Wealth of experience

Oracle founder Larry Ellison has made his fortune by challenging the norm — and it is a strategy he maintains when discussing concerns over the software giant’s acquisitions, Project Fusion, Bill Gates’s successor or his huge wealth

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By  Peter Branton Published  July 9, 2006

|~|Ellison2body.jpg|~|Oracle founder Larry Ellison firmly believes the key to success lies in finding and exploiting ‘errors’ in conventional wisdom, such as championing of the relational database.|~|The rich are different from you and me” the writer F. Scott Fitzgerald is said to have once remarked to his friend Ernest Hemingway. “Yes, they have more money,” Hemingway replied. Larry Ellison, founder and CEO of software giant Oracle, certainly has more money — more money in fact than all but a handful of people in the world. When he wants to host a briefing with selected journalists from across Europe and the Middle East, he holds it off the coast of Valencia on his yacht Rising Sun, which, at 453ft, dwarfs the vessels of more ordinary mortals such as Roman Abramovich, the Russian oligarch and owner of Chelsea football club (his yacht Pelorus is a mere 375ft in length). However, as far as Ellison is concerned, he owes his wealth to the fact that he is different from those around him — and not the other way around. Or at least, he thinks differently. “The only way to get ahead is to find errors in conventional wisdom,” he claims. This is a tenant he has held to throughout his career, he insists, ranging from innovation in database design to Oracle’s high-profile acquisition strategy over the past couple of years. That career has seen Ellison go from being a university drop-out (a distinction he shares with rival Bill Gates) to the CEO of one of the largest technology companies in the world. Having founded Software Development Laboratories in 1977 (later renamed after its flagship database), Ellison has built it into the third-largest software producer in the world by looking for ways to exploit what he considers are the “errors” in conventional wisdom. For instance, he cites the firm’s championing of the relational database. The idea of a relational database was not, Ellison admits, unique to Oracle. “IBM really invented the concept of the relational database in their research division and they said it will never leave the research division because it could never be fast enough to work commercially,” he says. “We said ‘that is interesting but we think that is wrong’, so we tried to, you know, make a relational database that ran fast. So therefore Oracle became the first commercial high-performance relational database. So it was finding that error, everybody believed one thing was true when just the opposite was true. That’s innovation, that’s finding the error in conventional wisdom,” he says. “So everybody said, oh mergers don’t work, you can’t integrate all these separate companies, that’s not going to work. It’s interesting when everyone says that we’re wrong, it means that we’re doing something that no one else is doing, we’re doing something that no one else thinks can work.” And that, he insists, is the way to success. The relational database battle is, of course, one that has been long since won. Such products are now seen as industry standard, with Oracle being the industry leader in a multi-billion dollar market. Oracle’s US$19 billion acquisition strategy is a rather different matter. With multi-billion dollar deals to capture the likes of JD Edwards/PeopleSoft and Siebel, plus a string of smaller buys, Ellison hasn’t so much been challenging conventional wisdom as positively asking it to step outside. However, he cites it as just another example of getting ahead through innovation. “Everyone thought the acquisition strategy was extremely risky and the reason everyone thought the acquisition strategy was extremely risky was no one had ever done it successfully — in other words it was innovative,” he says. “Nobody ever built a [commercial] relational database — we’ve been doing things that are contrarian, that people tell us won’t work from the very beginning,” he explains. Of course, some people are still saying that Oracle’s acquisition strategy won’t work in the long-term, most notably arch-rival SAP, which has been very dismissive. While Ellison is hardly likely to be concerned about what his rivals have to say, he is well aware that other industry watchers, many of whom are neutral to Oracle and SAP, have also expressed concern about the viability of maintaining so many different product lines. Also, as Ellison notes later on, buying software firms is as much about getting hold of the customer base — and the engineering teams — as it is about buying the code. Any signs of defections among Oracle customers have therefore been treated as significant. However, Ellison says, there simply haven’t been that many. “We believe the systems are very sticky,” he points out. “In other words if you spend US$1million buying an ERP (enterprise resource planning) system from Oracle, you might spend US$3million putting that ERP system in. So no one is just going to pull these systems out, people said ‘oh, everyone is just going to immediately switch because Oracle bought it [PeopleSoft]’. Really? Well, that would cost them a lot of money and CIOs have a lot of other things to do. They don’t want to switch ERP systems or HR systems, they want to invest money in things that will make their business better. Why would switching from PeopleSoft to some other ERP system make their business run better?” he asks. Such a bullish stance is hardly surprising. As Ellison replies to another question later “I would say that, wouldn’t I?” However, in this instance again, he can claim to be stating more than just a personal opinion, with Oracle having just reported better-than-expected financial results last month. For its most recent financial quarter, the firm has just posted profit of US$1.3billion, on sales of US$4.9billion, a 25% increase year-on-year. Such results are outpacing market growth, Ellison points out, and have been widely interpreted by industry analysts as the strongest sign yet that the firm’s strategy is paying off. Challenging the conventional wisdom is working then? ”So as long as we do a good job of supporting the PeopleSoft products and a good job of supporting the Siebel products — and we’re big enough to do that — then not only are people not going to switch they are happier now than when PeopleSoft was supporting PeopleSoft products,” Ellison says. According to Oracle’s own research, former PeopleSoft customers now spend more money on the products than they were before, indicating customers’ willingness to buy into upgrades from the new vendor. “We’re bigger, we’re better at this than Siebel or PeopleSoft was,” Ellison states. “We have a global organisation, we have economies of scale, and we do a good job of making it work better with our database. So we think if we do a good job of technology integration, making the pieces work together from an engineering standpoint, and if we do a good job from a service standpoint, of supporting the customer, enhancing the product, continually improving the product then not only will they not switch, they will buy more,” he claims. For now, Oracle and Ellison can point to strong financial results that suggest that this belief is not just wishful thinking. However, even if the company has managed to do a good job of keeping current customers happy and persuading them to buy more products, longer-term it has an even bigger barrier to overcome: a barrier that the company has given the tag Project Fusion. ||**||Fusion for SOA|~|Ellison3body.jpg|~|Fusion is a new product, not the integration of Oracle products with the products of its acquisitions, says Larry Ellison of the project.|~|Project Fusion has been described as the integration of the Oracle applications with the applications from PeopleSoft, JD Edwards and Siebel (along with some of the other acquisitions), a task that Oracle’s competitors — and industry analysts — have questioned the viability of. For once, Ellison seems to agree with conventional wisdom here, although unsurprisingly he has his own take on the issue. Namely that the rest of the industry is missing the point about just what Project Fusion actually is. “SAP is asking ‘how will Oracle combine all of these products, we think it will be incredibly difficult’. We actually think it is impossible, that’s why we’re not even trying,” he states. “Fusion is an all-new system, there is no integration. The idea is ridiculous, we would not know how to take PeopleSoft and JD Edwards and Siebel and shuffle them like four decks of cards.” What Oracle is doing with Fusion is far more than just writing some new applications, Ellison says. Rather, Project Fusion is about the rewriting of the firm’s applications, database and middleware to work in the emerging service oriented architecture (SOA) model — a course of action that Ellison believes is essential to guarantee the firm’s long-term survival. “Everybody says Fusion is a big risk, but there is only one risk that is bigger than doing Fusion and that is not doing Fusion. That is a much bigger risk,” he states boldly. “If the world moves all the way over to web services, which I think it is, and to SOA, which I think it is, we have got to modernise our applications from scratch,” he states. Such an approach is a tremendous engineering effort, but it is not unprecedented, Ellison claims. “SAP R/3 was a completely new product, totally different than SAP R/2,” he points out. “So SAP says Oracle is climbing Mount Everest, they’re doing something that is impossible, no one has ever done this in history, in the history of software engineering, this has never been done before. It’s totally untrue, SAP completely rebuilt all of their code, replaced 100% of R/2 with R/3, that’s what they did. They modernised their software, that’s all that we’re doing,” he says. Nor is such a strategy new to Oracle. Ellison points out that it has already rewritten major products such as its flagship database, which was overhauled from version five to version six to move to the Java programming language. “It had nothing to do with buying other database companies or anything, but you must periodically rewrite all of your software to move to modern technology,” he