Rebel Billionaire

In an exclusive interview with Massoud A. Derhally, Larry Ellison lets rip on his battle with Bill Gates, nuclear weapons and Chinese tyranny.

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By  Massoud A. Derhally Published  July 3, 2005

Rebel billionaire|~|LARRY-200.jpg|~|BREAKING CONVENTIONS: Ellison says his success is down to challenging ways of thinking promoted by the formal education system.|~|IT’S 7:30 IN THE EVENING and it’s been a long day. Dressed in a blue acrylic top bearing the logos of the BMW Oracle sailing team, Larry Ellison, the founder and CEO of Oracle arrives sporting a tan after taking part in the Louis Vuitton Act 4, one in a series of regattas held to determine the team that will challenge defender Alinghi for the America’s Cup in 2007. Ellison is a confident, outspoken, eccentric and blunt man. He speaks with certainty and is unafraid of entertaining what to some may seem like an unorthodox interpretation of life. In short, Ellison thinks outside the box. This becomes very clear over the span of a one and half hour interview on his 138-metre (452-foot, 8-inch) yacht The Rising Sun in the port of Valencia. On Microsoft, he explains how “Bill and I used to be friends”. On the casualties in Iraq, he points out that “55 million people were killed in World War II.” And on being staggeringly rich, he protests: “I think it comes with a curse.” At 61, Ellison is one of the richest people in America and is estimated to be worth around US$18.4 billion, making him the ninth wealthiest man in the world. It all started when he founded Oracle in 1977, under the name Software Development Laboratories, which he later renamed after the flagship product Oracle database. Getting to the top and being at the helm of the third-largest software producer in the world is not something Ellison intended to achieve when he established Oracle. But now that he has, it is certainly worth noting how the University of Illinois drop-out ended up where he is today. “Questioning conventional wisdom is the only way you get ahead. Innovation is just that. Questioning conventional wisdom is the way you make discovery,” he says. Ellison maintains there is a lot of resistance against innovators and the most important aspect is “thinking for yourself, finding errors in conventional wisdom, finding ways to innovate, and when everyone is doing it wrong you find a way to do it better”. “Our formal educational system rewards a certain degree of conformity that is not very useful in business. Teachers want you to be quite obedient, they want you to answer the questions as they told you … and if you answer the way they told you they give you a better grade. They really do insist on a certain degree of conformity and you are encouraged to listen to what they say and repeat back what they say rather than think for yourself,” explains Ellison. But he also says this is not true of all fields, and that is precisely why he enjoys mathematics. “There is only one right answer — that’s why I particularly like that field; it’s not subject to discussion. It’s no surprise to me that a number of entrepreneurs drop out of college to start companies. The secret of success of entrepreneurship is finding errors in conventional wisdom. The secret of failure in college is suggesting that conventional wisdom is wrong; I am sure Galileo would have flunked his astronomy course.” But that’s only one part of Ellison’s manifesto. “At a certain point you lead other people and that requires a different set of skills; one is clearly communicating what you believe to others, being able to persuade others … being able to explain it and debate it and that these ideas can work. I think communication skills are extremely important.” There are also other lessons that were learned along the way, of course. After years of experience in the software industry, Ellison views the business dynamics of it laterally and many credit him with having the foresight to adapt and change the strategy of his business when others didn’t think he had to. In 1995, for instance, in the advent of the internet age, Oracle became one of the few software companies to unveil a web strategy. But there are also fundamental principles that never change in business and help to explain why companies grow large in some industries and others don’t. “Rupert Murdoch once told me the secret of television is sport. He was right. They said he could never start a network in the US, he started Fox network and it became a successful network,” explains Ellison. “The secret in software is scale and the associated economies of scale. There are tremendous economies of scale in our business; with scale come huge economies of scale so you can spend more on engineering and charge less for products. Scaling of your business is actually crucial to our strategy and I think will be instrumental in our success,” he adds. For many businesses at the moment, outsourcing has become a key ingredient of survival in an integrated global economy and an era of increasing competition. Of the many issues debated in the last American presidential election was how US companies were turning to India to outsource much of their operations because of lower operation and labour costs. Ellison is very much for laissez-faire, organic growth and free trade without government interference. “With outsourcing,” he says, “comes a whole new class of competitors … Companies sometimes implement software to run things internally, sometimes they will outsource the entire business process and it’s a new set of competitors and a new set of potential partners with outsourcing. I think it’s a very important trend and we are trying be a software provider to a number of companies that do outsourcing.” A supporter of free enterprise and capitalism, Ellison is adamantly disdainful of protectionism and unfair competition. “It’s hard to find someone who believes