I spent the first week of the month in San Francisco at Oracle’s customer event, OpenWorld 2017 and when I wasn’t drinking from an information fire hose, it was alternately fascinating and exhausting. There were major announcements in database, blockchain, AI, cyber security, and other stuff I have only a tangential association with. For instance my eyes glaze over when they start talking about bare metal servers and going serverless so I’ll limit these observations to database and security with a few dashes of other things.
But primarily OpenWorld 2017 was a coming out party of sorts in which the culmination of billions of dollars of investments in advanced technologies became unavoidably visible. From here on Oracle might still support its legacy customers but make no mistake, they are legacy and the future is at minimum about moving the datacenter to the cloud and moving your traditional licenses there. Oracle even has a name for that practice BYOL or bring your own lice
Oracle is making that task as easy as it can be and I spoke with customers who were doing it or just finishing who were pleased with the experience. We don’t often think about it if we keep to the big picture but there are a lot of old systems in the enterprise that need to be replaced because they no longer support their missions. There is no better indication than that for determining that the next few years will be full of stories about cloud migration.
The key to successful and necessary transfer to the cloud is Oracle’s autonomous database, 18c. The new product will be available by end of year and is supposed to self-provision, self-maintain and self-patch while running thus eliminating the need for most downtime. CTO and founder Larry Ellison said that it takes an average of 13-14 months from when a patch is available to when it is installed in a majority of customer shops. If a patch covers a security problem that leaves bad guys a huge amount of time to steal data, which has become epidemic.
As Ellison said in his opening night keynote, “People are going to get better at stealing data, and we have to get better at protecting it.” Fair point. The database will be a big part of that protection along with some semi-autonomous security software (that will become autonomous soon enough). Both products rely on Oracle’s AI and machine learning tools as well as advanced database hardware.
That’s the catch, but it seems eminently reasonable: you have to be on Oracle gear to get the full benefits of the software’s power. Actually it’s less of a catch than you might think. While there are enterprises that are big enough to need and to purchase the hardware, many if not most, customers will receive the full benefits of Oracle’s technology as consumers of its cloud services. So many of these announcements can be rightly seen as further inducements to move to the cloud.
Ellison is fond of saying, “You can get all of this, but you have to be willing to pay less.” That’s fair if you’re looking at the monthly or annual subscription charge but one suspects that over time many companies will be paying more overall though there’s the issue of refresh that many companies avoid but which are a standard part of the cloud. We’ll see, in the end you get what you pay for.
Oracle also announced a foray into blockchain, the distributed ledger technology that provides greatly enhanced security, speed, and transparency to inter and intra-company transactions. For instance you will soon be able to use blockchain to track the provenance of parts in a supply chain, and one can only hope that credit reporting adopts similar safeguards in the future. We can also hope to track some customers and their purchases that way, especially in a B2B setting to facilitate sales.
Lastly, there’s AI and data. Whether it’s called AI or machine learning, the technology requires lots of data to train a model to be useful in predicting the future. Most enterprise data is deficient in one or more axes of data on hand so Oracle’s solution has been to provide clean data to augment private data and deliver the big picture view that’s needed in sales, marketing, service and a lot more. Oracle also introduced a new set of IoT applications aimed at specific business outcomes. It’s impossible not to say more about this later.
But to summarize, Oracle’s long-term investment in cloud technology has begun to pay off. We’ve seen this in the company’s earnings reports over the last year and OpenWorld was a kind of coming out party for numerous solutions at literally every level of the software (and hardware) stack. The company will be a formidable competitor in the years ahead as its legacy base is up for grabs. They’re all going to move to the cloud at some point and Oracle wants to keep them. Other vendors with good solutions are competing at every level from Amazon and Google to Microsoft, SAP, and Salesforce. At Oracle OpenWorld 2017, Oracle more than made its case. Time for the others to step up.
According to this story, the fly in the ointment for getting the Oracle acquisition of NetSuite completed is a large institutional shareholder, T. Rowe Price. While I know some people at NetSuite we haven’t been talking and I have not been following the situation very closely. But as an outsider looking in, it seems like Price might be trying to apply some M&A techniques from the late 20th century to squeeze a few more bucks out of Oracle. Good luck with that I say.
