Oracle surprised a lot of people last week by reporting a jump in earnings fueled by acqusitions and North American business. What gives? Isn't this a company tormented by user dissatisfaction, a competitive onslaught from SAP and the distraction of absorbing a very large company in Peoplesoft?

Yes, but those things have very little to do with Oracle's business, which is humming along with very little reason for concern. The database business is secure, despite the ongoing challenges from SQL Server and open source alternatives. That fact is that for industrial strength applications, Oracle is still the default choice for business, and that is a very good position to be in.

The company's recent moves into the ERP market are intriguing, and I think will ultimately be successful. A lot has been made in the press of the dissatisfaction of Peoplesoft customers with Oracle's stewardship, but in its conference call last week, Oracle claimed that customer retention rates are over 90%. This should be no surprise. ERP systems are pretty much hard-coded into a corporation's IT infrastructure, and the costs and risks of switching can be astronomical. It's good PR for SAP to run something like its Safe Passage Program but you can expect very few customers to actually take SAP up on the deal. Oracle has a similar program, by the way, which will have similar results.

Switching costs are underreported and underappreciated, but they are a great source of business leverage. Computer Associates built its business on this concept. CA bought failing companies for pennies on the dollar and then milked maintenance revenue for income. It's a strategy that isn't always popular with customers, but it works. Oracle knows this, and that is why it's so confident in the ultimate success of its ERP strategy.

The ERP market is now a two-horse race, and Oracle is one of the survivors. Expect it to do very well. SAP, by the way, will do just fine, too. A duopoly is a great competitive situation if you're one of the two companies involved. Customer choice, unfortunately, suffers. That'll be a subject for another post.