Hand of the Rising Sun

Software firm Oracle celebrates its 30th anniversary this year, so it seems a natural question to ask Larry Ellison, its founder and CEO, if he has changed at all in that time. He pauses for a moment, then answers. "I've got a bigger boat," he says, laughing.

That he certainly has: We're sitting on the deck of the ‘Rising Sun', the largest privately-owned yacht in the world, a 454-foot, US$200m giant that would make your average Russian oil oligarch go green with envy. To get to where the interview will be held, the public relations executive escorts journalists across a basketball court that can also double as a helicopter landing pad if need be.

Nor is this Ellison's only nautical link: He arrives for the interview having just lost a crucial race in the America's Cup, the yachting competition that he has pumped an estimated US$270m of his money into winning (his team, BMW Oracle, will soon go out of the competition altogether).

Then again, with an estimated fortune of US$20bn, Ellison can afford it. Famously, he once remarked that the America's Cup was so cheap to compete in he couldn't see why more people didn't enter it.

Whatever the entry price, competition is something that Ellison has to have: "I don't know how you compete unless you're competing against somebody," he says. "If you didn't have that little orange ring, basketball wouldn't be very interesting."

That competitive streak has seen Ellison play for some very big stakes indeed - spending more than US$20bn on buying more than 25 software companies in the past three years. To put that into some sort of perspective, Oracle's profit for its last reported full-fiscal year was US$3.4bn.

The bulk of that spending has been in the applications business - including the US$10.3bn capture of PeopleSoft in 2004 and US$5.8bn 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.

While Ellison dismisses the idea that the database business has matured - "I first heard that in 1991," he sniffs - Oracle's database and middleware (the technological ‘glue' that links it all together) business combined grew just 9% last year. The applications business grew 66%, fuelled in large part by that acquisition strategy.

Famously, Ellison had not always been convinced of the merits of such a strategy, long arguing that the technical challenges of integrating technology - and the practical problems of keeping the all-important engineers to stay with the company - made it too difficult to pull off acquisitions. "It's a lot easier to write cheques than it is to write software," was his oft-quoted remark.

However, as Oracle found it increasingly difficult to develop its applications business in-house, he decided to change tack - and start writing those cheques.

Competitors have labelled this about-turn as an act of desperation. Unsurprisingly, Ellison has a very different view. "We were doing okay [in applications] but I was looking at companies like Cisco, General Electric (GE) 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 of 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.