LogFire acquisition a microcosm of Oracle’s logistics cloud strategy

There has been a lot of tech news in the last week or so, with an audacious announcement from Daimler Mercedes of particular note. LSPs have themselves been active, with Kuehne + Nagel’s partnership with Transporeon also an interesting development.

Amidst all of this one story that has somewhat flown under the radar is the acquisition of cloud-based WMS provider LogFire by Oracle.

There was a time when Oracle founder Larry Ellison was repeatedly cited dismissing ‘the cloud’, but the company he set up has since bought up many businesses pitching Software as a Service (SaaS) to enterprise clients. A high profile example from July is Netsuite, the cloud-based ERP provider in which Ellison himself maintains a significant private shareholding.

LogFire offers an integrated warehouse, inventory, and workforce management platform, provided as SaaS. The company runs a public cloud model, which means that, following installation, it is able to perform ‘single instance’ updates, which remotely update all users’ software simultaneously. One of the advantages of this model is that it significantly cuts expenditure on costly local updates, which require engineers to visit client data centres in person; this activity is currently a major source of revenue for Oracle, and therefore solutions that circumvent it present a disruptive threat.

In order to head off the challenge from cloud-based enterprise software competitors, Oracle has devoted significant resources to building out its own cloud offering in recent years. For example, the company expanded its Supply Chain Management (SCM) Cloud suite with two new product offerings in October 2015; Oracle Planning Cloud and Oracle Manufacturing Cloud. Nonetheless, the WMS and inventory management software provided by LogFire fits a gap not covered by the existing solutions within Oracle’s SCM Cloud service offering. This made the company an attractive target, especially when also considering that LogFire announced the integration of its WMS with Oracle Transportation Management (OTM) Cloud in August 2015; creating “the industry’s first 100% cloud-based supply chain execution convergence solution”, in the words of the two companies.

Oracle has always been an acquisitive business, but in recent years the company has been driven by a recognition that it must transition to cloud-based software services in order to remain at the top of the enterprise software pyramid.

As things stand, Cloud business accounts for 7% of Oracle’s total revenues, whilst traditional software licences make up 25%. Whilst the former is growing, the latter is contracting rapidly, and even with headline purchases such as NetSuite, Oracle still has the problem of a declining profit margin; this is a looming issue that most cloud businesses are yet to address.

It is likely that there will be further M&A activity in the supply chain software space. Oracle is not the only large enterprise company looking to the future, and with many ‘born in the cloud’ companies also pursuing targets, many founders will be presented with offers that are too good to refuse. Watch this space.

More Insight?

Source: Transport Intelligence, September 13, 2016

Author: Alexander Le Roy