Softwar
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Much about Ellison is paradoxical, even contradictory. He’s enormously vain, intellectually dominating, and irrepressibly extrovert. But he’s also shy, has relatively few close friends, and is in constant need of the emotional reassurance that for much of his life has been lacking. He is determinedly youthful. But he is never far from thoughts of mortality. He detests vulgarity and yearns for simplicity and naturalness. But he also derives straightforward pleasure from owning hugely expensive material status symbols. He desperately wants his wealth to do some good in the world. But such is his terror of being found a hypocrite that he recoils at the very idea of altruism. He lavishes praise on sometimes overpromoted subordinates in whom he places huge—at times excessive—trust. But he acts with ruthless dispatch toward anyone he feels has let him down professionally. He combines great sensitivity and empathy to the feelings of those around him with a capacity for sometimes childlike selfishness. He is ultraconfrontational in business. But he goes to almost any lengths to avoid confrontation at a personal level. He either delegates to the point of detachment or is obsessively controlling down to the last detail. He prides himself on never losing his temper. But he is manifestly driven by overwhelming passions. Ellison is nothing if not complicated.
About one thing, however, Ellison is relentlessly consistent: he sees life as a constant series of tests through which he can discover his limits. And when it fails to throw up enough of them, he goes looking for more.
* * *
1. LE writes: We could have accumulated a lot more cash, but we bought back $16 billion of our stock.
2. LE writes: CRM systems automate only a part of the lead-to-order sales process: opportunity management, forecasting, and proposals. CRM systems don’t automate contracting, quoting, and ordering. It is a classic example of incomplete automation. In contrast, the E-Business Suite automates the entire selling process end to end because it’s complete. That makes it possible to engineer, implement, and enforce standard sales processes within your company. The days of the ad hoc, make-it-up-as-you-go-along sales force are coming to an end. It won’t be long before all processes within a company will be carefully engineered—even selling.
3. LE writes: Megasoftware projects, those scheduled to take two to three years or longer, are almost always late. The longer the project, the more likely it is that new ideas and technologies will emerge that you want to incorporate into your new product so it isn’t obsolete the day you deliver it. It’s hard to resist the temptation to make it better, even when making it better also makes it later.
4. LE writes: Today, we have thousands of E-Business Suite references attesting to savings of up to $600 million per year and reduced IT costs of more than 60 percent.
5. LE writes: I was just trying to keep our applications marketing message simple: We have a complete and integrated suite of applications built on top of a single database. They don’t. A single database is the key to providing everyone with the information they need to do their job better—aka Daily Business Intelligence. End of message. I hate complex technobabble marketing messages. It so happens that we use Java and Web services in our applications much more than SAP, but the only people who really understand how Java Web services work are programmers. I find it all very strange. Almost no one understands it, but everybody wants it. Okay, I give up. It’s futile to fight fashion. We now chant “Web services, Web services” in supplication to the marketing gods. We hope our prayers will be heard and rewarded with sales.
6. LE writes: Our low-cost outsourcing service has attracted some very large clients, including Merrill Lynch, J. P. Morgan, Qantas, JDS Uniphase, and Agilent.
7. LE writes: Oracle is promoting grids of small, low-cost Linux servers while Microsoft is pushing expensive Windows mainframes. What a turn of events. It’s like the plot in the Eddie Murphy movie Trading Places.
8. LE writes: No question about it. Jeff Henley is the best CFO in the computer industry. The shareholders can rely on him, and so can I.
9. LE writes: For years I’ve pushed for separate specialized applications and technology sales forces. But until Keith, I couldn’t convince a single one of our field sales executives to give it a try. My biggest mistakes don’t result from pushing too hard; they result from not pushing hard enough.
