Agenda Setters: Oracle comes under fire over incubator scheme

Oracle has come under attack over its database incubator scheme, with experts and rivals warning entrepreneurs to think carefully before they buy into it.

The database giant's incentive scheme for dot-com start-ups allows companies to buy heavily discounted products for a combination of cash and stock. But according to experts, this approach can have serious pitfalls.

Darren Neylon, CEO at Venturedome, an online information service for the venture capital industry, said start-ups which opt for the equity stake model often end up losing up to 40 per cent of their equity to the investor and this scares off some entrepreneurs. He added that it is important for newcomers to the market to study the options available.

"It is very important control of the process remains with the entrepreneur. They need to get the expertise of the market leader, but without loss of control," he said.

John Griffith, managing director with ecommerce provider Intershop, added: "Oracle, and companies like it, have to be careful not to appear to be buying their own revenue. We invest in a company because we're interested in their technology, or because they have software that complements ours. It has to be seen to be done in a way analysts deem to be fair - because, at the end of the day they control the share price."

Meanwhile, Janet Perner, head of data management at IBM, said the scheme is all about self-proclamation. "Oracle has been successful in proclaiming leadership in the dot-com sector but it's not clear to me that they've been successful in actual engagement around dot-coms," she said.

She claims IBM has taken a different approach, by encouraging start-ups to invest in applications with a price structure tied to the growth of the company.

Janet Perner is currently appearing in an Agenda Setters interview in silicon.com's Knowledge Management Channel (http://www.silicon.com/a37936 ).