News Analysis

Oracle’s banking play

With the acquisition of i-flex, Oracle enters the banking software segment with a bang. Sushma Naik examines the impact of this mega deal.

Oracle has announced its decision to buy a majority stake in i-flex Solutions. The company will acquire Citigroup Venture Capital International’s 41 percent stake in i-flex. It will make an open offer from August 3, 2005 to purchase an additional 20 percent of the outstanding shares from the remaining shareholders at Rs 882.62 per share, with a total cash consideration of about $316 million if the entire 20 percent is tendered into the offer.

Oracle’s strategy seems to be to take over vertical-specific enterprise solution providers in different verticals Alok Shende Director, Technology Practice Frost & Sullivan

Says Charles Phillips, President, Oracle Corporation, “As we enter certain vertical markets, acquisitions such as i-flex are going to be important components. After talks with customers, Oracle figured out that global banks were concerned about betting their core applications on a relatively small vendor. This deal gives i-flex the scale by which it can bag a bigger slice of the banking pie.” The banking segment already has 17 of the world’s top 20 banks using Oracle applications.

With this, the i-flex-Oracle combo will aim to be a tier 1 end-to-end supplier of banking software. “We plan to set up a joint committee to provide a strategic direction to both companies which will continue to run independently. Through this committee, we will share the roadmap for next generation solutions, and co-ordinate our go-to-market strategies,” explains Rajesh Hukku, CMD, i-flex.

Oracle is looking at moving beyond ERP into vertical-specific enterprise solutions. Add to that regulatory and competitive pressures, and the database giant’s suite appears to be growing bigger by the day.

“Oracle’s strategy seems to be to take over vertical-specific enterprise solution providers in different verticals—the kind of strategy that SAP or Microsoft would like to pursue,” comments Alok Shende, Director, Technology Practice, Frost and Sullivan.

This is Oracle’s second move after taking over Retek, a solutions provider in the retail industry. Retail and financial services are the only remaining verticals without a dominant software player. Both the sectors are prime growth areas for Oracle and its arch-rival, SAP.

Though the deal will not have a huge impact on SAP, it might just be time for the company to concentrate more on verticals that are growing robustly. “Oracle is trying to catch up by buying its way into these markets, but we do not believe that you can buy customers, market share, product portfolios or intellectual capital,” counters Nagaraj Bhargava, Director, Marketing, Alliances and Sales Operations, SAP India.

The impact of the acquisition will be felt more in the long term in the banking industry. i-flex will now be able to access a wider marketplace. By leveraging Oracle’s banking customer base, many accounts will open. “There is no clear single leader, and we will continue to pursue our markets,” says Girish Vaidya, Senior Vice-president, Finnacle, Infosys.

“i-flex is the only one such company that Oracle has bought, and there is scope for more. The takeover indicates a bullish trend for Indian software products,” says Annand Sarnaaik, MD & CEO, Paradyne Infotech.

Now the question is, will SAP take a similar step? Comments Nagraj Bhargava of SAP, “At the end of Q2, SAP's share of the global enterprise applications software market was 58 percent, while Oracle's share, with PeopleSoft and Retek, was 22 percent.”

What does this acquisition mean for the partners of both Oracle and i-flex? Oracle assures that the partners that i-flex works with are going to be the same (the company has a long-term relationship with IBM). The same is the case with Infosys BBU’s Finnacle which is predominantly on the Oracle platform. Oracle says that it will continue to work with other partners and that it has a standard platform which makes it easier for others to work with it.