says. “And that is exactly what we are doing with Fusion. Fusion is not the integration of Oracle, PeopleSoft, JD Edwards and Siebel, Fusion is an all-new product, built with modern technology with a modern architecture.” “That’s exactly what SAP did when they went from R/2 to R/3,” he continues, saying that it is also an approach that SAP will have to do again, if it wants to move from its proprietary ABAP programming language. They’re going to have to throw all that junk away and rewrite,” he states. “You think five years from now, ten years from now, the world is going to be on ABAP?” “So SAP is going to have to do the exact same thing that we are doing, but it is not impossible, they’ve done it before. They’re perfectly capable of doing this, they will do this, but in the meantime they’re having fun marketing and saying all this stuff. “But that’s fine, there’s nothing magic here, there’s nothing we haven’t done before, it’s nothing they won’t do.” If Project Fusion is not about integrating the product sets, then why buy them? Why spend so much money on acquiring a bunch of software companies, if you believe that all of them have product lineups that need to be changed? Ellison is quick to defend this point. “What’s the advantage to us of having bought, to take one example, Siebel?” he asks rhetorically. “The advantage is that the engineers at Siebel know more about CRM (customer relationship management) than the engineers at SAP,” he answers himself. “So the engineers at Siebel are writing the CRM for Fusion. So, we have a better engineering team with more experience and knowledge of CRM than SAP does. The PeopleSoft engineers know more about human capital management, or human resources than SAP, so the PeopleSoft engineers are writing the human resources part of Fusion.” “We bought the companies to get access to the engineering teams and of course to get acce- ss to the customers,” he claims. “So there are business reasons [for the acquisitions], having a larger customer base allows us to invest more. The bigger we are the more we can spend on applications research and development. The other is having these engineering teams that are the best in the world.” SAP has attempted to challenge that hegemony by luring away some key members of those engineering teams, an approach that Ellison is dismissive of: “So what have they hired, three people? We only have 5,000 left? They’ve bought the managers,” he states. “It is more like they hired the coach and we’ve got David Beckham. They didn’t hire the stars: the stars are the programmers.” “It depends on what you believe, do you believe a company is one person, or do you believe it is thousands,” he asks. However, in the IT industry there are a handful of people who deserve the accolade of stars: one such is Ellison himself, another is the man identified as his biggest rival, one of the few people on the planet to be both richer and more influential in the IT industry (actually, probably the only person on the planet that can claim both distinctions). That man of course is Bill Gates, and for him, Ellison seems to make an exception to his tenant that one man does not a company make. Gates has recently declared his intention to stand down from fulltime work at Microsoft in 2008 and to hand over his duties as chief technology officer to Ray Ozzie to concentrate on his own charity Foundation. “Bill going to the Foundation is great news for Microsoft, terrible news for Microsoft,” Ellison says, believing it is a move that will have “a tremendous impact” on the firm. “Microsoft just lost their best guy,” he says simply. Quizzed on just how much Gates has contributed to Microsoft in recent years, Ellison responds that: “Well, I think Bill decided technology strategy, he was famous for his multiple weeks off and writing papers, he was chief technology officer, he hasn’t wanted to operate the company and sales stuff for years but as chief technology officer he was responsible for company strategy and he was very good at it I think.” Gates’ replacement Ray Ozzie, is very respected in the industry, being credited as the inventor of the Lotus Notes groupware program, but “Ray Ozzie is not as good as Bill,” is Ellison’s conclusion. “Let’s look at their results, who did a better job in creating products in history, was it Bill Gates or Ray Ozzie? Was it close? Not really,” he points out. Ask Ellison if he himself is looking to follow Gates’ example (he is considerably older than Gates, after all) and he is ambivalent. “I don’t know, five years from now I don’t know how I will think,” he admits. ||**||Charity can wait |~|Getty-larry-ell-55737882bod.jpg|~|Of his fortune, Ellison has said he will give most of it to charity, “because what else can you do with it? You can’t spend it, even if you tried.”