Oracle's top executives, oozing with confidence that the Sun deal will be closed within the month, spoke animatedly yesterday about the company's looming transformation from an enterprise software company into a full-fledged systems provider intent on competing head-on with IBM.
In particular, Oracle founder and CEO Larry Ellison spoke in considerable detail about how his vision of the computer industry of the future is centered on the idea of optimized systems that provide high value to customers because they don't need to do or pay for a lot of systems integration, and in return provide high margins to the providers.
Ellison also quite casually wove the terms "private clouds" and "cloud computing" into his strategic overview without lampooning them, which was a big step forward even though Ellison's discomfort with the term is shared by IBM CEO Sam Palmisano and Hewlett-Packard CEO Mark Hurd. It was a big step because whatever his personal misgivings over cloud terminology might be, it's a name and concept that has truly begun to fire the imagination of customers and industry players alike, and the combination of Ellison's new acceptance of the term combined with his ambitious plans for Oracle to become a major supplier of cloud systems can only accelerate that already forceful trend.
In a separate piece coming a bit later today, I'll offer some context on Oracle's earnings and related commentary from not only Ellison but also company presidents Charles Phillips and Safra Catz—but for the purposes of this column, I want to focus on the Ellison's view of where the IT business is headed for both customers and major vendors.
As one of the most powerful and influential leaders in not only the technology business but in the global economy as well, Ellison wields enormous clout in shaping strategic directions for products, technologies, terminology, acquisitions, and the general temperature of this far-flung business. His legendary competitiveness, ranging from his business battles against SAP and Microsoft and IBM to his status as a world-class sailor and racing-team leader, has helped to shape and will continue to shape the direction of this business for quite some time.
In Ellison's own words, transcribed from yesterday's second-quarter earnings call (the audio-archive link is live through Dec. 28), you'll hear his views on Oracle's future strategy and how it will take the company down a path that's similar to the one IBM is on but differentiated from that of HP and Dell; how Oracle will become a major player in cloud computing, particularly private clouds; how the Exadata database machine is fulfilling Ellison's predictions of being the most exciting new-product introduction in the company's history; the role of specialized and integrated systems in providing higher value to customers for everything from databases to transaction processing to data centers; and the unfolding strategy and promise of Oracle's Fusion applications.
1. Sun's Impact On Oracle's Strategy
"Since we're getting closer to closing the Sun deal, I'm going to talk a little bit about our strategy with Sun going forward: what we're not gonna do and what we are gonna do. One thing we recognize is that Sun does not really now and is never likely to have the volume to compete in the high-volume, low-margin business selling an Intel server with Windows on it or Linux on it one at a time. We think that high-volume, low-margin business is a good business, so long as you have high volume, and that's something Dell and HP are very good at and we're gonna avoid that business.
"Instead, we are pursuing the high-value, high-performance market: very large SMP machines like the Sparc Solaris M9000 which we will continue to enhance. . . . We'll not only be focused on SMP machines, which have been around for some time though we think Sun's SMP machines are best in class, but we're also gonna be building clusters of industry-standard machines and Sparc machines. And those clusters are now called private clouds—that's the more-fashionable term for clusters—and we're using our software, our operating system—both Solaris and Oracle Linux—and our virtualization—the ability to dynamically allocate and reallocate resources, which is essential for cloud computing—as well as integrated networking and integrated storage to deliver a complete private cloud to our customers.
"So customers will be able to buy high-end SMP machines that are high-performance and high-value, or a high-end private cloud, with all of the pieces including processing, storage, and networking integrated together with Oracle-slash-Sun software. We think that will heavily differentiate our offerings from the offerings of IBM, HP and Dell, and we think we're gonna be able to compete very effectively there and that will deliver high margins and allow us to deliver that $1.5 billion additional profit in our first full year of owning Sun."
2. Exadata Database Machine, And The New Systems Approach It Exemplifies
"We think the Exadata business is going to be huge—by huge, billions of dollars a year in new systems sales, not including the maintenance on those businesses. Now how long it takes us to get there remains to be seen but our overall view of the computer industry is we have been selling components to large customers and the customers have been hiring systems integrators to glue those components into complete systems." And here's his "overall strategy going forward":
"Our overall strategy right now going forward is not to sell those individual industry-standard components on their own but rather group them together into machines like Exadata, where we have processors, networking, storage, storage software, database software, our Oracle Enterprise Linux operating system—all as a complete database machine for both transaction processing and data warehousing. We think that makes it much easier for the customer—they don't have to buy all the individual parts and glue them together—but instead they buy the boxes: a high-margin product for us and a high-value purchase for them because they don't have to spend a lot of money on systems integration.
"We think that's the way customers are gonna go forward as they build their data centers: not buying components but buying systems like Exadata. And one of the big reasons we bought Sun is that we want to apply that same strategy to middleware, to applications, to the operating system itself: we're not gonna sell operating systems just for an individual computer, but we're gonna sell the next generation of Solaris that's gonna be a Cloud Edition of Solaris, where it manages a group, a cloud, a cluster of these computers that we sell together as a unit.
"That's highly differentiated: high-margin for us, and no systems integration for the customer. How big is that business? We think that's what the computer business is gonna look like for the largest customers going forward, so we think that's billions and billions of dollars. That is our business in the future."
3. Fusion Applications As Components: Rip-And-Replace Not Required
"The big thing for us is we've designed Fusion applications as components: they've got a service-oriented architecture and are componentized. . . . So it's not a rip-and-replace strategy that we have with Fusion: we can go in and sell you a lot of point solutions, we can sell you a specific application like Order Orchestration that integrates your existing SAP systems and existing Oracle systems, your JD Edwards systems and your PeopleSoft systems. Though, we can do a complete replacement over time and that's our plan but that's over a long period of time.
"We want [customers] to start with some of the components, like Order Orchestration or like some of our HR Incentive-Management systems. We've got a long list of things, and they'll buy them a piece at a time but they're designed to be easily integrated with what they already have. We think that's gonna allow us to sell Fusion aggressively out of the box and allow us to increase our share over SAP over time."
So that's how Larry Ellison sees Oracle evolving, and the impact Sun will have, and how those visions represent Ellison's larger view of where the entire IT industry is headed. At this point, it's mostly speculative—mostly, but not all. The one bit of tangible evidence we do have—Exadata—sheds some light on the merits of the integrated-system strategy so passionately embraced by Ellison, so as a final thought let's take a quick look at that.
During yesterday's call, Oracle president Charles Phillips said "Exadata is on fire—it nearly tripled in sales sequentially—the pipelines are growing week to week—we're now having some of the initial customers come back and ask for multiple systems, which is always a good sign. The main constraint we have now is just production capacity, and the field [sales force] is fighting for them in each region, so it's a red-hot product and we expect that to continue to add momentum going forward." And president Safra Catz (yes, Oracle has two presidents), speaking of Oracle sales momentum, added that "there's an enormous amount of heat around the Exadata product."
Does Larry Ellison's strategy of the rise of integrated systems make sense to you? Is that the shape of things to come, or just some smooth rationale for pursuing Sun through the gates of hell (er, the EU)? Let us know at the address below.
Bob Evans is senior VP and director of
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