Will customers buy into Oracle's modern-day mainframes?

How about that stack, Larry...

Oracle is making a big play to cash in on the simplification of enterprise IT environments with "engineered systems," the collection of vertically integrated appliances that debuted five years ago with Exadata.

While Oracle insists customers who enter into the Big Red cocoon will reap all kinds of benefits, some may be hesitant to buy into Oracle's one-throat-to-choke mainframe model.

Oracle's engineered systems are like modern-day mainframes. They include all the hardware-like processors, memory, spinning hard disks, flash-based hard disks, Infiniband connectors, and power cords and the software like kernels, operating systems, hypervisors, file systems, databases, middleware, management tools, and applications - all in one handy dandy container.

The IT giant says its engineered systems are "pre-integrated at the factory" in Oregon, where they're assembled using "best of breed building blocks".

While the hardware is mostly industry standard and commodity level, Oracle says its "secret sauce" is the design that goes into engineered systems, which are, in effect, private cloud platforms that Oracle will service and maintain for customers through a single "premiere" support agreement.

Since there's no need to cobble together IT pieces from different vendors, there's less validation and testing work involved, and future software upgrades are less likely to topple what would normally be a system very sensitive to change.

Patches are applied automatically by Oracle once a quarter. They also feature automated error detection at multiple levels of the stack, just like IBM mainframes, and a five-minute response time commitment from Oracle.

Best of breed

"We're taking those best of breed parts and vertically integrating them," Oracle president Mark Hurd said recently during an interview with Independent Oracle Users Group.

"We do that to deliver extreme performance and total cost of ownership. We design the technology explicitly for the stack. We fine tune it. We optimise it across all of those layers so that we can deliver better performance, better reliability, better security… more manageability, etc."

In an industry that breeds complexity, this mantra of simplifying enterprise IT components has a powerful appeal. And to be sure, Oracle isn't the only system vendor taking such an integrated approach. IBM, HP, EMC, NetApp, Cisco, and Intel all have irons in the consolidated server fire, which Gartner predicts will account for 35 percent of server sales (by revenue) by 2015.

Trends are cyclical in the IT business. Mainframes were supposed to die off 20 years ago, when the rise of the PC-led organisations to distribute IT processing capacity. Now organisations want to centralise IT processing again, hence the shift back to the mainframe model that made IBM a ton of money between the 1960s and the 1990s.

"Oracle's strategy, at the end of the day, is they want to be IBM," says R "Ray" Wang, principal analyst and CEO of Constellation Research. "On the high end, there's only a few players left [in the mainframe business], and IBM is one of them. And Oracle is going to be the other one if they keep doing what they're doing."

Do the sales numbers bear them out?

During the second quarter of fiscal 2012, the company says it sold 700 all-in-one servers, a 70 per cent increase over the previous quarter. Most of this is probably the five-year-old Exadata database appliance, but Oracle didn't break down the numbers.

Sales of Exalogic, which was designed and tuned to run Oracle Fusion middleware and Java applications, is also basically doubling every quarter, according to Oracle. Exalytics, which is pre-tuned at the factory for analytic workloads, was just released at the end of 2012.

The smaller Oracle Database Appliance is making headway with smaller customers, but the three other systems - Oracle Big Data Appliance, the ZFS Storage Appliance, and its latest Sparc T4-4 SuperClusters - have yet to make a big splash.

Engineered systems: a possible turnaround solution

The company is betting heavily on its engineered systems to turn around its hardware business, which has dropped precipitously since it acquired Sun Microsystems. While some of the components are there, especially around database, storage, and clustering, it still has some work to do with Fusion middleware and Fusion applications, analysts say.

When the stack is built out, it could be extremely lucrative for Oracle, which is banking that the "attach rates" of software, support, and service deals that go along with engineered systems sales will drive a lucrative, long-term stream of maintenance revenue. And that, of course, is where the real money is for Oracle, which recognises nearly half of its total revenue from software maintenance and support.

The benefits of engineered systems are clear for Oracle. As customers entrust more of their enterprise IT stack to Oracle, the California-based company benefits through growth in its high-margin maintenance revenue stream. It gets a shot at replacing HP, IBM, and Dell gear in Fortune 500 accounts that already run its software, and consolidating its footprint. It's a big time mainframe play, with a 21st century cloud twist.

But the benefits to customers are not as clear. Oracle contracted the Edison Group last year to write a whitepaper that tries to quantify some of the customer benefits of taking a vertical stack approach. In the paper, titled "The Optimized Stack: Reducing TCO through Vertical Integration," Edison compared Oracle's pre-integrated two-socket and four-socket servers against similarly equipped servers from HP and IBM.

Edison concluded that the three-year total cost of ownership of Oracle's two-socket machine was 61 percent cheaper than the TCOs of HP and IBM servers.

The bulk of the savings came from lower licensing and maintenance costs for the operating system and hypervisor components of Oracle's systems (Oracle Linux and Oracle VM) compared to the IBM and HP servers, which used Red Hat and VMware.

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