Louis and Lillian Ellison in the 1950s
Larry Ellison in 1948
Larry Ellison and Jimmy Linn in 1950
Larry Ellison rock climbing in Yosemite in the late 1970s
Larry Ellison playing folk guitar in the early 1970s
David, Larry, and Megan Ellison in 1989
Annual report picture in 1988
Kathleen O’Rourke in 1990
Larry Ellison, President Clinton, and Melanie Craft in 1996
Sayonara in a hurricane in the 1998 Sydney-to-Hobart race
Melanie Craft and Larry Ellison at the finish of the 1998 Sydney-to-Hobart race
Katana in Capri in 2001
Carl Djerassi and Josh Lederberg on Katana in Sardinia in 2001
Prince Alwaleed’s son, Prince Alwaleed Bin Talal, Melanie Craft, Larry Ellison, and Matthew Symonds in Cannes in 2001
Judge James Linn, Larry Ellison, and Melanie Craft in Katana in 2001
Melanie Craft and Larry Ellison kayaking in Alaska in 2002
Ronin in Alaska in 2002
Larry Ellison and his Marchetti S211 jet fighter
Melanie Craft in 2003 (Cameron Hirigoyen)
Woodside Project, 2003
Woodside Project, 2003
Matthew Symonds, Melanie Craft, and Larry Ellison at Woodside in 2002
Melanie Craft, Larry Ellison, Joe Montana, and Mayor Willie Brown at Woodside in 2003
Larry Ellison in China in 2001
AFTERWORD
On June 2, 2003, Larry Ellison rose to the news that PeopleSoft, the number three player in the business applications market, was buying J. D. Edwards, a smaller rival, for $1.7 billion. It wasn’t entirely a shock. Oracle had itself been toying with the idea of buying J. D. Edwards for some time, and after declaring a loss in the previous quarter, the Denver-based company was now going cheap. Eager to get talks moving again, Safra Catz had left a long voice mail the previous week for J. D. Edwards’s CFO, Rick Allen. But Allen hadn’t returned her call. Ellison and Catz had always thought that PeopleSoft might try to snatch J. D. Edwards’s from Oracle and they had already “gamed out” their response. At 7:40 A.M., Catz e-mailed her boss: “Time to move on psft.” A minute later, Ellison replied: “Just what I was thinking.”
Within 48 hours, Oracle had held two board meetings and hired Credit Suisse First Boston both to advise it and provide a $5 billion revolving credit facility. Two days later, Craig Conway, PeopleSoft’s chief executive and a former Oracle salesman, was in Paris meeting customers when the news came through from New York that Larry Ellison had just announced a $5.1 billion all-cash bid for his company. Playing on the tradition that hostile bids in the software industry are almost unknown, an appalled Conway condemned the move as “atrociously bad behavior from a company with a history of atrociously bad behavior.” According to Conway, his first thought—influenced by the stingy 6 percent premium Ellison was offering over the previous day’s close—had been that it was a ploy to wreck his deal with J. D. Edwards. But Ellison wasn’t just playing the spoilsport. He couldn’t have been more serious.
Since the collapse of the tech boom Ellison had been talking about the need for consolidation in a maturing industry that had been left with an overhang of excess capacity. During those first conversations at the beginning of my journey with him more than two years earlier, he had forecast the imminent demise of the best-of-breed firms. The future, he had argued repeatedly, would belong to the suite vendors, and only Oracle and SAP were big and rich enough to survive in the harsh new climate for software. PeopleSoft claimed to be a suite player too, but, according to Ellison, it didn’t have the scale or the development resources needed to match Oracle or SAP. What residual st
rength it had lay in the installed base of loyal customers using its market-leading human resources application. But with or without J. D. Edwards, which had more than enough problems of its own, PeopleSoft’s prospects were poor. They were both, in Ellison’s words, companies “in distress.” By hastening an end to their misery, Ellison was simply putting his money where his always energetic mouth had been for quite some time.
