All eyes on future trends

He is not quite rich enough to buy whatever he wants — he has been famously thwarted in his attempts to buy into sports franchises — but he can afford to spend US$270million on a luxury yacht and (allegedly) have it lengthened just so he has bragging rights on size of vessel.

He owes that fortune to his founding of Oracle — originally called Software Development Laboratories — in 1977 and his development of that company into the world’s third largest software firm, a giant that provides proprietary database, application and middleware software.

So ask him if he thinks the open source model is going
to, one day, predominate over proprietary code. “That’s ridiculous,” he states without hesitation.

“The vast majority of code is protected, whether it is the code in your cell phone, in your iPod or in the Oracle database. The Oracle database is a thousand times bigger than MySQL [the world’s largest open source database] so that’s not going away,” he states firmly.

Not, he stresses, that Oracle is actually an anti-open source company. “I think there is a place for open source,” he continues.

“Obviously we’re a big suppo- rter of Red Hat, we bought Berkeley DB [the open source database which Oracle acquired when it purchased Sleepycat Software earlier this year], we’ve been shipping and embedding Apache web server in our products for years,” he adds.

“So we are a contributor, supporter and believer in open source but it is not going to be all black or all white, it is going to be a mixture,” Ellison continues.

And the reason why it is going to be a mixture is because of the very nature of open source software, he points out: namely, that it is ultimately open to all.

“The great thing about open source, the most interesting thing to me is the intellectual property,” Ellison claims.

“We can just take Red Hat’s intellectual property and make it ours, they just don’t have it. We can just take the Red Hat system and say okay, we’ll take it over now, and there is nothing they can do about it, other than offering better support than we can. How can Red Hat do a better job of supporting their product than we can, I just don’t know how they can do that, we’re a $16bn software company,” he states.

Using Red Hat to illustrate the nature of open source software just may not have been coincidental: while Oracle and Red Hat have previously been close partners, that relationship has become increasingly strained.

In April, Red Hat announced it was buying another open source software provider, JBoss, for US$350million.

JBoss specialises in open source Java middleware, and the move was seen as an attempt by Red Hat to better compete with larger, more established, corporate software players — such as Oracle.

Shortly after Red Hat announced its JBoss purchase, Ellison gave an interview to the UK’s Financial Times newspaper, in which he was scathing about the company’s ambitions: “I don’t think Oracle and IBM want another Red Hat,” he said then.

In his briefing with EMEA journalists in Valencia, Spain, last month, Ellison explains that Oracle is looking at providing support for the Red Hat operating system, as part of his plans
to add an operating system to Oracle’s portfolio.

“We would say, we will support your Red Hat, don’t go to Red Hat for support, don’t buy your support from Red Hat, buy your support from Oracle,” he states.

“It’s better support, costs less, its enterprise class support. So, I think that is the approach we will take,” he claims.
Still, the questions about open source and its impact on Oracle won’t go away.

Journalists press on the growth of the open source database market, a market seen as presenting a real competitive challenge to Oracle’s hegemony in databases.

“It’s not like we have no competitors,” Ellison responds.

“Let’s take a look at who has been trying. Microsoft and IBM have not been able to catch us, Microsoft has more money than God, and they’ve been after us for how long, ten years? IBM and Microsoft can give away their products for free, they
have tons of engineers, so these are companies that have huge numbers of engineers, are quite willing to give the product away for nothing and we’re doing well against both IBM and Microsoft.”

Nor does Ellison have any truck with the argument that the database market is becoming increasingly ‘commodotised’: that databases are being judged on such factors as price rather than functionality.

“Well, first of all, commoditisation isn’t bad, [US oil giant] Exxon is in a commodity business and they are making so much money that people are very upset,” he points out.

“Commodity means it’s pretty much the same, the oil from the North Sea is much the same as the oil from Saudi. The Oracle database is dramatically different from the Microsoft database or [IBM’s] DB2 database.

We support grid computing, we have better security, higher performance, these are all big deals,” he states.

“These other products don’t support grids, they support one machine. If you use Microsoft SQL Server, the maximum number of computers that can use that database is one. If you use IBM DB2 it is one. With Oracle it is 128.”

While Microsoft and IBM have both been very aggressive with pricing strategies in the past few years, Oracle has managed to grow its share of the database market from 33% to 49% in that period, Ellison claims.
||**||Future forecast|~|Getty-Cphilipbody.jpg|~|Oracle co-president Charles Phillips.|~|On another important technology issue, Ellison is more positive, namely software-as-a-service, in which customers don’t buy technology upfront but bring it in ‘on demand”.

While this approach has been seen as potentially disruptive to a firm such as Oracle, Ellison says he is a firm believer in its merits.

For instance, he reminds the audience, he founded a company called Netsuite (formerly called NetLedger) in 1999, six months before Salesforce.com — seen by many industry analysts as the leading firm in the on demand software space — was launched.

Perhaps more importantly, while software-as-a-service is still a tiny proportion of Oracle’s overall revenues, that proportion still actually amounts to more revenue than Salesforce.com makes in total, Ellison points out.

“I think it will be a balance,” he says, going on to state that “I think smaller companies should use software-as-a-service.”

Further, he believes that Oracle will become increasingly committed to the software-as-a-service model.