in free trade more than I do. There are limits. You can’t cheat. I think China’s currency should float. It’s deeply disturbing that the country is not a democracy. I think the growth of the Chinese economy is quite dazzling,” he says. “History has shown, as the economy gets stronger, a middle class shows up and demands political rights … tyranny ends and you have a democratic society. The more protected the labour market, the more protected the economy, and the more horrifying globalisation looks, and the more threatening China is.” In 1999, when a US judge ruled that Microsoft was a monopoly, Ellison called on the government to break it into three companies. The fact that Microsoft wasn’t and remains intact and strong has spurred a great deal of talk of a personal rivalry between Ellison and Bill Gates, its CEO. There could be some truth to that, depending on how one chooses to interpret Ellison’s remarks. “The fundamental problem I have with Microsoft, as a company is that they broke the law. When Netscape was one of the most innovative companies in the 1990s in Silicon Valley, they vanished because Microsoft broke the law [and] competed unfairly. I am a free trader and believe in rough and tumble competition. But Microsoft went beyond competition; they paid companies not to put Netscape on computers, and repeatedly broke the law to destroy Netscape. What I find annoying is that they were never punished for it,” explains Ellison. “Bill and I used to be friends. He’s interested in what I am doing at Harvard. He has the largest medical foundation in the world. No [I don’t have] a personal problem with him, it's just business,” he adds. Ellison believes Microsoft’s monopoly is not related to the Windows operating system, but rather the Office suite. “I don’t think Windows is relevant, I don’t think Windows is important at all. Everyone could move to another operating system tomorrow as long as you could have Office. Microsoft’s monopoly will be at risk when there is an alternative to Office." The future, says Ellison, will be all about consolidation. The inflation of the technology market in the 1990s saw the creation of more companies than were needed, only to be followed by the bursting of the technology bubble in the spring of 2000. Drawing on the past, Ellison cites what he considers as failures. “I will never forget the day that a company called Ariba was worth more than DaimlerChrysler … [that] didn’t [even] have a product [but] a feature of a product. It was worth more than the largest industrial corporation in Europe. That struck me as probably not right. It’s not the most bizarre bubble I have ever seen. The most bizarre bubble I ever saw was in 1989 when I was in Japan. We were driving by the Imperial Palace in Tokyo and my host explained to me that the ground the Imperial Palace was on, which was 17 acres, was worth more than all of California. Twice in a ten-year period you saw markets make mistakes of this magnitude. The bubble burst in 2000 and it was in 1989/1990 that the Tokyo stock market bubble [burst].” The software industry today, Ellison says, is maturing — there will always be new and distinct technology, he says, “but for every new idea there won’t be a company around that new idea. I think you will see fewer technology companies going forward, not more.” As a result, Oracle is trying to reconsolidate in the enterprise software business it dominates. Ellison believes Oracle will be able to merge with another major player. “Other companies who are consolidators have done very well … Cisco has done extremely well. It’s a very acquisition driven company; I think they have done an extremely good job during the consolidation phase in their industry,” he maintains. Things looked good for Oracle when it successfully acquired PeopleSoft in January 2005, and it looked like the company may be going on a buying spree when industry insiders speculated Ellison had his sights on Siebel Systems, a provider of customer relationship management software, after it reported low earnings in the first half of 2005. But that has yet to materialise and Ellison declines to identify acquisition targets. But he pulls no punches when it comes to commenting on SAP, a competitor in the enterprise resource planning space. “We are a lot bigger than they are. We are a lot more profitable than they are…we will be able to take advantage of our size, take advantage of our scale; of our cash … we are growing much faster than SAP in application software,” says Ellison. “Our new generation of applications that we are working on are built on top of our middleware software based on Java and industry standards. SAP has heavily criticised this. They will have to copy it. They have a choice; they can either say ‘no we are not going to modernise our software, we are not going to adhere to industry standards, we are not going to write this Java. We are going to keep SAP [technology] invented and used by one company only in the entire planet earth. SAP and industry standards don’t matter, modernisation does not matter, we’ll keep what we got and Oracle is taking a huge risk by changing'. Every software company must constantly modernise what they have. If they don’t modernise what they have they will lose. [SAP] are saying Oracle is taking a huge risk by re-writing all of the software in Java. But in fact they will do the same thing and they are slowly doing the same thing anyway. They have to; they can’t live with this old proprietary technology,” he adds. Ellison says he doesn’t foresee another technology bubble in the future similar to that of the late 1990s. Smiling, he says, if there were one, it would be driven by “short memory”. Surprisingly, he is also unfazed by the burgeoning trade deficit of the US which is estimated to reach nearly US$800 billion by the end of 2005. “The economy in the US is by far and away the strongest economy in the Western world. [I’m] not