Crucially, Ellison’s bid for PeopleSoft didn’t rely on winning over the firm’s management or trying to integrate its product line with Oracle’s. With characteristic disdain for the normal conventions, Ellison made it clear that what he had in mind for the well-liked Pleasanton-based company and its 13,000 staff was the corporate equivalent of euthanasia.1 Oracle would provide enhanced maintenance to PeopleSoft’s 11,000 customers, even keeping going older software that Conway had declared he would no longer support. If they wanted to move from their client/server systems, they could choose between the web-based PeopleSoft 8 or Oracle’s E-Business Suite. Whichever they opted for, Ellison promised that the upgrade would be both “free” and “graceful.” Over time, he expected that most PeopleSoft customers would either switch to Oracle or, if they were running SAP’s financial application, to the German firm’s suite. There would be jobs at Oracle for PeopleSoft’s best developers, service engineers, and salespeople. A few years ago the talent would unquestionably have walked, but Ellison reckoned that in Silicon Valley’s depressed labor market, few would turn down the offer to work for Oracle. Over time, PeopleSoft as a brand and an entity would wither away. Ellison observed: “I guess you could say I’ve become a corporate raider.”
From Oracle’s point of view the deal made a lot of financial sense. Just taking over PeopleSoft’s maintenance contracts would bring in additional revenues of $800 million a year. It was more difficult to calculate the value of migrating PeopleSoft’s customers, most of whom already ran on Oracle’s database, to the E-Business Suite, but there was no doubting the size of the opportunity. Ellison told me: “It’s so fabulously accretive from the outset that I’m almost embarrassed to say.” The same thought had also occurred to most Wall Street analysts, who were quick to pronounce that Ellison would have to raise his “low-ball” offer by at least 25 percent to win over PeopleSoft’s mainly institutional stockholders.
As this book was going to press, that seemed the most likely outcome, and there was no doubt that Oracle could afford to pay more if necessary. But Ellison reckoned that people were overestimating the size of the premium needed to carry the day: “First of all, I don’t think there are going to be any other bidders to push the price up. SAP benefits by doing nothing. IBM is like Switzerland—its business model is based on strict neutrality between vendors. Microsoft’s strategy is to come into this market from the bottom up. There’s nobody else. PeopleSoft’s shareholders have got to decide whether they prefer our cash or Conway’s very risky strategy of trying to put together two failing companies.” He also argued that time was on Oracle’s side. While Ellison was confident of announcing a great quarter later in June, PeopleSoft, having already seen software license sales fall by 39 percent in the previous three months, would be weakened further just because it was in play. Who would buy software from a company that probably wouldn’t exist in a few months’ time? Ellison e-mailed me: “We carefully thought this through and they didn’t. Conway made a series of mistakes and now finds himself in an impossible position. Checkmate!”
Even with Oracle’s bid for PeopleSoft still far from a done deal, its impact was already being felt: it was as if Ellison had lobbed a grenade into tech’s stagnating pool. Suddenly, “consolidation” was an idea whose time had come. The crazy notion that soon there would be only the suites of Oracle and SAP fighting it out in the enterprise applications market now looked convincing enough to become almost the conventional wisdom of the industry analysts. Some predicted that Siebel might be next on Oracle’s shopping list—a theory fueled by Ellison’s mischievous revelation that Tom Siebel had visited him at home some months earlier to discuss a deal. A few analysts were even beginning to wonder how long IBM’s love affair with the best-of-breed could be sustained. Most tellingly, Accenture (the giant systems integration and consulting house that had always given Ellison the cold shoulder) had phoned to say how nice it would be to have a chat about forging closer relationships with Oracle. Two and a half years before, Ellison had told me that the prize was his to lose. That now seemed truer than ever.
* * *
1. LE writes: Actually, we’d be saving PeopleSoft and their customers. I don’t think they can survive on their own.
ABOUT THE AUTHOR
Matthew Symonds is currently political editor of The Economist and writer of the “Bagehot” column, but before that he was the magazine’s technology and communications editor for nearly four years. He was also a founding editorial director of The Independent and has been strategy director of BBC Worldwide Television. Symonds lives in London with his wife and three children.
