You know what they say about the third time doing something. They say a lot and some of it is bound to be true even if it only means throwing away the high and low scores and dealing with what’s left like they do in Olympic diving competition. This is the third and final post on the Oracle-Salesforce announcements of this week, which I hope, will provide more light than heat. I reserve the right to discuss Oracle-Microsoft in similar detail though.
You know the basic outline at this point. Oracle and Salesforce have announced that they will work together on certain strategic issues especially integration to provide greater value for customers. Here are my considered thoughts having now heard from the CEOs of both companies.
- Integration is the key. With this announcement it appears a line has been drawn down the middle of the market. On one side is front office and on the other is the back, but we knew this already, didn’t we? The agreement to produce off the shelf integration that will solidify each company’s position in its respective marketplace and enable their front and back office products to instantly inter-operate and that sends specific signals to the market. Over the next nine years look to Oracle to spend less effort and investment in the front office. Siebel is getting old as is PeopleSoft and the Fusion approach is a slow burn. It will not surprise me if each side stays on the side of the fence it is building and produces front to back office solutions based on their integrations. For Oracle this would be an admission that their front office strategy won’t catch up. For Salesforce, it simply codifies what Marc Benioff has always said, that he doesn’t want to build ERP. Over time, look for each party to renew its innovation in its respective space. As I detail below, as a new paradigm comes into view there will be plenty of innovation on each side required — and that will only happen if they split the effort.
- Competition in the middleware and Linux part of the stack is simmering down. Oracle’s solutions in those areas are standardizing the industry and there isn’t a great deal of profit to chase there any more. Also, Oracle’s emerging dominance in cloud hardware with Exadata and related products militates for greater stack standardization.
- Oracle-Sun may be a big winner here as that unit’s Exadata storage system seems poised to become the de facto standard for public and private cloud data centers. The idea of public and private clouds no longer seems quite as foreign to Salesforce as CEO Benioff was touting his company’s decision to provide a separate instance of its system for the federal government. This decision is less about CRM than it is about application development, an area in which Salesforce has become one of the very dominant players.
- Security and related issues are becoming ultra important requiring new solutions. You can’t read the 2013 Verizon Data Breach Report without understanding the tremendous opportunity that the People’s Liberation Army Unit 61398 is providing companies like Oracle, Microsoft, and Salesforce. If we’re going to the cloud it has to offer better security than what we now have or all bets are off. Otherwise, the only good news might be your voodoo-like ability to order mooshi pork through your ERP system someday.
- Drop your tools, there’s something bigger on the way — get to work on it! Guys like Larry Ellison, Steve Balmer (of Microsoft) and Marc Benioff don’t come to these kinds of agreements without reason. The reason is a new paradigm which necessarily commoditizes conventional IT and even conventional cloud computing. It’s the Internet of Things or as Benioff (a board member of Cisco) said, the Internet of Everything. This is at once scary and hopeful. It’s scary to think of everyone and everything being connected to the network and hopeful that we will finally have the sophistication to optimize tiny processes that will, in aggregate make a huge difference as the planet races toward a human population of ten billion. We will reach a computer population that size long before the human population gets there.
That’s what I think everyone is suddenly gearing up for. President Obama gave a well received talk about the environment at Georgetown University this week. In it he told us that American business has always been able to innovate and engineer and provide the entrepreneurial boost we’ve needed to meet tomorrow’s challenges. Well, those challenges — especially energy and resource optimization and carbon abatement — are wrapped up in a new paradigm that is itself wrapped in the Internet of Things.
Paul Krugman’s column today in the New York Times expresses the latter half of it, the front half is where great value will be produced and huge profits stand to be made. On the back-end Krugman rightly predicts this will be a big economic stimulus that the global economy badly needs.
It’s rare that you can spot a paradigm emerging in real time. No one really understood what the steam engine or the industrial revolution it spawned meant when they happened. It took many decades to see the pattern emerge. Not this time. This week the future emerged; it’s been incubating for a long time and the future looks very interesting indeed.
We’ve been avoiding or at least minimizing comment on the latest round of computer hacking allegedly by a special unit of the Chinese Army. However as stories have flowed in the New York Times, like this one, it is abundantly clear that the Chinese have been hacking into many of the organizations that our democracy and western economies require to operate.
The Times has done a good job of analyzing the problem and cites a reticence by many corporations to come out publicly to admit to the world that they’ve been hacked and valuable intellectual property taken. The reasons are obvious and unfortunately they articulate the old saw about boiling a frog. Many victims see themselves as unique and fear the consequences of exposing the bully — including consequences of irate shareholders who would blame them and demand a scalp. In the best traditions of courageous journalism, the Times, The Washington Post and The Wall Street Journal have all come forward to say they’ve been hacked.
In some cases the hacking goes on for many months and some organizations have let the hackers do their business to understand what the hackers are looking for and to better help them trace the intrusion back to a city block off Datong Road in Shanghai, China. There sits a twelve story building housing People’s Liberation Army Unit 61398, which does the hacking. The Chinese government has denied everything.
What’s interesting to me is the partial list published in the Times which includes “the International Olympic Committee, Exxon Mobil, Baker Hughes, Royal Dutch Shell, BP, ConocoPhillips, Chesapeake Energy, the British energy giant BG Group, the steel maker ArcelorMittal and Coca-Cola.”
Look at all the oil companies in the sample. Another list could easily show tech providers like Intel, Google, Adobe and others. I think each hacking incident has its own rationale. The newspapers were hacked by the Chinese Army looking for dissident sources used by reporters in unflattering stories. One hot storyline has been about the corrupt connections between new Chinese leaders with the government trying to shut down criticism. The same was true of Google when the Chinese went after Gmail looking for email addresses of the same dissidents.
As bad as all that seems, the energy companies have my attention. It should be noted, with the vast majority of crude being controlled by national oil companies that the primary source of information about crude oil should come from the nationals themselves. Surely they could be hacked. But not so fast.
Back in the 1990’s all of OPEC did some fancy bookkeeping on their proven reserves sitting in the ground. Everyone roughly doubled the estimates of reserves they had without lifting a finger to drill another well or to do anything to actually find oil. This was prospecting on the balance sheet, shady bookkeeping. A few intrepid souls called bullpucky on the doubling but back in the 1990’s oil was cheap, the North Sea was producing at accelerating rates and casual market watchers could easily believe the fiction that there was a heck of a lot of oil in the ground.
Twenty years came and went and the North Sea is slowing down. Meanwhile the supply of crude is very tight — that’s why we’re paying nearly $4 per gallon today. If oil really were abundant relative to demand the price at the pump would be a more 1990’s-ish buck a gallon.
So, back to the Chinese. They know supply is tight and they have a vested interest in keeping the oil flowing into their expanding economy. Understanding the supply side is important to them because they have a centrally planned economy and they make demand decisions based on realistic supply options. The alternative is to brace for war which all governments do all the time. I am not the first to refer to the hacking as cyber war and it’s an apt description.
There has been an open door policy between western governments and the oil producers — Dick Cheney was the CEO of Halliburton after all and W. was a wildcatter. So the U.S. government has always had multiple good sources of information on what has been going on. Not so the Chinese. Which gets us back to hacking.
While hacking into someone else’s computer systems is not to be condoned, the bigger point is that the intellectual property — even the knowledge of production rates, their declines and proven reserves — is critical to keeping the economy functioning. It is interesting, to say the least, that our emerging adversary has such a keen interest in this information and that our free society is so blasé about it and its implications.