03:37 AM

Mastermind Strategist Larry Ellison: Oracle Snaps Up Sun And Throws Down Gauntlet To IBM


Foremski's Take:

About five years ago Larry Ellison, co-founder and CEO of Oracle, tired of his sailing adventures and embarked on a series of large acquisitions designed to make Oracle into a leader in enterprise applications and a strong competitor to Germany's SAP.

PeopleSoft was the first target, acquired for $10.3 billion. Then Retek, with retail industry apps for $630 million; iflex and its financial industry applications, for $900m -- all in 2005.

Siebel Systems, a leader in CRM applications was acquired in 2006 for $5.85 billion. The following year Hyperion Solutions with its business intelligence software was acquired for $3.3 billion. BEA Systems became part of Oracle in 2008 for $8.5 billion, and now Sun for $7.4 billion. In between those large acquisitions Oracle bought up many smaller firms, including open source companies.

Oracle initially faced a Department of Justice anti-trust challenge, but prevailed, and its road to further acquisitions in the enterprise market proceeded without much further scrutiny.

Vanity Fair recently reported that: "Ellison’s shrewd deal making these last four years—spending $34.5 billion to acquire 50 companies—has been well founded. Each of these companies has customers steadily paying maintenance fees, income that is consistent even when cash-strapped consumers are refusing to shell out for new products. In fact, Bloomberg News reported that Oracle took in nearly twice as much money from support deals as it did from product sales in the last year."

(At the end of this post there is a fascinating video of Mr Ellison explaining his strategy of acquisition in a taped deposition related to PeopleSoft.)

The acquisition of Sun gives Oracle access to key software such as Java, and also MySQL, the largest open source database. It also gives Oracle a large hardware business.

Hardware is increasingly important in IT because of a trend in building "appliances." These are hardware systems tuned to run specific software. The beauty of these application appliances is that there is minimal setup, the hardware is already "pre-qualified" to run the software, and it is tuned to run at very fast speeds compared with running the software on general purpose IT systems. For example, Tibco Software recently released an appliance (please see: Tibco: Wrapping Metal Around Software).

But hardware appliances are a fairly small segment of the IT market, and it's possible that Oracle may seek to sell off the hardware business to Hewlett-Packard, which is already a partner to Oracle in several key markets.

More importantly, the Sun acquisition will enable Oracle to take on IBM in more markets. However, it is worth pointing out that IBM, in its failed bid for Sun, gained access to all of Sun's business information. I

The New York Times reported:

I.B.M. had a team of more than 100 lawyers conducting due-diligence research on potential problems in a purchase of Sun, ranging from those antitrust concerns to Sun’s contracts with employees and I.B.M. competitors.

IBM knows where Sun is weak, where contracts are expiring, and many other details. It's an invaluable treasure trove of information it can use in future battles against Oracle.

The challenge of any acquisition is integration. Dana Gardner, principal analyst at Interarbor Solutions points out that:

No other company has shown an ability to merge and integrate at the massive scale and complexity that Oracle has. It's acquisition spree that began five years ago is unprecedented in its scope and level of success. We have no reason to suspect that the way it handles Sun will be any different.

Hooray! Oracle acquisition of Sun makes perfect sense

At 64 years of age, Larry Ellison has already built an impressive legacy as a master strategist. And he doesn't seem to be finished yet.

(Please return for further SVW analysis of the Oracle [ORCL] and Sun [JAVA] deal.)

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Please see:

Larry Ellison explains his strategy in 2004 video deposition.

Ellison deposition video released - CNET News

The following is from Wikipedia: Larry Ellison

"...Ellison grew up in a two-bedroom apartment in Chicago's South Shore middle-class Jewish neighborhood.

...Ellison was a bright but inattentive student. He left the University of Illinois at Urbana-Champaign at the end of his second year, after not taking his final exams because his adoptive mother had just died.

...At 20 years of age, he moved to northern California permanently.

...During the 1970s, Ellison worked for Ampex Corporation. One of his projects was a database for the CIA, which he named "Oracle".

...In 1990, Oracle laid off 10% (about 400 people) of its work force because of a mismatch between cash and revenues. This crisis, which almost resulted in Oracle's bankruptcy, came about because of Oracle's "up-front" marketing strategy, in which sales people urged potential customers to buy the largest possible amount of software all at once. ...Ellison would later say that Oracle had made "an incredible business mistake."

...Ellison co-owns with music and film mogul David Geffen the sixth largest yacht in the world named "Rising Sun" which reportedly cost over US$200 million to build. Rising Sun is 452.75ft (138 m) long.

...Ellison is a certified pilot and has owned several unusual aircraft, including fighter jets.

...Ellison styled his estimated $200 million Woodside, California estate after feudal Japanese architecture, complete with a man-made 2.3-acre (9,300 m2) lake.

....The $65 million Ellison spent on five contiguous lots on Malibu's Carbon Beach was the most costly residential transaction in United States history... His entertainment system cost $1 million, and included a rock concert-sized video projector at one end of a drained swimming pool and turned the gaping hole into a giant subwoofer."