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INDEX
Abbasi, Sohaib, 67, 113, 126, 370
Accenture, 6, 46, 240, 425, 490
ADP, 415–17
Adrian, Merv, 186
A. G. Edwards & Sons, 177–78
Air Force, U.S., 63, 220, 226
airline reservation systems, 37
Akamai, 95
Alcoa, 31, 33–35
E-Business Suite and, 34–35, 233–35, 248
Alexia, 309, 314
Alinghi, 455–56, 460, 462–69
Allen, Paul, 454–55
Allen, Rick, 487
Alwaleed, Prince, 343
Amazon.com, 3, 14, 55, 184, 211, 390
Amdahl, 57, 371
American Express, 404, 411
American National Standards Institute (ANSI), 72
AmericaOne, 302, 328, 456–57
America’s Cup, xii, 8–9, 286, 299, 302–3, 304n, 307, 312, 321, 324–25, 328, 347, 383, 450, 453–55, 458–60, 463, 465, 467–69, 471
Ampex, 57–59, 62
Analyst Day, 450–53
Andersen Consulting, 101, 116, 223
Andreessen, Marc, xii, 110, 266–67, 273–74
AOL, 274–75
AOL Time Warner, 251, 279–80
Apache, 480
Apple Computer, 109, 113, 288, 299, 308, 367, 458n
applications, see software, software industry
application (app) servers, 23–24, 212, 250, 275, 282–83, 429, 483
Apps World, 51–52, 198–201, 418–28
Argonne National Laboratory, 56
Ariba, 217, 473
E-Business Suite and, 190, 207
finances of, 154, 214
Oracle’s competition with, 248, 275
and Oracle’s competition with IBM, 281, 284
Ariko, Barry, 133–35
Ashcroft, John, 406, 410–11
AT&T, 175, 213–14, 424
Azcarraga, Emilio, 373
Baan, 131
Bacon, Sir Francis, 259n
Baheti, Arun, 434–36, 441
Baker, Randy, 133, 150, 156, 159, 176, 386
Balkenhol, Carolyn, 141, 287–88, 293, 450
Bamford, Roger, 70, 253, 289n
Bank of America, 199
Bannenberg, Jon, 8, 374–79
Barksdale, Jim, 273–74
Barrenechea, Mark:
E-Business Suite and, 190, 193, 196–97, 203, 422–24, 429–30
Oracle’s applications business and, 45, 164, 169, 214, 217, 422–24, 429–31
Bassetti, Paolo, 245
BBC, 109
Be, 240–41
Beamer, Todd, 400–401
BEA Systems, 167, 296
app server of, 24, 212, 250, 275, 282–83, 483
Bechtel, 370, 372
Belda, Alan, 34
BellSouth, 28–30, 247, 424
Benniof, Marc, 90, 108
Benton, Andrew, 415
Berg, Paul, 380n
Berners-Lee, Tim, 110
Bertarelli, Ernesto, 455–56, 461, 469–70
best-of-breed firms, best-of-breed software, 187, 202–3, 217–18, 221, 235, 474–76, 488–89
and databases, 49, 126, 238
integration of, 6, 37, 43, 46–47, 49, 121–26, 127n, 128, 130, 202, 214, 217, 221n, 229, 240, 282, 298, 422
and Oracle’s competition with IBM, 6, 46, 212, 214, 240, 281–82, 284, 416
and suite applications, 51, 121–28, 130–31, 142, 147, 149, 151, 240, 298, 422, 425, 476, 488
Bill & Melinda Gates Foundation, 384, 387
bin Laden, Osama, 404, 406
biotechnology, 8, 299n, 381, 383, 388–91, 399, 482
Block, Keith, 475–76, 480–81, 484–85
Bloom, Gary, 132–33, 291–95