OOW17 - Larry with nuance, contextualizing Oracle OpenWorld's key messaging

What was he thinking? Many people couldn’t understand or relate to Ellison’s over the top performance at the Churchill Club in 2009. (see above)

In it he denigrated clouds as just so much vapor and cloud computing as marketing hype, something the venture capital community was promoting for its own purposes.

But an evening earlier Ellison, sitting for an interview for a Harvard Business Review report, played the futurist; the bad boy was not gone but a different personality was on display for the pages of the sedate business bible. In that Interview he said,

I think the software industry will vanish and will be replaced by a service industry. In this service industry a company will no longer buy its own computers or hire its own staff to automate its business. Instead, it will buy an automation system that’s on the Internet. So the e-Business Suite will not be something that runs on a Sun computer you install at your company. The e-Business Suite will run on hosted computers at Oracle, alleviating the headaches associated with managing software and hardware.

Many years prior, Ellison toured the country doing keynote after keynote declaring that the time was coming where we would all have network computers and, as Den Howlett recounts, telling his audiences that as an industry,:

I have to apologize. For years we've been selling you the wrong software. It's all going to run on a vast network.

That was bang slap in the middle of the client/server computing ramp up. Many people forget that.

You might be tempted to ask again what he was thinking but the events of the just completed Oracle OpenWorld offer a glimpse into a Byzantine battle strategy. You could say that Ellison was caught flatfooted by the cloud revolution but he wasn’t exactly caught so much as he found himself between a rock and a hard place, Scylla and Charybdis.

The earlier quote captures a true representation of what he knew was going on. But he knew that his customer base wasn’t ready for the big switch and, truthfully, he also had to know that the cloud was far from ready to take on the rigors of enterprise computing. There would need to be an interim period in which business got done and traditional computing soldiered on. It would be reminiscent of the 1990s when PC networking needed time to catch on.

The turn of the century, or actually the years leading up to it were a yeasty time in tech with many new ideas percolating and Silicon Valley was awash in venture capital thanks in part to the Clinton Administration. In a grand bargain in mid-1990’s Bill Clinton managed to raise taxes and turn a federal surplus, which he applied to the national debt. It was something that would be unwound by the next administration in a move that foreshadowed Donald Trump’s undoing of the Obama legacy.

But the important part of the tax increase, for this story, is that wealthy individuals faced a Hobson’s choice: pay higher taxes or invest in risky venture capital funds and hope for some deductions off their losses. For the wealthy, losing money to higher taxes was predictable but losing it in venture funds was only probable. So, money went into the funds at a rate that tripled the decade’s annual average rate by end of the century topping out at $100 billion in Y2K.

That was colloquially known as the dot-com bubble and Oracle alumni such as Marc Benioff, Tom Siebel, Evan Goldberg, Zach Nelson, and others fanned out across the industry starting companies in CRM and back office though they weren’t all born in the cloud. There was a bit of hedging going on, too.

In response to all that, Ellison didn’t jump into the cloud. He was running a big company and needed to show revenue growth but the cloud was still too risky so he achieved growth through acquisition. He bought up a bevy of what would become some of the most important legacy systems including Siebel, JD Edwards, and PeopleSoft, which catapulted Oracle into a leadership position in applications. Ellison then settled into a watchful waiting game.

As a board member of Salesforce for a few years, Ellison had the catbird seat. Salesforce grew to become one of his largest database customers and Ellison watched and learned—and advised. He also knew that the Salesforce style of cloud computing would not be adequate for much of his customer base. It was focused on CRM only and Ellison needed back office, manufacturing, and vertical expertise in addition to the cloud.

All the while, cloud was getting better, more robust, and the upstarts became their own power centers. This next bit is pure conjecture but it seems like Ellison and his team had to, at that point, run a set of simultaneous equations trying to figure out when enough of the customer base would be ready for cloud, when their systems from Y2K would be giving up the ghost, and when he could roll out the kind of cloud solutions that could accommodate most of their needs for infrastructure, applications, and platform. He had to do all this without going broke.

It was a calculus that might have a couple of years worth of wiggle room but not much more. The technology markets are notoriously fickle for implementing sea changes in short order after years of stasis. Some economists call it punctuated equilibrium.

It’s hard to guess the motives in detail but Oracle went on an acquisition binge in the last ten years in which it bought up any cloud company that it thought might fit into a tapestry of end to end solutions it would need to deliver to market in addition to the systems it developed in-house. At some point this might have included thoughts of purchasing Salesforce, whose purchase by some anonymous big company was rumored more than once but by that point Salesforce was too big and expensive to purchase. However, Ellison was a founder and major shareholder in NetSuite, which could have been part of a lifeboat strategy of developing cloud ERP, not just for the small enterprise market only as is the case today.

My take

Whatever the machinations, Oracle OpenWorld 2017 felt like the culmination of a long effort to remake Oracle for the modern computing age. A year ago the cloud strategy began showing signs of real life by giving a healthy bump to Oracle’s earnings. As current Oracle CEO Mark Hurd told a group of analysts during OpenWorld, up to that point,

It was like building a hotel. You can’t start renting rooms on the tenth floor until the whole building is finished. So for a long time you’re just spending money and not getting anything back.

The company invested billions of dollars annually over a prolonged time to build its SaaS and Platform (PaaS) businesses. It spent billions more purchasing Sun’s computer business, an act that many saw as lunacy at the time. Imagine buying a hardware maker when all that production was moving off shore and at a time when Intel had a virtual lock on planet-wide demand for advanced CPUs. But Ellison had big plans for hardware too. He drove development of flash storage systems and other advanced computing that now complement his autonomous database.

There’s more to say but this is a good place to stop.

Larry Ellison isn’t always right and he can be difficult to listen to when letting his inner P.T. Barnum out at the Churchill Club. But he’s been instrumental in building the software industry we have today first when he rolled out the relational database nearly 40 years ago and again as he figured out how to deploy utility computing services today. It’s been a wild ride but always a lot of fun to watch.

Those who were born or raised in Silicon Valley, were in short trousers while Ellison was making his bones and who today sneer at Ellison as a relic of the past, might want to remember this: Oracle throws off more cash TODAY as a LEGACY vendor than any other enterprise software business n the planet bar none. Imagine what happens when his customers finally tip over to Oracle Cloud?

Editor's note - there's a reason why our team are mostly gray hared. We have memories that others don't.