Oracle: as happy as Larry (Ellison)?

First published in Computing, 18 November 1999

Oracle is a success. It is the world’s second-largest software company. It is number one in relational databases, at least joint second in enterprise resource planning. It is making a strong showing in customer relationship management software – this year’s love for IT managers and stock-market analysts alike – and is poised to move into another hot area, enterprise application integration.

Yet this is a firm with a problem. Its chief executive has a predilection for announcing bold new ideas and products in a blaze of press coverage. These concepts usually see the light of day – but they are not always recognisable by the time they do.

‘Oracle does have an optimistic relationship with reality,’ says senior Cambashi analyst Simon Bragg. ‘In applications software, Oracle does execute, but in new technology areas, in rapidly changing markets, its plans… rapidly change.’

Much of the company’s character has been made in the image of its bombastic co-founder and chief executive, Larry Ellison. To understand Oracle, it is necessary to understand the man.

You’re so vain

London, 24 June 1999. To misquote Carly Simon’s song, he walked into the press conference like he was walking onto a yacht. Lawrence Joseph Ellison had just finished telling British executives how to slim their businesses for the ecommerce revolution – as well as laying into the French government for its restrictive policies on employment. And now, he was ready to take on the press.

Ellison was in London to tell his European country managers to cut back their operations, while he centralised the $8.8 billion-a-year company at its US headquarters by the San Francisco Bay.

The calls for cutbacks were, understandably, not popular. As the summer wore on, Computing picked up signs of dissent from Oracle’s UK offices, which in prosaic comparison, sit next to an InterCity train line in Reading. Rumours spread of hundreds of job losses – Oracle eventually confirmed 90 in the UK. Then someone leaked an internal email marked ‘strictly confidential’ from Oracle’s Swiss-based European boss, Pier Carlo Falotti, insisting that he approve all hirings.

In early October, Falotti sent another email to the Reading staff, informing them that their managing director of four and a half years, Philip Crawford, had resigned. Crawford told Computing he hoped to pursue a career in the world of dot com – although a few weeks later, EDS announced his appointment as president of its non-US operations.

Despite both he and Oracle insisting to the contrary, the rumour mill suggested that Crawford – close to Oracle’s chief operating office, Ray Lane – had been pushed by Falotti in favour of his former colleague from Digital, Ian Smith.

One thing is certain: in the words of the San Jose Mercury News when reviewing an Ellison biography, ‘nothing dull ever happens in Larryland’. This book, The Difference Between God and Larry Ellison: *God Doesn’t Think He’s Larry Ellison, by Mike Wilson, is worth reading for anyone thinking of buying Oracle’s kit. Firstly, because it beats Jeffrey Archer for plot, sexual and financial scandal and sheer entertainment. Second, IT departments have to ask themselves whether they want a character like Larry Ellison as a driving force behind their company’s IT strategy.

A licence to bill

The main spat between UK users and Oracle this year has been over licensing, a contentious issue throughout the industry. Concerns were brought to light in a survey by Oracle’s powerful and independent UK user group, which found that 56% of respondents felt the firm’s licensing structure was unfair, 73% found it hard to manage and 54% said it offered poor value for money.

Computing published the survey on 6 May, to official silence from Oracle, although the company complained privately at the manner of its publication.

However, a more positive response was in the pipeline. At the June press conference in London, Ellison announced details of a radical change to Oracle’s licensing policies.

‘By 1 June 2000 all transactions will go through our web store, and the only discounts will be volume discounts,’ Ellison said, making it clear these discounts would be non-negotiable and standardised. ‘Everyone will know what everyone else is paying.’

Many software firms are notorious for offering secret discounts to favoured customers; often, even the approximate price of a deal is covered up. This is certainly true of Oracle. The Wall Street Journal last month revealed Oracle’s biggest customer, Hewlett-Packard, has a standard discount of 42%, US drug maker Pfizer enjoys an 85% cut, and South Korea’s Pohang Iron and Steel company gets a whacking 94% off list prices.

Crawford told Computing that the user group’s survey was not the reason for the changes. ‘The response represented 1% of our customer base in the UK. The user group is responding to a pressure group within its membership,’ he said.

The user group’s chairman, Ronan Miles, has a rather different view on the survey’s validity – and its impact. By asking respondents how much they spent on Oracle, the group calculated that it had polled 30% of Oracle UK’s revenue base. And as the UK is Oracle’s biggest foreign buyer, worth some 10% of worldwide sales, this accounts for 3% of world revenues, more than the income from any single customer.

‘I’m not going to claim that the survey caused what was then seen,’ Miles told the user group’s conference in Birmingham last month. ‘I would like to suggest that an input from 3% of world revenues crystallised things.’ He added that the results were seen by both UK and US management: ‘I think we had some effect.’

So far, this seems like a straightforward victory for users. But the plot continued to thicken at the same conference. Nick Barley, Oracle UK’s vice-president for marketing, said that, in fact, only 80% of transactions would run through I-Store, the single global web channel, and some companies would continue with secret negotiated rates. Furthermore, startups will be offered a package called, which includes Oracle software, on a different licensing structure. Existing customer deals would be unaffected, according to Bailey.

Miles’ reaction was philosophical. At least having most people on a single list is more transparent than the existing situation, he said. ‘Above a certain price, there will be discounts and they will be negotiated. We understand why size matters.’

