What Oracle is doing...

The IT stack of any enterprise comprises of the following (I think!):

1) Systems hardware, at the bottom (Servers, Storage, Networking)
2) Systems software, in the middle (OS, Database, middleware?)
3) Business applications, at the top (enterprise applications like ERP, other legacy application, for other business functions like tracking customer orders or for procurement)

Of the three, business applications are the most important to any IT vendor's clients because this part of the IT stack is the one that's closest to the business user. And it's business needs tha drive IT; IT, at the end of the day, being only an enabler.

So the technology vendors closest to the business side of things are the ones who will drive IT purchsing that can enable savvy businesses to do what they do for customers (ICICI lets me pay my Airtel bills online, for example).

IBM made the decision to exit the business applications space quite some time back. This is because IBM felt that it would have a conflict of interest with the thousands of local partners of IBM who build custom applications for clients on top of IBM hardware and software platforms in their local geographies. Another reason was because the market here is very fragmented too.

Microsoft on the other hand, wants it's business partners to evolve, as it has dcided to get into spaces where only the partner worked before (business intelligence, document workflow, security and managed services). MS wants to standardize most of the business aplications that small companies need to use, thereby squeezing its partners, who were building custom applications on top of MS's platform. MS wants to build packaged applications that companies can use off the shelf, without the busieness partner being involved, therefore their need to evolve.

Oracle too is very focused on the applications space (the top layer of the stack), whereby it would then be in a position to drive the platform strategy (the hardware and software platforms on which the applications run) of any company. Acquiring i-flex, which is the most popular business application for the biggest banks in the world, is a step in that direction (vericalization - banking being an industry group, or a 'verical').

• "Banking is a strategic industry for Oracle with nine out of the top 10 banks already running Oracle ERP applications. i-flex gets us there in banking," said Oracle CEO Larry Ellison.

IBM, which makes the platform (hardware and software), but is absent in the business applications space, in a way needs to depend on large players like SAP and Oracle and the thousands of smaller partners to help drive sales of it's servers and middleware software (Websphere, DB2). It is they who decide which platform to use to run their applications. (And it's obviously stupid to expect Oracle to push for anything but it's own database, as a platform on which to run business applications!)

IBM hopes spur demand for it's platform through effective partnering. Also, IBM also has it's mammoth Global Services arm that it can leverage.

It'll be interesting to see how will things will play out in future!!