Race for the top

Larry Ellison, CEO of Oracle, is a man who likes competition; in fact, as he himself admits he pretty much lives for it: "If you're in a race, the one in front is winning and the one behind is losing" is how he describes it.

That competitive streak has served him well over the years: from being determined to prove his adoptive father's claims that he would not amount to much to be wrong; to setting himself up as a rival to Microsoft and its head Bill Gates in the 1990s, creating a lot of publicity for Oracle in the process; to his pursuit of the sailing trophy the Americas Cup in recent years.

But his competition with rival SAP to control the applications space may just prove to be his biggest battle yet: it is a struggle that Oracle has already spent US$20billion on, buying more than two dozen firms in a three year spending spree. The bulk of that spending has been in the applications business - including the US$10.3billion capture of PeopleSoft in 2004 and US$5.8billion for Siebel Systems in 2005 - as Ellison seeks to drive Oracle beyond its historical database market, which still makes up the vast majority of its sales.

Databases store a company's information, such as inventory details and personnel records. Applications allow companies to organise and work with that information, such as helping to track customer transactions and generally making it easier for different departments to share data.

The man who once dismissed acquisitions as a way of getting ahead in the software business ("it's a lot easier to write cheques than it is to write software" was his oft-quoted claim) has committed his company to this strategy for one simple reason: Oracle needed to do this to have any chance of catching up with SAP in the applications business. After all, SAP did pretty much shape the market - it promoted enterprise resource planning (ERP) software long before most people really knew what it was. Ellison of course, sees things slightly differently. "We were doing OK [in applications] but I was looking at companies like Cisco, General Electric and just watching what they were doing and it was kind of interesting," he says now.

As Ellison sees it, Cisco (run by one of the CEOs he most admires, John Chambers) had moved from being a company that progressed through innovation to one that focused on acquisition. "Cisco has really built [its] company on this, brilliantly I think," he argues. This opened his eyes to the potential to just how quickly a firm could grow its business through buying up others' - especially, if like General Electric, your company is well organised and structured to absorb such deals.

Ellison also highlights the push in the past few years by private equity firms to buy up public companies and take them private and the benefits of having comparatively low interest rates (Oracle has borrowed heavily to fund its buying spree). "We just thought that interest rates were low, equity capital is buying this stuff and we said ‘it is more valuable to us than to equity capital'," he claims.

Now, Ellison can afford to be bullish about his prospects of catching SAP up. "We're growing our applications business a lot faster than SAP," he says. "SAP still has the bigger applications business but we're growing a lot faster and that's important."

Just before our interview with Ellison, in May, Oracle announced that it had captured Agile Software, a specialist in product lifecycle management software, for US$495million. Like the US$3.3billion capture of Hyperion Software in March this year, an attractive feature of the deal for Oracle would seem to be that Agile already has a number of SAP customers on its books.

Announcing the Hyperion buy, Oracle president Charles Phillips said it meant that "Oracle's Hyperion software will be the lens through which SAP's most important customers view and analyse their underlying SAP ERP data," leaving little doubt as to the rationale behind the deal.

While Ellison admits that SAP is still well ahead in the enterprise resource planning (ERP) market, he believes that Oracle will beat it in the applications market overall by going beyond ERP offerings alone. "ERP is important," he admits. "Everyone has a back office, you have to do your accounting, you have to pay your employees. I'm not saying that's not important, but we don't think it's what's crucial to businesses being successful. I've never heard of any CEO telling me, ‘You know, Larry, the thing that has made all the difference in our company is this general ledger.'

Instead, Ellison claims, Oracle is "moving up the value chain" by offering more strategic applications to its customer base; beginning with customer relationship management (CRM) software, where Ellison says Oracle is now the market leader, and also offering more customised industry-specific solutions. For instance, its investment in banking specialist I-flex has allowed Oracle to provide such services as risk management, portfolio management and money laundering - "all of these new systems that are core to banking, that are way beyond ERP," he claims.

Likewise, Oracle's capture of communications specialist Portal Software in April last year allows it to offer more sophisticated billing and CRM solutions to telco customers that are looking to deliver new products around providing content. "As they offer these new services, they have to find a way of managing their customers, billing them and keeping track of them," Ellison says. "And that's not what SAP does, what ERP does, but it really is what Portal does.