While existing Oracle SaaS revenues are largely from non-Fusion products such as RightNow and Taleo, it nonetheless bodes well for Oracle’s overall cloud progress.

Another concern area is Fusion’s TCO, an area that primarily consists of two factors being high subscription pricing and complex deployments. Oracle Fusion subscription pricing is high, and IMHO, this is largely influenced by the relatively minimal market competition for cloud ERP suites.

Being early to market with an enterprise-wide cloud ERP software suite puts Oracle in a position of reduced competition, which of course reduces competitive pricing. And unfortunately for the ERP software market, Oracle’s primary rival, SAP, is extremely challenged in delivering or even visioning a cloud ERP software suite.

In fact to say that SAP is behind the curve when it comes to cloud ERP software is an understatement. It’s first cloud ERP suite, Business ByDesign, was released in 2007, retracted in 2008, released again in 2009, repositioned from a suite to more modular applications in 2012 and through six years of big investments matched with poorly planned releases, has shown dismal adoption. To turn the tide, SAP has designated its most current executive champion, Lars Dalgaard, as the public face to resurrect Business ByDesign, but now a year later under Lars sponsorship the SaaS ERP software has shown no material advancements or increase in market adoption rate.

Other traditional ERP competitors such as Infor also remain without a viable cloud vision, but alternatives do exist. NetSuite offers an impressive cloud ERP suite for the SMB market, and is slowly but steadily moving upstream. Workday is early with a cloud financials suite, but is flush with cash and making investments that are likely to accelerate its progress. And look for Microsoft to be the wildcard that disrupts the cloud ERP industry this year with a new Dynamics SaaS ERP suite.

And while Oracle prices are high, it’s helpful to remember that with Oracle all prices are very negotiable. The company links its sales flexibility to the competitiveness of the sale opportunity, quarterly results and Wall Street expectations, and it’s no secret that the company will sacrifice some one-time up front revenues for the high margin recurring revenues that come with annual software maintenance contracts. ERP software discounting is less pervasive with SaaS ERP, but nonetheless continues to occur.

Adding to acquisition costs are implementation expenses. At this stage, Oracle Fusion is not a mature application accompanied with deployment productivity tools, needed packaged integrations, rapid deployment frameworks, accelerated deployment methodologies, or sufficient best practices. These factors contribute to more complex implementations which magnify time, risk and cost. As one Fusion customer told me at OpenWorld, "it’s great for the system integrators, but not so much for the customers that have to pay their fees."

The final Oracle Fusion concern includes technology choices that trigger business impact. While Oracle Fusion’s technology stack is impressive, one area of common debate is Oracle’s choice to use virtualization as opposed to a multi-tenant database architecture for its cloud ERP software. While many times these arguments are based on esoteric technology points of view, there are real business implications that impact ERP software innovation, evolution and ROI that buyers should consider.

Multi-tenant business systems leverage the most shared computing resources – including database, operating systems, apps and hardware – which effectively reduces computing costs, eases software updates and delivers more agility. While there’s no requirement that a cloud app must be or should be multi-tenant, it was multi-tenant cloud apps that pioneered the change of delivering new application upgrades from about every two years, to seasonal releases. Customers clearly benefit from more frequent software releases, especially when those upgrades occur in the background without technical acts and with the ability to turn on the new capabilities on demand. This is a far cry and massive savings relative to the fork lift upgrades that ERP software customers have come to dread.

Oracle Fusion is a single-tenant database architecture that uses virtualization to share compute resources. This approach is certainly valid, but does not achieve the same economies as multi-tenant cloud apps, thereby incurring greater costs and more effort for tasks such as upgrades. Oracle suggests that virtualization and more distributed resources deliver superior information security and redundancy for reduced downtime risk. These arguments may have some truth, but in a SaaS industry which is remarkably impressive with regard to security and uptime, the perceived benefits don’t seem to justify the loss of economies and software innovation.

Comments (3)	— Comments for this page are closed —

	Chris Nichols
	You are unfortunately right about the lack of cloud ERP software competition which is keeping Oracle’s pricing artificially high. SAP Business ByDesign is a troubled SaaS erp product which suggests to me that SAP was never serious about the cloud ERP market, possibly more of a competitor response that a real strategy.

		Chuck Schaeffer
		In my early analysis of Business ByDesign it was difficult to tell whether this cloud ERP solution was more of a defensive play to keep line of business apps like Salesforce.com and Tier 2 ERP solutions such as NetSuite from continuing to erode its install base, or an offensive business growth strategy. It’s still an unanswered question, but when I consider the bigger picture my belief is that it’s an offensive play that’s just been poorly executed. I share this in large part based on ERP software market saturation for on-premise apps and what is still a near green field opportunity for cloud ERP apps. SAP holds a near dominating ERP software market position among the Fortune 2000, which is great, except for the fact that there are only 2000 of these customers and once they become saturated business growth becomes limited. For SAP and the ERP software market at large to grow, ERP software publishers must consider new market opportunities which clearly include the cloud ERP market. SAP is a smart company so I’m sure they get this. Their vision remains cloudy at best, and I personally view their cloud ERP play as down, but far from out.

	Howard Berns
	Thanks for this article. Even after talking with my Oracle sales rep, this issue had left us confused. This write up cleared up some of my Oracle fusion confusion and made some great points. Appreciate it!

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Oracle Fusion concern areas include a slow market adoption, high Total Cost of Ownership (TCO) and technology choices which may impact software innovation and ROI.

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