|~|The timing of another billionaire, Warren Buffet, who has also recently announced plans to retire — albeit at the age of 75 —may be better, he says “but it is personal, these are personal decisions, when do you want to stop working” he argues. As part of his announcement to stand down, Buffet has famously said that he will donate the bulk of his fortune, US$37 billion, to the Bill and Melinda Gates Foundation. Gates has frequently stated that he will leave the bulk of his personal fortune to charity. Journalists were keen to ask if Ellison is looking to do something similar with his money. While he laughed off suggestions that he would give the money to the Gates Foundation itself, Ellison did say he would make such a move: “I think after a certain amount, I’m going to give almost everything I have to charity because what else can you do with it?” he points out. “You can’t spend it, even if you tried, I’ve been trying,” he says, sitting as he is on the deck of his US$270million yacht. However, one donation he is definitely not going to make is a US$115 million payment to Harvard University, a pledge he has cooled on since Harvard’s decision to part company with Larry Summers, its controversial president. Summers was the man who had convinced Ellison to support the project, which was intended to rate the quality of government healthcare programmes around the world, in the first place and, he claims, without him in place to champion it, he became “nervous” about how the money would be spent. While Ellison points out that there was never a signed agreement with Harvard, “if there was, I would have given them the money”, the decision to stop the payment has caused widespread controversy, and has attracted intense personal criticism for him. Not that Larry Ellison is noted for his thin skin. He doesn’t have a problem with making enemies, declaring in his briefing that his company is going to offer support for the Red Hat Linux operating system, a move that will bring him into conflict with a former partner. And he has long championed controversial ideas, such as global databases for healthcare and to combat terrorism. “Right now there’s one major international application and that’s the credit card system,” he says, claiming that a global healthcare database could save 75,000 lives a year in the US alone. “But we didn’t build that system, a system to save 75,000 lives a year. What we built was a system to make shopping easier,” he claims. “We gave up our privacy, we traded our privacy for ease of shopping. But we are unwilling to trade our privacy for better healthcare, to save the lives of our children.” He is also passionate about yacht racing, having committed himself to bringing the Americas Cup back to the US — hence his presence in Valencia, where a series of regattas are being held to determine the team that will challenge for the trophy next year. However, all of these passions don’t interfere with the day job, Ellison insists, claiming Oracle will catch SAP in the applications market, although not for at least five years, while remaining number one in the database and middleware markets. “SAP and Oracle have historically been in ERP,” he says. “Oracle, with the acquisition of Siebel, became very strong in CRM and with the acquisition of PeopleSoft we became very strong in HR. So we’re number one in the world in CRM and HR, SAP is number one in ERP, we’re number two in ERP.” To overtake SAP and capture that number one position, Ellison says it is important to develop vertical industry specialisations. “Take banking for example,” he explains. “ERP is general ledger, accounts payable, accounts receivable that kind of stuff. But that’s not core to banking, I don’t think Sandy Wyle when he was at Citibank would have said Citi- bank became the number one financial institution in the world because we have the best general ledger in the world. I don’t think he would have said that.” “What’s important to banks is internet banking, risk management, portfolio management, those kinds of things are really core to modern banking. So we decided that if we’re going to beat SAP in the overall applications business, we had to go well beyond ERP — CRM, HR but also up the next level to industry specific applications.” “Do you know how many banks SAP has in North America?” he asks, going on to answer “One half of one bank. The rest are ours. So, we’re so far ahead of them in banking and financial services that we want to continue to invest and we think we can become overwhelmingly the supplier to the banking sector: ERP, HR, the database, core banking applications, everything. We want to supply the entire stack if you will.” While Oracle is looking at industry sectors where it can compete effectively against SAP, it is not equally strong in all verticals, Ellison acknowledges. Some, such as oil and gas, it does not have such a strong presence in. This last industry is of course, hugely important here in the Middle East. “We’re very strong in some Middle East countries, but not necessarily in their biggest industry, which is oil and gas,” Ellison admits. “We’re very strong in government however, and that is bigger even than oil.” Asked if he is looking at more acquisitions to strengthen those vertical industry sectors and Ellison is emphatic: “Absolutely. We’re not done by a long shot.” And that, far from any talk of retiring, seems to be a fair summary of the ambitions of Larry Ellison. The man is not done by a long shot, and there is plenty more to come from one of the IT industry’s biggest names. ||**||

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