Oracle CEO Mark Hurd on the looming transformation of enterprise IT

Enterprise business leaders want a simpler, more economic value proposition from the IT industry — and that transformation will cause a huge shake-out over the next decade or so, Oracle CEO Mark Hurd told an audience of industry analysts at the company's Redwood Shores headquarters yesterday.

When a Gartner analyst asked what the future held for Oracle customers, Hurd's reply looked back over two decades of industry history to explain why enterprise customers are now demanding a new type of IT.

It all began to go wrong in the 1990s, he suggested, when IBM lost its pre-eminence as the company that supplied vertically integrated IT solutions in which all the components were optimized to work together. Instead enterprises started buying different components from multiple vendors, and then found they had to pay systems integrators to get them to work together:

The customers began to buy in piece parts. They'd buy microprocessors from somebody, they bought databases from us, operating systems in some cases from several companies. It's amazing that customers decided this economic model was to put all this crap together by themselves.

And then what happened? They determined they couldn't, and what evolved into the systems integrators became — whatever you guys think the size of it is — a $200 billion business, to be the glue between the vendors and the customers.

It's not proven successful

Although this became the dominant model for delivering enterprise IT, it has proven deeply unsatisfactory, says Hurd:

If you dial this forward 20 years, this has proven to be incredibly uneconomic. It's proven to be stifling. It's proven to be the cost of maintenance.

When you guys tell customers to start procuring their way to success and buy open source, and build your own R&D teams and all this stuff — if you go back ... over 20, 25 years, it's not proven to be a successful strategy.

It's gotten to these customers where 90-95% of their budget is maintenance and they simply can't afford to innovate.

Business leaders are now pushing back against this established model and looking for an alternative approach, Hurd believes — even though this is not a point of view that's popular within IT.

There's lots of resistance in the IT community, much of the people you [industry analysts] talk to, because it is very threatening, what I'm talking about.

But at the end of the day if you're a CEO, if you're a CFO, and you're sitting trying to make these companies work, I think you're going to find a little bit of this going back to the future — which is, how do I just make this simpler? And in the context of simpler, how do I make it more economic and how do I make it more secure?

Transformation of enterprise IT

This is creating pressure for a fundamental change in how IT is delivered, Hurd believes.

I think these points within the room are bigger than Oracle. They're bigger on, how do we get this industry transformed to make this more like a utility? A secure utility that has an elastic nature to it, that has the ability to variabilize the expense, that has the ability to turn budgets into innovation as a percent of the total budget, as opposed to make bits of 20-year-old stuff.

I think this transformation will take a decade. And I think these things we get caught up in — these terms you guys run around here in — big data and AI, everybody's excited about this latest thing of the day. The bigger issue is, how do you get this functionality and capability in the hands of customers, without them having to do all of this heavy lifting and all of this hard work?

The transformation involves moving to the cloud, but it's part of a multi-year process, he explains.

Is cloud the answer? I think cloud is a very big part of it, because it starts to move the work.

I've made predictions and I'll stick by them again. I think most data centers go away, and the companies won't have corporate data centers. Most of them go away in the course of the next six to seven years. Some of you guys have even got material out on this. 15-18% of data centers closed just last year alone.

I think most of the apps move to the cloud. If they are legacy apps they move to run on somebody's infrastructure in the cloud, if they don't get rebuilt or repurposed to a more modern application.

I think this stuff we're talking about is a multiple year, five [to] ten year view of the things that have to get done to enable this sort of transformation and vision of where the industry heads.

On-premise gone

It's important to remember that customers are driving this, he concludes, warning that IT vendors who don't adapt fast enough will be left behind.

This is not driven by vendors, it's not driven by us. Remember what's bigger, to me, about the cloud isn't so much the technology. It's just as much about the business model. it's just about what the customer needs to do to enable their business. Not what just drives from Oracle out. I tend to look at it more from the customer.

That's my view of what happens. I think this is a huge transformation of our industry. And when you look ... at the ledger of on-premise companies and cloud companies, I think most of these on-premise companies that really don't have a distinct value proposition and a technical strategy to be able to help the customer enable the move from here to there, I think over the course of several years most of them go away. Gone. By definition.

Because if you can't help the customer get from here to there, you're worthless to the customer. You're only valuable in terms of short-term maintenance of their legacy product.

My take

This is a lightly edited verbatim account of Hurd's comments, which I've interspersed with my own introduction and linking sentences to give some additional structure. There's much more to report from yesterday's analyst event but I felt this one answer by Hurd was worthy of singling out for special attention. While his comments were targeted at a specific audience, they're notable for how closely Hurd sides with the business leaders' point of view and against the IT establishment.

This marks an important shift for Oracle itself. One point that Hurd omitted from his historic review was the extent to which Oracle helped to architect IBM's downfall, and became a prime beneficiary of the systems integrators who encouraged enterprises to cobble together their own solutions from best-of-breed components. Hurd of course was at NCR at the time, and didn't join Oracle until 2010. Without that prior association, he is therefore free to now disown that history as Oracle aligns itself for the next transformation of enterprise IT.