Monday, August 20, 2007

Friday, August 03, 2007

The View from Oracle OpenWorld in Shanghai (AMR)

The View from Oracle OpenWorld in Shanghai
by Bruce Richardson - Chief Research Officer

It was 4:10 a.m. on Sunday when the alarm clock went off. By 5:00 a.m. I was at Logan Airport, only to find that the 6:30 a.m. flight to Chicago was delayed for an hour. Even at that early hour, Logan was pure bedlam.

We managed to make up some of that delay on the flight to O’Hare. Despite my initial concerns, we had ample time to make the connecting flight to Shanghai. We left at 10:30 a.m. central time and arrived the following afternoon just after 2:00 p.m. Despite losing a day in the air, we never encountered night. We followed the sun as the flight took us over Wisconsin, Saskatchewan, British Columbia, Alaska, the International Date Line, the edge of Russia, and northern Asia.

As we approached the airport, I was struck by how the water and the sky were the same color, a burnt reddish brown. I had been warned by a colleague about the increased pollution in Shanghai, but had not expected this. Fortunately, that color palette was confined to the airport. Shanghai, though, was in the midst of the worst heat wave in over 60 years. During the time I’ve been here, the daytime temperature has hovered around 100 degrees (38 degrees centigrade). Right now, it’s 100 degrees, with 42% humidity and a dew point reading of 77%. According to, it “feels like 113.” Nice.

While there was a bus to the conference, I preferred the six-minute walk from the Shangri-La Hotel to the Shanghai International Convention Centre. As you might surmise, this was always a bad idea. I’d arrive for a meeting looking like I had just lost a water balloon fight. Even at midnight, the city was too warm and muggy.

Outside of the initial flight delay and the hazy, hot weather, the only other disappointment was the discovery that the new Verizon BlackBerry 8830 World Edition Smartphone was hardly the global tool I was promised. Despite numerous calls to my IT department and Verizon, I could not send or receive e-mails or use the browser. The phone and text messaging worked great, but that’s not really the point of the BlackBerry. The BlackBerry issue seemed to be confined to Verizon and this particular model. Ironically, the phone had turned itself back on after I had put it away—it must have touched something inside my briefcase while flashing the “press any key to abort” message while I was turning it off. When I got to Shanghai, I had received a dozen e-mails while traversing North American airspace, but nothing after that. Maddening.

China’s economy hotter than weather: +11.9% for 2Q07, +11.5% for first half

The Shangri-La sits high over the Huangpu River. The other side of the river features a diverse mix of older European-style buildings from the first few decades of the twentieth century and new Manhattan-like skyscrapers. One Oracle executive told me that the area where my hotel sits was a rice paddy only 10 or 15 years ago. It seems hard to believe until you consider the rapid rise of China’s economy. A few weeks ago the Chinese government reported that the economy grew 11.9% in the second quarter and 11.5% for the first half of the year.

Like the architecture, the China of today is a mix of the old and the new. While the business pages of the Shanghai Daily were trumpeting the $15B invested in computer equipment and telecommunications manufacturing in the first half of this year, the front page focused on the continuing attempts to rescue 69 miners trapped in a flooded coal pit. As the paper pointed out, the Chinese coal industry is the world’s most dangerous, leading to an average of 13 deaths per day. As I write this, every few minutes a barge loaded with coal floats by on the Huangpu.

Oracle in China: 1,500+ employees, 800+ partners

I had not been to China since February 2004. Ironically, my host for that trip was Agile Software, now part of the extended Oracle family. As I said last week, I came here to get a better understanding of the Chinese software market, not to hear any new product announcements. Outside of a detailed presentation on the recently announced 11g database, Oracle made no product announcements. The primary news was the announcement of plans to open a new Oracle Asia Research and Development Center (OARDC) in Shanghai. This will be the third in China. Oracle opened the first development center in Shenzhen in June 2002 and the second in Beijing in October 2003.

Oracle OpenWorld Asia Pacific 2007 drew an estimated 8,000 attendees to Shanghai this week. This was twice the attendance of the previous event held here three years ago. About 87% of the attendees were drawn from China, Hong Kong, and Taiwan. Most were partners or employees. Oracle has more than 1,500 employees spread across 13 branch offices in China—there were eight offices a year ago. These resources are backed by more than 800 partners. The vast majority are local firms. These partners are very important to the region as the channel accounts for more than 90% of Oracle’s revenue here.

Unlike the U.S. market, it is harder to discern between independent software vendors (ISVs), resellers, and integrators in China. Often partners play multiple roles. Some also embed Oracle software into devices and other products. To draw ISVs to Oracle database and middleware products, Oracle has opened two partner solution centers that are co-located with the existing OARDCs in Beijing and Shenzhen. To date, more than 150 ISVs have been through the centers to port their applications to Oracle technologies and/or integrate with Oracle applications.

Ironically, the ISV partners include UFIDA Software and Kingdee International Software Group Company Limited. Both are fierce Oracle competitors in the ERP market for small and midsize businesses. Kingdee has been rumored to be an Oracle acquisition target.

7,000+ database customers, 700+ apps customers

One executive estimated that OpenWorld drew more than 3,600 customers and prospects. This figure may be a little low as many business partners paid for their customers and prospects to attend. Nonetheless, this would represent a sizeable number of Oracle’s 7,000 customers in China. Nearly all use its database.

