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Oracle purchase strikes at SAP's retail push

Oracle's planned acquisition of retail software maker ProfitLogic adds clout to its products for retailers and strikes at SAP's retail push in the U.S., according to analysts at AMR Research Inc.

Oracle is acquiring privately held ProfitLogic, a retail software vendor focused on merchandise optimization technology, in a deal announced at close of business Tuesday, July 5.

The ProfitLogic technology significantly enhances Oracle's core merchandising and demand analytic abilities.

AMR Research Inc.

Deal terms were not disclosed, but the transaction is expected to close by the end of this month, subject to appropriate approvals.

The Bottom Line: ProfitLogic brings a new level of industry and technology ability to Oracle as Oracle continues to fight for leadership in the retail enterprise application suite market. An immediate, effective integration and migration roadmap for all of Oracle's acquired retail technology is a must if it wants to win.

What It Means: Oracle has formed an aggressive Retail industry strategy that began with its recent acquisition of Retek. While Retek's enterprise footprint established a powerful retail foundation for Oracle in its hyper-competitive battle with SAP, the ProfitLogic technology significantly enhances Oracle's core merchandising and demand analytic abilities.

ProfitLogic, the leader in price optimization for softlines retailers, has emerging planning and allocation capabilities that further capitalize upon its demand analytics platform. These softlines' abilities complement Retek's (now Oracle's) demand intelligence platform that historically was more applicable to longer lifecycle, hardlines-oriented merchandise.

Additional insights on this acquisition include the following: Oracle is deadly serious about the enterprise retail software market. While this acquisition may add to short-term ROI hurdles (the scale of which is dependent upon the ProfitLogic purchase price), it indicates a major intent by Oracle to make use of its financial and organizational resources as it strives for long-term industry leadership in enterprise software and core technology.

It also shows that Oracle has a realistic view of the importance of incremental softlines pricing and demand intelligence functionality needed to complement the Retek suite.

The Takeaway: Retailers with advanced softlines demand intelligence needs or that desire better retail pricing and planning platform capabilities from Oracle/Retek will need to give closer consideration to the planned product resulting from this acquisition.

Oracle's overall retail integration plan is unclear. In the near term, Oracle plans to sell and support both companies' products, albeit through a combined organization. It will maintain ProfitLogic's Cambridge, Mass. location, where access to academic analytical talent has been valuable. ProfitLogic's markdown price optimization customers should see little short-term change because it is mostly complementary to the Retek suite.

The situation gets a bit murky when reviewing ProfitLogic's emerging planning applications and its overlap with Retek's similar abilities. Ultimately, Oracle plans to integrate ProfitLogic's functionality within the existing Retek product suite. It intends to power the integrated application suite with a broad, demand intelligence platform, reaffirming messages delivered during a recent Oracle/Retek town hall conference call.

Combining retail optimization technologies will be a significant effort because ProfitLogic and Oracle have used entirely different platform architectures in their current optimization systems. One or both of these engines will need to be rebuilt to achieve a common architecture.

SAP's retail push:

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Oracle will encourage customers to move to this integrated platform when it is built. The Takeaway: Oracle needs to quickly communicate a clear support and migration plan to all current and prospective customers, made more complicated now that the plan has to incorporate existing Retek, ProfitLogic, and Oracle technologies.

Retailers considering any of these should insist on reasonable software investment protection terms.

There is still work to do in fully meeting retailer functionality priorities. The Achilles' heel for Retek and ProfitLogic software products is workflow and usability. Retek's retail planning abilities in this area of functionality—as outlined in the AMR Research Report "Advanced Retail Planning: Achieving Effective Demand and Merchandise Synchronization," January 2005—are limited, offering a traditional spreadsheet look and feel. While recent reviews of ProfitLogic functionality show some progress, there is still work required to provide the merchant-centric user interface functionality that retailers want today.

The Takeaway: To successfully capture retailer mindshare and big market share gains, Oracle will need to go beyond investing in analytics and address the full range of retailer functionality requirements needed in an enterprise retail software suite. Oracle is putting pressure on competitors in different ways.

This deal takes an acquisition option off the table for SAP, which must accelerate needed softlines demand intelligence functionality to retailers through another demand intelligence platform available for sale or internal development.

The acquisition also places additional competitive pressure on retail suite providers such as Evant, GERS Retail, i2 Technologies, Island Pacific, JDA Software, JustEnough, Nexgenix, NSB Group, SAS/Marketmax, and Torex/Compass, which directly compete in the softlines space. Since it will take Oracle time to achieve its vision of a common demand intelligence platform, there is still a window of opportunity to successfully compete as retailers heighten their interest in new optimization software options. The Takeaway: The key vendor success criterion for winning retail software deals is to ensure a strong analytics platform with support for all merchandise types. Vendors shopping for acquisition options will need to move fast, as available "engines" with these types of capabilities are in short supply.

Retail vendor consolidation is far from over. Expect continued consolidation among retail vendors as companies look to rapidly build the enterprise suites desired by retailers. Larger Enterprise Resource Planning (ERP) vendors wanting to offer specific industry capabilities now have a heightened need to fill functionality gaps as quickly as possible. As the industry shifts to a product management approach from a reliance on funded development, smaller point products will seek out merger partners with the required resources.

The Takeaway: Ensure that vendor software license and support agreement terms adequately mitigate any consolidation risks.

Recommendations for ProfitLogic customers and prospects: Oracle's newly created retail business unit, led by Duncan Angove, is likely to infuse additional development and support resources toward ProfitLogic's products. Current markdown optimization customers should stay the course as they will see little short-term change, since Oracle will lead with the ProfitLogic platform because it has no competing application.

Retailers considering or implementing ProfitLogic's planning applications need to insist on immediate clarification of plans for areas that overlap with the Retek suite. ProfitLogic users that are not Retek clients will need to evaluate Oracle's long-term integration strategy for compatibility with internal application strategies versus other available options.

Retailers seeking outside systems integration assistance will have plenty of options. Oracle has affirmed an intention to continue ProfitLogic alliances with IBM and Kurt Salmon Associates (KSA). Oracle/Retek alliance partner Accenture will also be part of the mix as a further augmentation of the available resource pool.

Recommendations for Oracle/Retek customers and prospects: Oracle/Retek customers that are also users of ProfitLogic should stand pat. They will see little short-term change and are well positioned to take advantage of Oracle's migration approach.

Retailers should ask Oracle what plans it has to deliver promotion optimization, given ProfitLogic's acquisition of technology assets more than a year ago that still have not been productized and the natural fit this would have with current offerings.

Progressive retailers willing to explore new opportunities should consider the type of agreement they could get from Oracle if they were willing to be a lead or launch customer of a new product.

Prospects looking for a broad set of capabilities should negotiate advantageous terms for a bundled application suite.

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