Oracle Corp. is using its emerging network computing technology and expanding range of applications software to carve itself a larger share of the federal government's $22.6 billion information technology pie.
The lower-cost network computers, dubbed NCs, and their servers "deliver computational power, data storage, information access [and] electronic mail much more reliably, and much more securely and more economically than the PC networks or mainframes," argues Lawrence Ellison, founder and chief executive officer of the Redwood Shores, Calif.-based company.
"With the money saved, the government ... can do a better job of developing real applications systems, whether you are in the intelligence business ... the tax collection business [or] in the legislative business," he told Washington Technology in a recent interview.
Oracle's revenue over the last 12 months is estimated at $6 billion, including roughly $550 million in government revenues. The company's 1995 revenues were $2 billion, double its 1991 revenues of $1 billion.
Oracle executives hope to persuade the FBI to buy NCs for its nationwide Law Enforcement Online program, and to persuade Pentagon officials to buy up to 480,000 NCs to help modernize the military's hospitals and personnel management, said Ed Ferris, Oracle's government sector sales chief. Each NC would cost up to $800, plus another $150 for NC software, he said.
Oracle executives predict another revenue boost from the network computers and from applications software, such as money-management programs designed to help agencies and companies collect, track, measure and spend vast quantities of money.
Applications software and related services provided Oracle with roughly 13 percent of its 1996 revenues, up from 10 percent of its 1994 revenues. In 1996, database-server software provided roughly 37 percent of Oracle's revenue.
"We as a country spend too much money on the plumbing of computing and not enough money on building the applications that have real business benefit," said Ellison, "Let's lower the cost of plumbing and invest in real business solutions."
Oracle's applications business "is growing faster than their [long-standing] database business ... and is likely to have higher margins as the databases become more of a commodity," said Milford Sprecher, chief of the Falls Church, Va.-based government division of International Data Corp.
That growth in applications sales has carried Oracle into the No. 2 slot behind the world's leading software company, Microsoft Corp.
To spur government growth, Oracle hosted a June 6 meeting at the National Press Club in Washington - a sales pitch for its financial applications attended by more than 300 federal managers. Oracle's products, collectively titled Oracle U.S. Federal Financials, are available to all U.S. agencies on the General Services Administration's Financial Management Systems Software schedule.
Whether Oracle makes progress in the financial management sector is partly up to the market leader, American Management Systems Inc. of Fairfax, Va. AMS' 1996 revenues reached $812 million, 25 percent of which was earned from government.
Oracle and its allies will likely sell the NCs to the government via resellers and integration contracts, said Sprecher. However, "it may be a couple of years before the dust settles" when federal managers can determine if the NCs achieve their promise, said Sprecher.
AMS will "continue to do as we have been doing for the last 13 years," said Zipora Brown, vice president for financial management services at AMS. The company has spent 13 years working on financial contracts at 40 agencies where regulations and accounting principles are very different - and will remain different - from the commercial sector, she said.
AMS' flagship financial management product is titled Momentum, and should provide up to 75 percent of the company's government revenues.
However, because of Oracle's impressive technology and marketing skills, it is "the 900-pound gorilla," in the government financial management market, said Sprecher.
But it is the network computer - or the NC - that promises the biggest change for Oracle and the computer business. The NC strategy tries to cut the cost of computing by giving each user a low-cost terminal linked via the Internet to an array of powerful servers that store data and shared software, including Oracle's database software, online management aids and software-development tools.
Much of those new federal applications will come from Oracle, if Oracle's government unit in Bethesda, Md., has its way.
There's some data to back Ellison up.
According to the Gartner Group, a Stamford Conn.-based market research firm, companies and agencies might only have to spend $6,011 per year buying, maintaining, operating and upgrading each NC, far less than the $10,218 cost for each PC. These NCs are being developed by Oracle's subsidiary, Network Computer Inc., which recently merged with Navio Communications Inc., owned by Netscape Communications Corp. of Mountain View, Calif.
NCI-approved NCs are to be built by up to 12 companies, including Zenith Data Systems Corp. of Buffalo Grove, Ill. Several other companies, such as IBM Corp. of Armonk, N.Y., and Sun Microsystems Inc. of Mountain View, Calif., are building their own versions of the NC.
Those upkeep costs created a new buzzword - total cost of ownership - and created a strategic challenge for Oracle Corp.'s rival, Microsoft Corp., by threatening to make obsolete Microsoft's core strategy: shipping its operating system and several of its applications programs in almost every PC shipped anywhere in the United States.
This threat quickly prompted Microsoft to roll out over the last six months a range of lower-cost products, including new versions of Windows software tailored for easy upkeep, as well as a new generation of lower-cost computers.
These new lower-cost computers, dubbed NetPCs by Microsoft, each contain a suite of Microsoft software running on internal Intel Corp. computer chips, and will retail for $900 or less, said Adam Taylor, product manager for Microsoft's Win-dows group. Also, Microsoft has allied with Citrix Systems Inc. of Fort Lauderdale, Fla., to help deploy Windows-capable dumb terminals wired into mainframes and servers. These terminals could sell for less than $500, he said.
The redesigned Windows, dubbed Zero Administration Windows, could cut upkeep costs by up to 70 percent, Taylor said.
Oracle's goal of reducing computing costs, said Taylor, is "really noble ... [but is] fatally flawed," he said. Because the various low-cost terminals are made by different manufacturers, they won't work together, he said. In contrast, "we are the paragon of an open-systems company," Taylor said.
Also, Oracle's NC strategy asks agencies and companies "to rip [out] and replace what they have today," he said. And customer demand for NCs and NetPCs is limited to roughly 5 percent of the market for computers, he said.
However, "Microsoft and its partners are taking this very seriously," he said.
Despite Microsoft's cold water, Oracle has racked up a few promising sales in government markets, ranging from an agreement to provide NCs and software to help build a nationwide education network for the Philippines, to a contract to provide roughly 30 NCs to schools in Kern County, Calif. NCs are a top priority for consideration and possible procurement, said the district's technology chief, Angel Sanchez.
"There is a deep and abiding interest" in NCs in many countries, including China, where "there is tremendous resentment ... [that] every time they turn a computer on, they have to pay Bill Gates and Microsoft a tax" for the unwanted Microsoft software that is included in every computer, Ellison said.
Today's small-scale sales of NC products are only the first of a rising wave, suggest data prepared by IDC, which predicts that sales of NC technology will reach $11 billion by 2001, up from $500 million in 1997.