While it’s normal to want to optimize or even maximize a deal, Price might be on a fool’s errand given the numbers involved. I am not talking about the $9.3 billion price tag for the acquisition. I am referring to the fact that deals like this have piles of analysis that support the price set by the offering party. Sure there’s some grey area and deals have been known to be sweetened but I don’t think this is going to happen this time.
Larry Ellison’s part ownership including friends and relatives is substantial but not a majority. Since Ellison also owns a significant part of the acquiring party he’s got a dual responsibility to ensure he gets a fair price and that he doesn’t over pay. If he fails in either responsibility there will be stern discussions in one boardroom or another.
So at this point I think it is what it is. The offer expires on November 4 and while it may look like a game of chicken between Ellison and Price, I have a feeling that Ellison isn’t losing any sleep.
You had to believe this day was inevitable. Oracle announced it was buying NetSuite a cloud ERP provider with over 30,000 customers worldwide for about $9.3 billion. Oracle founder, Larry Ellison also had a large part in founding NetSuite including being one of its top investors. I have always looked at it as Larry’s experiment in cloud computing and I think that is key.
Eighteen years ago, when NetSuite got going, Oracle was already a very big company dominating the relational database market as well as the market for enterprise business applications. Oracle’s challenge then was best summed up in Clay Christensen’s book, “The Innovator’s Dilemma,” though it never mentioned Oracle or NetSuite explicitly. The dilemma being when should a successful company consider cannibalizing its own business to avoid enabling new entrants to the market to do the honors.
The dilemma stems from the fact that successful companies had, until the last 20 years, been loath to change their secret sauce, the thing that made them successful. But a series of disruptions initiated by cloud computing pioneers like Salesforce, showed that standing pat was as dangerous as playing with matches around your balance sheet.
So that was Oracle’s dilemma and you could see it unfolding as then CEO and founder Larry Ellison carefully launched what was then called NetLedger under the leadership of trusted lieutenants Evan Goldberg, CTO and founder, and Zach Nelson, CEO. NetSuite was a lifeboat strategy intended to provide a safe place to pour customers, cash, and expertise if the need ever arose.
As a startup NetLedger morphed into NetSuite and had far less overhead and bureaucracy to contend with than an established company like Oracle and so its innovation cycles were quick and nimble. Taking no chances, Oracle plunged ahead into cloud computing building its own platform and applications, which would eventually displace its traditional products. It also bought a slew of other cloud companies too because buying companies is less risky than trying to fund a similar amount of development in house.
So in this regard, buying NetSuite can be seen as just another cloud company acquisition by Oracle but it’s much more than that. It’s the culmination of long-game thinking—precisely the kind that few public companies can invest in today given the short time horizons of quarterly earnings reporting.
This long game approach is what critics lament is no longer practiced in the Fortune 500. But today, one of the founders of a Fortune 500 company (#77 if you are counting), a brash, fast talking, America’s Cup winning, technology industry showman, pulled a rabbit out of his hat. This shows that planning and execution still count for a lot in business if you know how to adapt.
A little while ago I got a nice comment from buddy and guru Mark Tamis. He wrote, “I was thinking, it may be a good thing for Oracle to use its cash and buy up Salesforce, and then stick Benioff at the helm. What do you think?”
I have to say it was and is an interesting idea because Larry is 70 and just stepped up to Executive Chairman, leaving the CEO duties to Mark Hurd and Safra Catz. This idea has been surfaced before too. About a year ago it came up and died a gentle death when few outlets picked up on it.
Also, it might be human nature to think like this — to look for a single strong leader to take us to the promised land (whatever that is) — but real life experience seems to run in the opposite direction. Rather than seeking the uber boss, societies, at least the successful ones, instead split the organization whenever it gets too big.
There is a lot of historical precedence for the split over the big boss approach and it has changed over time in a predictable way. To understand the predictability you need a little math in the form of the Dunbar Number.
The Dunbar Number is actually a very elastic thing and could more easily be described as a concept or even a law of sociology (I dunno, I ain’t a sociologist). It says that the average human can keep track of about 150 or maybe 220 people and after that not so good results. This seems like a big number to me but I am an introvert, not shy, just not into maintaining lots of relationships and I am quite comfortable with ideas.