in the least concerned, not at all. I am not worried about the budget deficit versus GDP. If you look at our profit growth or our asset growth our tax receipts so far this year have gone up 17%. Everywhere is worried about flat taxes. Bush slashed taxes; the tax receipts increased 17% and spending increased 7%,” says Ellison. Does Ellison think the presence of America in Iraq is having a negative impact on the US economy? “No. Not on the economy; maybe a tiny fraction,” he says. “The economy is so big. It’s an enormous economy, wven [with] the oil price hike. But still you look at US economic growth, the growth and corporate profits are up … growth is highest in the world, I think the economy is doing extremely well.” Though he does not out-right say he supports President George Bush’s pre-emptive strike policy that took America to Iraq, Ellison doesn’t exactly criticise what many see as a disastrous venture that has made the Middle East more unstable, increased the tide of extremism and contributed to a rise in anti-American sentiment. “I think Iraq is a complicated issue and it depends entirely on how you see the threats in the world. If you believe that nuclear terrorism is possible…if you believe that a nuclear bomb can go off in New York City and it can be supplied by Iran or North Korea and you weigh the human costs…what would happen if a nuclear bomb went off in Tel Aviv if terrorists got a nuclear bomb into the capital of the State of Israel?.” Ellison acknowledges that Israel has an estimated two hundred nuclear warheads, but says if the Jewish state were targeted, “The world would change.” “A lot of people say we lost thousands of people in Iraq…55 million people were killed in World War II, so if you can prevent a World War III then it would be a good thing. If you believe there is a possibility of a terrorist nuclear attack you probably want to work hard to prevent it. If you believe that it could just never happen then you wouldn’t care. A lot of people believe in the possibility of a nuclear event and the consequences are so immense … that’s the position that the Bush administration has and I don’t think it is an easy calculation to make … you can wait for the nuke and hope it won’t happen. I’ve talked about it with Hillary Clinton and Hillary said something very interesting to me when I asked what she would do about a nuclear Iran. She said ‘I think we have to learn to live with a nuclear Iran'. I thought that was an interesting point of view. I can only assume, therefore, she believes that Iran wont do anything bad with her nukes.” Though he says he never set out to become rich, Ellison lives the life of a rich man. Aside from philanthropy and his US$270 million Rising Sun yacht, he is considering buying both an NBA and an NFL team. “It was never my aim to become the richest man in the world. In fact I think it comes with a curse," he says. “I don’t think anyone in their right mind would want to become the richest man in the world. I think there was a month when I passed Bill Gates and a friend of mine said Bill’s rooting for you. I don’t think it's anything anyone really wants really.” Rising Sun started off as a 300-foot boat but then, Ellison says, “it just kind of took a life of its own.” “I wanted a boat that was very long and low and go a certain speed (30 knots) — the longer the boat is the faster she goes. A lot of the length is about speed. I wanted her to be pretty and I wanted her to be fast and I lost track of her length along the way…I called it Rising Sun because it’s the first thing you see in the morning, because Japan sees the sun first. I like things that are Japanese.” Asked if he would have done anything in his life differently, Ellison bursts into laughter and says: “Oh yeah. How much time have you got?” adding, “There are a number of things I would have done differently in my life, but I got a reasonable number of things right and it's not like my life has been a disaster.” But there is one thing that noticeably bothers Ellison — losing in the America’s Cup. “The thing about sports is it’s so different from business, in sports it's just over, you’ve lost, go home, its over … it kind of shocks you,” Ellison says. “The finality of defeat, the complete crushing finality of defeat … is really devastating. Business is like a marathon — it never stops. It’s very different,” he adds. With all the wealth and success one would think motivation or the lack of it at least becomes a problem. Not so with Ellison. “I think it is a matter of how one wants to live one’s life. What keeps me motivated is that every day is interesting. My job is constantly changing,” he says, adding, “It never ceases to be a challenge. It never ceases to be interesting and rewarding. If I wasn’t doing this I am not sure what I would do. I can’t sail all the time. I would be bored to death.” Ellison has plenty of other interests though. He still flies an Italian jetfighter and is keeping his fingers crossed that the US government will allow him to import a MIG 23. So what does it feel like to have so much power? Ellison doesn’t think of himself as having power, but rather as being lucky. “I get to meet a lot of interesting people. I get do things and that’s one of the best opportunities I get; I spend a lot of time with interesting people, [like] Bill Clinton. Love him or not he is a brilliant and fascinating guy and very enjoyable,” he says. “I get to sail these boats that otherwise I might not be able to and I really enjoy running Oracle. I think running a very successful company whose best years are in front of it, is an exhilarating way to spend your life. I get to take a lot of the money that I made and put it into medical research and I enjoy spending time with the scientists doing that research. It all leads to an interesting mix of things that I get to do with my life.” ||**||

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