Back at the user group conference, Barley said that chief operating officer Ray Lane had always said there would be two models. ‘We’ve charted a course, but there will be a few adjustments on the tiller as we go along,’ Barley added. Well, quite.

The network computer

The licensing saga illustrates Oracle’s mercurial way of working. Major policies are announced, usually by Ellison, when perhaps they have not been entirely thought through. They are then quietly adjusted to fit reality.

Take the network computer. This was launched in June 1997, in a way no one could call understated – Ellison even got on to Oprah Winfrey’s chat show to promote the product, even though it wouldn’t be available for months.

‘Oracle’s mission is to make network computing universal. It will help educate our children. It will help us operate businesses more efficiently. It will certainly enhance our economy, and it will inevitably change our culture,’ proclaimed Ellison, in a 1997 Oracle information pack modestly titles A New Age Begins. The same statement credited Ellison as ‘the visionary that sparked the move to low-cost network computing’.

Since then, network computing has followed a long and winding path. From its early promise of cheap Java-running machines, to Ellison’s later claim that the personal computer running a Java Virtual Machine had fulfilled his vision, to the NC’s actual appearance in some UK sites this year, the idea has moved through several iterations.

Another example of reality not quite living up to its press launch can be found in Oracle8i, the latest release of Oracle’s core database product. In September 1998, Ellison launches the product in New York. It is due to ship by the end of the year. In January 1999, Oracle concedes that actually, it will ship at the start of March (which it did), due to integration testing taking longer than expected. ‘If Oracle is bringing this out after debugging, maybe we should give it credit for that,’ commented Ovum analyst Mary Hope.

‘i’ have a dream

Oracle8i is part of the firm’s Internet strategy, hence its terminal ‘i’. Both the database and Oracle Applications are now designed to be accessed through a browser – an idea which other vendors, including SAP, have had to play catch up. Oracle also likes to point out how most of the world’s major ecommerce sites use Oracle software – at least the database. It is important to stress that Oracle’s technological prowess is not in doubt, and in areas such as Internet enabling and customer relationship management, it has been ahead of the game.

Oracle UK’s new UK managing director, Ian Smith, indicated recognition of his company’s problems when he told the Birmingham user group meeting that the IT industry has been guilty of pushing users into technologies as soon as they are invented, without necessarily ensuring it helped their businesses. ‘We’ve asked business managers to bet their jobs on bleeding-edge technology,’ he said.

When questioned later about what gave him nightmares, he answered: ‘Is my organisation capable of working with customers the way they want us to work with them? The way in which we address the market will change from where some people have come from in the past.’

This has been Oracle’s problem. If a naive IT manager took what Ellison said on face value, he may have recommended a mass conversion to network computers – only to see personal computers drop in price and remain the dominant technology. He might have promised Oracle8i, several months before it was ready. And, depending on his company’s policies, he could have told his board to expect big changes in their licensing deal – only for those changes never to materialise.

Smith’s ambitions are worthy. If he seriously wants Oracle to stop promising a little more than it can deliver, however, he might consider slipping some sedatives into his chief executive’s drink before Ellison mounts his next press conference spectacular. Look out for clouds in Larry’s coffee.

* The Difference Between God and Larry Ellison: *God Doesn’t Think He’s Larry Ellison, Mike Wilson, Quill Books.

Oracle: The early years

Oracle was founded by Ellison and colleagues Bob Miner and Ed Oates, in 1977 – the same year that Bill Gates founded Microsoft. The company was originally a contract programming shop: Ellison had 60% of the stock. The first product – and still the main one, two decades later – was its relational database management system, christened ‘Oracle’.

The founders were influenced by a paper published by IBM staff, which described database query lingo SQL (Structured Query Language). Oracle beat IBM to the relational database manager by four years, even though the ideas came from Big Blue.

Despite recurring financial crises, Oracle has grown and grown, although not as fast as its rival Microsoft. Oracle’s Applications suite was released in 1988, and Ellison has been heard to suggest it will overtake SAP’s R/3. It is a long way from doing so – but it does share second place with compatriot PeopleSoft.

The man who answered the call

Managing director Ian Smith joined Oracle last month after more than five years with BT, where he was managing director of the consumer division and UK customer services. He was responsible for 40,000 people, 25 inbound calls per second, and junk mail sent to 15 million BT customers. Previously, he worked at Digital, where he spent three years supervising partnerships, leading to his self-description as ‘poacher, turned gamekeeper, turned poacher again’.

On being on the users’ side:
‘I only have a certain period where I can call myself a customer and a user, so I am going to exploit the hell out of that.’

On how customers will become kings:
‘When I joined BT, consumers were traditionally British. They queued up, they didn’t complain. They grumbled a bit, but accepted second best. In five and a half years I noticed a dramatic change. Now, those customers that deal in a confrontational way with their customers will not survive.’

On how Oracle UK is being reformed through use of its own software:
‘We estimate there’s a 65% saving in time, when travellers book their own itinerary. We are drinking our own bathwater, if you will pardon the expression.’

On what he would like to bring from BT to Oracle:
‘The concept of the balanced scorecard, which is ironically a product Oracle offers. You have a number of stakeholders: customers, employers, shareholders and the community and society of which you are part. BT did that very well. My challenge was to get them to respond to normal business situations. That’s more difficult with people who have been in voice telephony as a monopoly for many years.’

On specific product data:
‘I have yet to go to the US to get my indoctrination.’