Oracle makes early bid to lead in utility computing

The notion of “software as a service” has been extolled for several years now with limited success. Now it appears that Oracle is preparing to take the idea to the next level.

In his keynote speech last month at OracleWorld, CEO Larry Ellison put new stakes in the ground to mark the company’s drive toward utility computing and IT as a service. Although Ellison is known for pushing the envelope in his public addresses, some of his statements suggest that the company is serious about establishing itself not only as a software leader, but also as an outsourcing service provider.

IT is rapidly becoming a commodity, Ellison said, and he predicted that in the future, “Silicon Valley will more closely resemble Detroit.” Ellison predicted that the computer industry will shake out and be dominated by a few giants that offer IT services in a utility computing model.

Half of Oracle’s customer base will adopt utility computing and/or on-demand technology and practices within the next three to five years, Ellison said. The notion of a shared infrastructure based on grid computing is a viable alternative to relying on ever-larger servers for enterprise computing, he said. Large servers are expensive and difficult to upgrade, Ellison said, and they represent a potential single point of failure.

Utility computing environments will be more highly available than large server environments, and can provide a better way to balance processing workloads, Ellison stated. A utility computing environment with centralized identity management would be more secure than multiple, dedicated servers with their own lists of authorized users, he said.

“[Utility computing] offers 10 times the computing at one-tenth the price. The economics are compelling,” Ellison said.

While such bold statements are not unusual from Ellison, Oracle does appear to be taking steps to back up his assertions. Oracle’s new 10g database, which is scheduled for general availability later this year, is a “self-managing” database geared to work well in utility computing environments with a shared, automated server infrastructure. By eliminating some of the customization and hands-on management effort required, the 10g database could be an ideal platform for an Oracle service offering and/or third-party outsourcing services based on the technology.

Oracle’s bid to buy out PeopleSoft, which many observers had pegged as a ruse to smear the competition, also doesn’t appear to be going away. On Sept. 4, Oracle reaffirmed its intent to acquire PeopleSoft, after raising its bid a few weeks earlier. It has extended its offer, which previously had been scheduled to expire on Sept. 19, to Oct. 17.

On paper, the PeopleSoft deal appears to be a red herring, since Oracle already has most of the technology that PeopleSoft has to offer. But as we’ve stated previously in this column, the addition of PeopleSoft and J.D. Edwards to its arsenal could make Oracle one of the most widely used application service providers in the world. Aside from customers, the PeopleSoft deal would bring Oracle the staffing and service models it needs to become a first-rate outsourcing service provider in the enterprise applications space. It appears that Oracle is serious about pursuing that avenue.

There are many reasons to doubt Oracle’s ability to become a leader in the outsourcing space. Its record as a software provider is strong, but its record as a service provider is spotty at best. Enterprises would be smart to take Ellison’s assertions with a grain of salt.

However, if the utility computing model does take off, and if IT becomes primarily a service provider/utility provider game, then Ellison’s statements – and some of the business steps Oracle is taking today – may look prophetic. In any case, Oracle’s stake is in the ground, and it will be interesting to see if the industry rallies to it.