Oracle's Mission: To Build Federal E-Business

By Richard McCaffery, Staff Writer

Four years ago, Oracle Corp. Chairman Lawrence Ellison told company management to Web-enable all of its software products.

That move is paying off for the software company in the federal sector, as it snares electronic business contracts and seeks to build market share riding the Internet wave.

Pushing the e-business theme in the federal market is one of the Redwood Shores, Calif., company's biggest goals this year, Oracle officials said.

"It's the heart of our strategy," said Steven Perkins, senior vice president and general manager of Oracle Federal. "We think we are uniquely positioned for it."

Since last summer, Oracle has spent more than $50 million for five e-business-related acquisitions. In March, Oracle bought E-Travel Inc. of Concordia, Mass., which offers a system that allows end users to plan and book trips online using a Web browser. Terms of that deal were not disclosed.

Perkins is pitching the service heavily to civilian customers and is already building a prototype system for one federal client, whom he will not identify. He sees wide applications for E-Travel services throughout the government.

Perkins expects to see several prototype e-business projects up and running at the Defense Department and in civilian agencies by year's end, not simply Oracle applications running on Oracle databases, but systems that directly benefit end users.

In January, the company released its full suite of Web-enabled applications tailored to the government market. That includes nearly 80 software applications Oracle has customized and Web-enabled for the federal customer, which the company expects will help it seize e-business opportunities down the road.

The company is engaged in an e-business project with a major federal agency that will allow its customers to renew licenses and pay fines over the Web, and it is already positioning technology gleaned from recent acquisitions to land government contracts. Company officials would not identify the agency.

Oracle already is providing databases for the Defense Department's $264 million Defense Travel System. The prime contract to install an electronic travel management system for the Defense Department was won by TRW Inc. of Cleveland in June 1998.

Katherine Jones, senior marketing analyst at Aberdeen Group in Boston, said that Oracle is "in a very strong position to succeed." Oracle got in front of the e-commerce wave early, she said, and stuck to its plan to Web-enable all of its products. "Oracle was really first with that position," she said.

The e-business wave has buoyed Oracle's stock price as well. Adjusted for splits, Oracle stock climbed from around $12 in January 1998 as high as $41 in February. It was trading for $36 7/8 Aug. 6. It is up 34 percent for the year, compared to 13 percent for the benchmark S&P 500. This is a nice turnaround for the company's stock considering it plunged from around $25 to $12 in January 1998.

One analyst said the company's e-business efforts have helped the stock gain momentum.

"It's a part of the picture," said Jim Mendelson, managing director at Soundview Technology Group of Boston. "It has the potential to have an increasingly positive effect on the stock," he said. "We're right at the cusp."

That is because Oracle sells the database, tools and applications many companies use to power e-business, Mendelson said. "They're a company the user community is increasingly gravitating to," he said.

Oracle databases are the platform on which 67 percent of the country's top 50 e-commerce Web sites run on, according to Oracle research. Giants like General Electric, AT&T, Merrill Lynch and Walt Disney use Oracle products to power their Web sites.

But Oracle faces stiff competition for e-business contracts in the federal government. Competitors include IBM Corp., Microsoft Corp. and SAP, Perkins said.

What does the company need to do next to enjoy higher valuations? "Make revenue and earnings performances less erratic," Mendelson said. The company disappointed analysts in the third quarter, then turned on a dime and posted strong results for the quarter and year ended May 31.

"Which is the true Oracle?" Mendelson asked. For the quarter ended May 31, the company had net income of $1.3 billion, up 35 percent from income of $955 million in 1998. It beat analysts' estimates by four cents a share, according to Zacks Investment Research Inc. of Chicago. It had sales of $8.8 billion, up 24 percent from sales of $7.1 billion a year ago.

The company does not disclose revenue for its business segments but Jay Nussbaum, executive vice president of Oracle Government, Education & Health, in November predicted revenue of $1 billion for the year, or 11 percent of the company's overall business.

Oracle's e-business push has contributed to this.

In 1997, the company won a contract to build a prototype e-business application called the Student Entry Level Management System (SELMS) for the Marine Corps. The system allows the Marine Corps to centrally manage many aspects of training for new recruits. The online system, for example, will contain information about every recruit's training as well as pay scale and promotion information.

Last summer, Oracle got the go-ahead on the five-year, $5.5 million contract, according to Maj. Clay Evers, project officer at Marine Corps System Command, Quantico, Va.

Evers said it is the first system of its kind in the Marine Corps. "Its success will have a big impact on other projects coming up behind it," Evers said. "All of this is a first for us."

Also in 1997, Oracle built a Wed-based system for the Naval Supply Command's Fleet and Industrial Supply Center in Pearl Harbor, Hawaii. Oracle built an electronic store for the supply center using its database and server products that allows its customers to shop online for everything from soap to ship engines. The store gives customers the ability to shop online any time night or day. It went live early this year.

"We need to provide the customer with the tools they need to be self-sufficient," said Meredith Omura, director of systems planning at Fleet and Industrial Supply in Pearl Harbor.

Oracle took the solution it offered the Navy in Pearl Harbor and brought it to five other Fleet and Industrial Supply Centers worldwide. The last one went live in Puget Sound, Wash., in March. "[Headquarters'] directions are to Web-enable as many applications as possible because they see the benefit," Omura said.

Perkins called it one of Oracle's earliest e-business efforts. "No one would have called it e-business in 1997, but it was deploying technology to enable self-service," he said.