Oracle Corp is poised to announce a number of multi-million dollar e-commerce on-line exchanges. One will be announced in the next few weeks with others following later this year and next, ComputerWire has learned. Sources close to the company said Oracle is in close talks with Boeing, American Express and GE Motors to set up web-based marketplaces similar to the deal the software giant announced with Ford at the beginning of this month.
Under that agreement, the two companies set up a new joint venture company, called AutoExchange, to establish what the two claimed will be the the world’s largest internet supply chain. Based on Oracle’s procurement and supply chain software, Ford will use the software to connect to its suppliers and partners to buy and sell products over the internet.
Speaking to ComputerWire at this week’s Oracle OpenWorld conference in Los Angeles, Ray Lane, the company’s president and COO, confirmed he was personally in talks with a number of companies but would not say whether Boeing, American Express or GE Motors were on the list. I want to go after the big guys, he said, I can’t confirm anything until it’s done, but yes we’re working on others.
But the sources said Lane hinted heavily about the deals during a closed conference call about Oracle’s Exchange strategy to analysts last week. Lane said he wants to form partnerships in at least five other vertical markets first – electronics, aerospace, oil and gas, telecommunications and financial services – although ultimately he said he envisages at least 10 or 12 such deals.
He thinks the five vertical market deals will be very similar to the one with Ford, with Oracle and its partner setting up a joint venture company in which Oracle has between 20% and 49% of the business. The opportunity is to create, say, five or six major vertical exchanges with some of the more significant players in these industries. Lane said. If we’re able to create more of these joint ventures, as we did with Ford, then we think they have the likelihood of generating somewhere between a half a billion and $3bn worth of revenue each, with a significant amount of profit which Oracle can recognize each quarter. He added: We’ll go for the big guys that lead the supply chain, like the Ford deal. The philosophy is supply chain oriented, it uses all our software, so it eliminates competitors like Commerce One and Ariba.
So great is the opportunity that Lane said he is spending the majority of his time talking to potential partners. It’s gotten everybody’s attention, he said, referring to the Ford Exchange. I think everybody was shocked. I didn’t talk a lot about it, I didn’t say we were working on GM and Ford. I just simply called Larry with updates…he couldn’t believe it.
The question is where that leaves Oracle’s own Exchange, which already has some 270 suppliers signed up and is already starting to sign customers. But according to Lane, they won’t be left in the lurch. Oracle’s exchange becomes an exchange of exchanges, he said. If the exchange as we know it today goes away because we’ve focused on verticals then I’m comfortable with that, but I don’t think it will. Lane said Oracle’s exchange will be transformed into a giant hub, to connect all the vertical marketplaces together, as well as connect to other, non-Oracle- based exchanges. The idea is that a supplier from exchange X will be able to connect to a supplier, partner or customer on any other exchange. And Oracle wants to be the software in the middle that facilitates all the communication, Lane said. All of which will generate lots of money for Oracle. As well as transaction fees within the exchange, there will also be revenue from advertising and commissions for on-line auction facilities.
Ford will put its buying through the exchange and suppliers will be able to use the procurement capability to consolidate their buying and pay the exchange a transaction fee, Lane explained. And then there’s the potential revenue from cros
s selling Oracle applications and services to Ford and its suppliers, some of whom might opt to purchase the software outright but others may be too small and opt instead to have Oracle host the applications on their behalf, via its Business OnLine ASP initiative.
They [the suppliers] don’t have to use Oracle to use the exchange, Lane said, But I think there’s a good opportunity for our sales force to go to those suppliers and say two things. First of all, you could probably use the exchange more efficiently if you used our internet procurement software. You can have a much better analytical engine, for instance, to analyze your vendors, but you don’t have to. He added: Then we’ve also got an introduction to sell other types of things to them, other oracle applications. I do think it opens up a significant license opportunity for our sales force.