It seems that the large banking, telecommunications, utilities, and energy firms use Oracle’s E-Business Suite, while smaller industrial manufacturers and energy producers and small and large engineering and construction companies deploy Oracle’s J.D. Edwards software. There are some installations of Siebel and PeopleSoft though Oracle executives said that these companies had very little presence here until after Oracle acquired them. To emphasize the point, one executive said Siebel had 16 employees here before Oracle purchased the firm.

Oracle has high hopes for Hyperion sales in China. While its classic customer has been the CIO, the bet is that Hyperion will help open up the door to the CFO’s office. Demand is building here for business intelligence and performance management software.

While walking around the convention center, I was struck by the relative youth of the attendees. Oracle’s major U.S. events tend to attract people in the 35 to 55 range. Here, most attendees appeared to be under 35. One Oracle executive confirmed that buyers tend to be younger here, even in the public sector. I viewed this as a positive indicator for the future of technology spending and deployment.

The real question: how big is the Chinese market?

Given that China has a population of more than 1.3 billion, 7,000 customers seems like a modest achievement, particularly since Oracle has had a presence here since 1989. This prompts the question, how big could Oracle China become? No one I met seemed to have a handle on the size of the potential market, especially the number of small and midsize businesses.

While SAP is acknowledged as the primary threat, custom software appears to be the real competition in the largest accounts. It’s only been in the last five years that the government has encouraged enterprises to use packaged software and offered them incentives.

As you might guess, Oracle declined to break out its revenue for China. Executives would only say that China is the “sixth biggest market” for Oracle and the third largest in Asia, presumably after Japan and India. This could change quickly—China is poised to overtake Germany this year to become the third largest economy after the United States and Japan.

The only real color Oracle provided was on the overall market for Oracle Asia Pacific. The company said that the 29 countries comprising Asia Pacific accounted for $2.499B in FY07 revenues. This was up 24% over the previous year. In the recent concluded fiscal year, Asia Pacific accounted for 14% of Oracle total revenues and 19% of new license sales. Overall, the region represents 35,000 customers out of the total 275,000 customer base.

Reaching new customers through schools and OTN

According to the Shanghai Daily (July 31), Oracle has contributed more than $200M to China’s educational system since 2002. Five years ago, it started the investment with Oracle University which provided online training and certification to 600 participants. Over time it’s expanded down to primary and secondary schools via ( which is a global online community for learning. The focus also includes college interns, new graduates, and post-graduate learning.

During a reception, we spoke with Derek Williams, executive vice president and chairman of Oracle Asia Pacific about his college recruiting plans. So far this year, he’s added 200 new college graduates in 12 cities and has plans for 100 more. He boasted that most have at least two degrees and are tri-lingual—in addition to Chinese and English, they also speak Japanese or Korean.

The overall hiring market is tight with demand exceeding supply. Mr. Williams estimates that they get 10,000 resumes in China for every 100 people they hire. Retention of younger people continues to be a challenge though turnover has yet to approach the levels of India—which has been in the high teens for many firms. The challenge is managing the lofty ambitions of today’s graduates.

While Oracle’s commitment to education has helped build the brand, it also benefits from the growing presence of the Oracle Technology Network (OTN). There are 245,000 members in China, up from 150,000 two years ago. China’s OTN membership is the second largest base in Asia, trailing only India.

Is Pakistan the next China? Who’s the next i-flex?

During one of the receptions I asked one Oracle Asia Pacific executive his views on which Asian country will become the next big market. The next day I asked two more executives the same question. I was stunned that all three instantly responded with the same answer—Pakistan. All three added Indonesia as another market to watch. Apparently some of the Indian IT boom has carried over the border to Pakistan. Rather than pursuing a business or engineering degree, enterprising students are choosing IT for a career.

I also asked the last two executives what they see as the Chinese equivalent of i-flex solutions, the India-based financial services software firm that is majority owned by Oracle. Based on their responses, you may want to keep an eye on Taiji Computer Corp. in the utilities market and Neusoft Group in telco, insurance, energy, and other sectors. Another company to watch is Digital China, a large IT services firm. While unknown outside of its core market, Digital China has emerged as one of Oracle’s top five global partners.

Add Shanghai to your list of must-see cities

On my 2004 trip, I also visited Suzhou, renowned for its Confucian gardens. This time I stayed within a five mile radius of Pudong, Shanghai. Nonetheless, if you haven’t been to Shanghai, add it to your list of must-see cities because of how well the city appears to embrace and manage change. It’s especially impressive when you consider that Shanghai spans 2,239 square miles, or nearly 100 times the island of Manhattan (23.7 square miles). I wouldn’t visit during the summer months, though.

If you come, watch out for the drivers. In some countries, pedestrians have the right of way. Here they are viewed as potential speed bumps. On the walk over this morning, a truck and two taxis attempted to turn me into a hood ornament. It was as though they were practicing their human dodge ball moves.

Next week: Back in the USA

By the time you get this, I will have spent 17 or 18 hours flying home. That’s assuming the air gods are good to me in Shanghai and Chicago. It’s that last leg that is the wild card.

In the meantime, I welcome your feedback and ideas— What do you think will happen in the Chinese market? Will the large software and services firms become major global players or will they be content serving the enormous domestic market? Will Pakistan be the next important global tech market? Should Human Dodge Ball be an exhibition sport at the 2008 Olympics in Beijing?