You can have any software you want, as long as it’s Oracle

Is it possible to become a business process outsourcing provider when you only sell software from a single vendor? Oracle believes it is, and the company has some numbers to prove it.

BPO, one of the great buzzwords in outsourcing, refers to the practice of using a third-party service to handle all aspects of an IT-based business process, such as accounting or payroll. Typically, a BPO service provider evaluates the client’s need and existing environment and then chooses the tools and applications it will use to support the process from a broad range of available products.

Oracle is taking a different approach. Like a BPO service provider, it offers automation, management and business continuity services surrounding specific business processes. Essentially, it is offering the same sort of BPO services as an EDS or Accenture. However, it only bases those services on a single set of software products: its own.

This approach makes Oracle unique in the outsourcing world. It is offering more than other software vendors or applications service providers, which tend to provide hosting services but no BPO capabilities. Yet, unlike most BPO service providers, it makes no pretence of being objective about which software solution it will deliver. In essence, Oracle is a “hybrid” outsourcing and software vendor, and if it succeeds, it may set a trend for many software vendors – and perhaps even outsourcing vendors – to follow.

Thus far, Oracle’s outsourcing business has been very successful. In its last fiscal quarter, Oracle reported an 80% jump in revenue from its outsourcing business over the same quarter a year ago. Many of Oracle’s marketing initiatives have focused on its outsourcing business, and comments by CEO Larry Ellison certainly suggest that Oracle is planning to make services a larger part of its overall business.

Oracle also is demonstrating a willingness to separate its services business from its software business. At the end of last month, the company announced a new pricing scheme for its outsourcing services that charges customers a per-user fee. This differs significantly from the previous pricing model, which was based on a percentage of software license fees. Clearly, Oracle recognizes its customers’ need to purchase services separately from software.

However, Oracle also is leveraging its status as a software manufacturer to save customers money. As the maker of the core applications that underlie business processes, Oracle can deliver, implement and maintain its applications at a lower cost than any user – or even third-party integrator – could do. Essentially, it gives its outsourcing clients an “in” with their software manufacturer that makes it easier to get support and expert implementation advice.

Oracle’s proposed acquisition of PeopleSoft could further this strategy by adding more applications to its services portfolio and a larger stable of professional services experts. While many observers have pegged the hostile takeover bid as a stunt to grab software market share, the acquisition of PeopleSoft actually could make Oracle a much greater threat as an outsourcing provider. A major software vendor that offers BPO services on Oracle, PeopleSoft and J.D. Edwards (acquired by PeopleSoft last year) applications could be a real competitor in the outsourcing market.

Will Oracle’s outsourcing model succeed? For enterprises that already have selected Oracle software as their primary solution, the Oracle offering could be very attractive in the days ahead. But for those who are on the fence about Oracle’s software, or are using multiple vendors’ applications, Oracle remains too limited in its solutions to be a viable option.