Micros Matters

For those who missed the news, Oracle is making its biggest acquisition since it picked up Sun Microsystems - and one wonders what it has done with the chip/server/OS manufacturer since - in 2009 for $7.4BN.

Oracle is acquiring Micros Systems for $5.3BN.

Micros? Who is that?

Unlike the acquiring company, Oracle, whose name is well-known in general markets both as a tech icon and due to its very public founder/CEO Larry Ellison, and last acquisition Sun Microsystems, yet another tech icon and whose CEO also spoke with, shall we say, some flair, Micros is almost completely unknown by the general public. Who is Micros, and what do they do to make them interesting to Oracle?

Micros sells Point-of-Sale (POS) systems - hardware and software - to retail and hospitality companies. POS are those systems you use to check out of WalMart, the Apple Store, Hilton and Pizza Hut. There are 2 key elements to the POS business:

1. Flow: Getting the flow right, so you capture exactly the information needed - items sold, payment method, consumer address if necessary, how many minibar drinks they used - in the minimum time necessary is extremely important. Not only does it move customers through the tedious part faster, thus leaving them happier and more likely to return, but the seller has a real - and expensive - human on the other side of the counter. WalMart checking someone out in 60 seconds vs 90 seconds can mean billions in savings across its chain of stores over a year.
2. Data: POS is where all of the data is captured. There are lots of ways - and lots of software packages - to do analytics, but first you have to capture it correctly. Once you have the data, you can do lots of calculations on it afterwards.

So why does Oracle - famous seller of databases, as well as some back-office financial management systems (PeopleSoft), some hardware (Sun), and some "sort-of kinda" cloud offerings, all to the entire business world, want with retail and hospitality focused under-the-radar Micros?

As an aside, looking at Micros' annual report, it is incorporated and headquartered in the State of Maryland. It is rare to see a software company headquartered in Maryland, as opposed to the natural locations such as CA, TX, MA, NY and VA, with more lately in CO. More interesting, it is extremely rare to see a company actually incorporated in MD. Companies want to be able to do combinations and transactions, maintain some level of privacy, and deal with outside parties and shareholders. Delaware has always been the best place to do it, which is why so many companies are incorporated there. Either way, Micros will soon be absorbed into (Delaware-incorporated) Oracle.

Sure, Micros' $1.27BN in annual revenue and $227MM in profit are a pittance compared to Oracle's $37.1BN in revenue and $10.9BN in operating profit; its margins are actually smaller at 17% vs 29%!

Micros, however, has several key assets that Oracle wants, and a possible signal of shift in strategy:

1. Cloud: Oracle has really struggled in the cloud (see my previous post). They have managed to sell a significant amount of hosted software, largely because PeopleSoft really is such a pain to install and manage onsite, and, after all, who wants to go back to the capex committee in 3 years for another few $MM. But it has never really gotten the SaaS business. It just isn't Google or Salesforce or RightNow or anyone who really get the cloud - how to build it, operate it, develop it, market it, sell it. Maybe it just doesn't want to cannibalize its software business, but everything I hear says it is more cultural than hesitant. Buying a company that actually operates customers in the cloud - markets, sells and keeps them happy there - is a big deal for on-premise-centric Oracle.
2. Domain: Oracle has always sold "software for everyone." Oracle 12c isn't a database for Retail, or Manufacturing, or Software, or anything. It is a database for everyone and everything. PeopleSoft isn't CatalogERP or GovtERP or AirlineERP, it is everyone ERP. Micros, on the other hand, really knows hospitality and retail cold, and thus will win, 9 times out of 10, against a generic vendor. Does this mean Oracle has decided it needs to build businesses focused around specific industry verticals? This would signal a major cultural and organizational shift for the company.

As always, in the end, it is cultural. I have no doubt that Oracle's well-oiled acquisition integration machine will pick up all of Micros' business and grow it. Whether it will be worth the 2-3x or more the acquisition price to Oracle really depends upon how well it can learn from and integrate the cloud culture, with which it has struggled internally for so long, and the domain expertise.