Oracle's New Database Appliance Could Eat Into HP Server Sales


Oracle's new database appliance, built on the back of its $7.4 billion acquisition of Sun Microsystems two years ago, has the potential to do severe damage to HP's robust server business.

The new Oracle database appliance is a finely tuned Intel x86-based offering that for the first time brings Oracle's crown jewel 11g Release 2 database and Oracle Real Application Clusters to the mainstream SMB market. The product, in fact, represents a watershed moment for Oracle and its partners. Calling it a channel game changer is not overstating it.

The database appliance is the big payoff of the two-year-old blockbuster Sun deal. It is only with this x86 hardware appliance that the method to the madness behind the Sun acquisition is being brought to bear with a product that could reshape the competitive landscape. Oracle has, in effect, taken its revolutionary Exadata Database Machine which has won raves from enterprise customers and put it into a powerful SMB package that is aimed at setting a dramatic new price performance mark for SMB customers that up until now may have been put off by the high Oracle database price tag. It is Oracle going farther and deeper into the SMB market than it ever has before.

Oracle, for its part, is making no bones about its big ambitions for the Appliance. Judson Althoff, senior vice president of worldwide alliances and channel sales for Oracle, says the product takes aim at HP blades and other Intel commodity servers running VMware, EMC and NetApp. Althoff says he expect server makers building infrastructure on those software sets to take a "fairly big hit in the market." Not only that, Althoff says that Oracle expects to take a bite out of Microsoft's SQL Server share in the SMB market.

The exciting thing for Oracle partners particularly the Sun partners is this is the red hot SMB product that they have been waiting to come to market since the Sun deal was announced some two years ago. The wait is over. Those Sun hardware partners that recognize the opportunity and seize it are going to find big sales growth and robust double digit margins. In fact, Althoff says that OraclePartnerNetwork (OPN) incentives backend rebates aimed at getting Oracle solution providers to sell both hardware and software together will bring an additional 11 points in rebates and incentives. That means the margins around the Oracle database appliance should be in the mid to high teens. That's a windfall for solution providers used to single digit margins in the mainstream server market. Look for the massive Oracle marketing machine to move aggressively with the same kind of no holds barred air cover that has marked the Exadata sales effort.

Next: Hurd Is Driving The New Oracle Database Appliance Sales EffortIt is no small matter that the database appliance product line is being driven by former HP CEO and now Oracle Co-President Mark Hurd. Just how big a bite Oracle can take out of HP's server business rests with whether Hurd can take the channel centric culture he created at HP and drive it into every nook and cranny of the Oracle culture.

Hurd gets the channel and he knows how to close a sale. If partners know that Hurd is putting his sales stamp on the database appliance they will sit up and take notice. All signs are that is the case. Hurd, in fact, kicked off the big database appliance announcement calling out the product as "one of the most exciting announcements for channel partners and the SMB." Just getting Hurd talking channel helps the database appliance sales effort.

There is more than a little irony that the database appliance launch is coming on the heels of Oracle's first quarter results on Monday in which hardware sales dropped five percent, that has the Wall Street power players looking closely at the method behind the Sun madness.

At the same time hardware sales were declining hardware gross margins were on the rise from 48 percent to 54 percent. Oracle CEO Larry Ellison says he expects revenue growth in the hardware business in the next fiscal year.

If Oracle gets its channel locked, loaded and firing on all cyclinders that hardware revenue growth may come sooner.