If you look at human organizations, pre-social media, the Dunbar concept applies remarkably well. Of course, CEOs are always trying to limit their direct reports but go up or down a level and you see interesting things. For example, in the Middle Ages, monasteries were working communities of about the Dunbar number. When one got too big, the abbot split off a unit and told one of the members to go elsewhere, build a new monastery, and keep up the tradition. That’s actually how the monastic tradition spread and if you read “How the Irish Saved Civilization” by Thomas Cahill you’ll see the story played out.
Now, social media has turned the Dunbar Number on its head but even with that assist there is a practical limit to the number of friends you can have even online. Perhaps that number varies by individual but the point is that it’s finite and probably not as big as the number of followers many of us have.
There are other examples too such as the military company, the atomic unit of military effectiveness. Corps, divisions, regiments, and battalions are all different aggregations of companies. But what’s this have to do with Oracle? Well it’s indirect. A story in today’s New York Times announces that HP’s CEO, Meg Whitman, wants to split the company into a PC unit and an Enterprise one.
My analysis is that HP is too big to be effective at pursuing a strategy even with all of the computers and communication infrastructure the company has so it’s a natural to seek a way to group similar products and skills into separate companies. Refer to the monastery idea and consider Dunbar and ask yourself if this makes sense.
So, all this is to say that my response to Mark Tamis and his idea is to think small-er. Rather than trying to find the uber boss, if that person even exists, it might be time for Oracle to consider cleaving itself into logical units that have more autonomy than they currently do but that still tree up to a single entity. This might be a worthwhile trend for a lot of first generation Silicon Valley companies.
Oracle is currently made up of a Byzantine assortment of in-house developed technologies and bought companies. It is also a player in almost every part of the tech sector from hardware to apps. The company’s current tag line, “hardware and software engineered to work together” is well chosen to give an impression that is no longer needed. The goods might be engineered together but that’s not the same as being designed and built for the purpose from whole cloth. In fact, Oracle reflects the marketplace it tries to serve which is sophisticated, complex, and aggressively heterogeneous, whatever the marketing lingo says.
Certainly Meg Whitman is rolling the dice with this split but from my perspective it is a logical and appropriate thing to do, and one that has historically delivered results. Would Oracle ever consider splitting into a hardware enterprise, a legacy software company, and a third dedicated to more modern web/social/mobile technologies? Never say never out in the valley, except maybe to the idea of Benioff taking over Oracle.
Oh, what to write about Sunday night?
Sunday must be the hardest night to do a keynote, especially at Oracle OpenWorld. People have been flying all day or the day before and have traveled great distances — 19 percent came from EMEA while 70 percent came from North America — so they’re tired and running on a different time zone’s clock. So I get it.
Nevertheless, Oracle continued a tradition of mediocrity with two keynotes the first by Intel President, Renee J. James and the climax by founder and CTO, and newly appointed Executive Chairman, Larry Ellison. Each presentation had its merits but they could have been better. For some reason each speaker felt a need to recapitulate the history of technology since the invention of the wheel, which got a little tedious.
On the plus side, the companies are doing some very cool R&D that is translating into products that help manage both the big data tsunami and help lock down data so that those nasty people in Eastern Europe and the People’s Liberation Army in China, and yes, the NSA, will be thwarted as they try to figure out how I like my latte.
Best ideas from my vantage point — embedding database functions in silicon to make them extra fast and using silicon photonics to make the connections at the chip level even faster. So far these advances seem aimed at bulk commercial data processing but I can see huge upside as these vendors apply all of this to a single problem like molecular modeling or code breaking.
Ellison gave a survey of accomplishments from the last year touting all of the apps his company has built and that list is impressive. However, the proof of the pudding at this conference for me will involve how these points get lined up into end-to-end business process support. I hope that’s where this is going because so far it seems instead like the company has reinvented its legacy products for the cloud rather than re-imagining the business processes. Hope I am wrong.
However, it must be said that both speakers seemed to tire as their talks went on. James got giddy as she made what seemed like a few small unforced errors and Ellison decided on an alternative order for his slides even while his remote clicker went on the fritz yet again, “Backup two slides, please.”
James didn’t seem to know the conference’s title is Oracle OpenWorld and not Oracle World. I know this sounds picky but it leads one to question how much practice the speakers put in and how well rehearsed the whole event is. Maybe I am spoiled by Salesforce’s crispness and manic attention to presentation details. But that’s the way it ought to be when you are addressing your global customer base in your annual address.
We’ll see how it goes today. Over and out.