“I don’t know if it is ten years or 15 years but the majority of our software will be delivered as software as a service,” he claims.

“It makes no sense to me that most companies would buy servers and buy databases and hire experts to run accounting systems and human resource (HR) systems and these kinds of things. So I think it will be cheaper for them, more reliable for them to buy it is a service.”

Ellison has also repeatedly stated that software-as-a-service will be a better business model for Oracle itself: while Wall Street tends to judge a software firm’s performance on new licence sales, Ellison believes that recurring subscriptions and updates are more profitable to the firm long-term.

“I have said for a number of years that subscription pricing is very important to us,” he says, claiming that Oracle now has two separate software “businesses” right now: the subscription business, which he estimates is worth US$8 billion; and the licensing business which he puts at a smaller (although still considerable) US$5 billion.

While the subscription model is often criticised for inflexibility, depending on a price per processor, Ellison says Oracle can
provide different models, such as charging per employee, which would prove more attractive to smaller firms.

“Updates are now half of our total business, we think we are going to become more and more focused on our subscription model because we think it is the right model for software,” he says.

“So that trend will continue and it has been going on for every single year. It is one of the things by the way that has been improving our profitability. We think it is the way customers want to buy software and it is a profitable model for us so everyone wins.”

While the software-as-a-service model is admittedly some way away from reaching fruition, keeping an eye on such future possibilities is essential, Ellison insists. He is all too aware that plenty of the great and powerful IT firms of the past have struggled to remain so by ignoring the threats posed by new technologies.

“If we see something new and interesting we move to it very early,” he claims.

“Every time we see something new and important and interesting in technology we try to figure out how we can take advantage of it, how we can exploit it rather than go into denial and pretend it’s not important.”

“Hopefully there is nothing out there that we have not looked at that we do not understand that is a danger to us,” he claims. “If we see something that is a danger to us then we embrace it.”

Of course, when you strive to predict future trends, you do run the risk of making some wrong calls and, for all his success, Ellison has not been immune to this.

“Years ago, I had this idea called the network computer,” he recalls. While the network computer idea, which Ellison championed actively in the 1990s (seen by many as an attempt to rein in arch-rival Microsoft by undermining the importance of its Windows operating system), ultimately came to nothing, Ellison says it was not an outright failure.

“I said you should be able to buy a computer for US$500 and at the time PCs cost over $2,000,” he remembers.

“The network computer drove the price of the PC down to US$500 and then there was no need for the network computer any more. The network computer is seen as a great failure but really the PC became the cheap US$500 computer.”

And there was one other major legacy of the network computer “By the way it put almost every PC manufacturer out of business,” Ellison claims simply.

Even if Ellison can’t predict every future trend correctly, he still remains focused on the here and now. Asked as to which business intelligence (BI) software vendor he would most like to buy, he laughingly replies, “We’ll get them all” before stating that “one of the jewels of the Siebel acquisition was their business intelligence product.”

“I don’t know if a lot of people were paying attention to this,” he continues, “but one-third of Siebel sales was business intelligence when we bought them.

“They have, we think, the best BI engine, all metadata driven, in the world. It’s the best engine, it’s the newest, the most modern. And that team was made up of people from Cognos and Business Objects. We think we now have the leading technology, we don’t have that many customers because it’s a new product, but we now have the leading technology in business intelligence,” he states.

Any talk of Oracle’s future is, almost by definition, talk about Ellison’s own future.

His rule at Oracle has seen some of the best and the brightest executives in the industry work for the firm — and leave to go elsewhere.

Tom Siebel left to form his own company, Craig Conway went on to be CEO at PeopleSoft (both of course, later acquired by Oracle), while Gary Bloom went on to run Veritas (now owned by Symantec), amongst other examples.

“We are only going to have one CEO,” Ellison states bluntly. “If you want to be CEO at Oracle you either have to wait until I die, or retire, or you have to go out and start your own company or you have to get a job some place else.”

“I personally am very proud that Oracle has produced so many CEOs at software companies,” he claims. “We do a great job of training people and they go on elsewhere,” he says.

Perhaps the most high-profile departure was former Oracle president and chief operating officer Ray Lane, who left the firm in 2000 (he now works as venture capitalist at a US firm).

Lane was fired, Ellison now says. “I like Ray very much, but we had a fundamental disagreement,” he says, a disagreement which was around the issue of how the company structured its sales teams.

“It wasn’t personality,” Ellison says now. “Ray made tremendous contributions to Oracle when he came to Oracle, he did a very good job but it came down to a point where he and I came down to something that was fundamental to the future of the company and the company had to choose,” he adds.

While Ellison has since been criticised for failing to appoint a strong number two who could succeed him, there are, he says, “three people in the company right now that I could name right away that could do a good job running the company”.

Those three include co-presidents Charles Phillips and Safra Catz, along with one of the firm’s engineering managers. In this approach to his succession, as he is in other areas, Ellison is much influenced by the approach adopted by General Electric.

Ellison is a great admirer of the US firm, seeing it as arguably the greatest firm in the world today, and has adopted a similar approach to its former CEO Jack Welch, who also looked at multiple successors.

“I think we have very high quality people and I’ll try to do my best not to fall off the boat,” Ellison says, laughing. “But if I do, Oracle should be okay.”||**||