Ellison Meets The Press

On Wednesday Oracle CEO Larry Ellison gave his keynote before nearly 35,000 attendees of Oracle OpenWorld. Two hours later, he delivered his comments before a small group of international, business and technology journalists, including CRN West Coast Bureau Chief Rochelle Garner and Industry Editor Barbara Darrow. This is an excerpt of that wide ranging question and answer session.

Q: Your company seems to have changed directions with all of these acquisitions.

ELLISON: Scale is very important. We will triple our investment in CRM, with the acquisition of Siebel. You have to scale up. You have to have a larger installed base to justify investment in the next generation of products. PeopleSoft built their own HRMS system, and we built our own, neither of which would be as good as the combined one we build at Oracle. Siebel is the category leader in CRM. And we benefit from their experience and their success. We get their engineering team, and It means our Fusion products will be much better, with less risk.

Q: Will there an acquisition in the security space?

ELLISON: Sure, it&s possible. But there are a lot of different aspects of security. We are not looking to get into the antivirus business. Our focus will be on encryption and making sure all of our backups are encrypted. Veritas is the king of backups. We think Oracle can compete effectively with our backup offerings.

Q: Siebel has spent the last 18 months working on Project Nexus, to convert to a services-oriented architecture. How much of that code can you make direct use of in Fusion?

ELLISON: We are not trying to preserve code bases. We are trying to preserve features. All of Fusion is written in java. That&s not true of Nexus. However, the experience of building Nexus is enormously valuable to us. But not the code itself. The code is actually greatly overrated. We can reproduce code quickly. It&s knowing what code to write, the flows. That&s why I&m saying the Siebel acquisition reduces our risk.

Q: Are you still thinking about acquiring BEA?

ELLISON: At one time BEA was very high on our list. Now it&s less so. We believe we&ve passed them up in terms of new license sales. We know we have more than twice as many users. They are less interesting to us. They are also not interested in being bought, and have made it quite clear that they will fight to the death. We have no interest in getting in a fight over BEA.

Q: You&ve said you want to reach $30 billion. Does that mean you&ll continue to grow by acquisition?

ELLISON: We are about $15 billion this year. I&m rounding up. Clearly, if we go to $30 billion in a few years there would have to be a combination of acquisitions. I don&t think $30 billion is an unreasonable target. The key is to preserve our 40-plus percent operating margins. Doing that with some larger acquisitions would be tricky. We have no large acquisitions in mind. Until the Siebel deal goes through and we prove to our shareholders we had done a good job, we would not buy another large company. We will be out of the major acquisition business for at least a year.

Q: You have said you wanted to be a big stack provider. Given your new relationship with IBM, what is your view of them?

ELLISON: We will cooperate with IBM as much as we can. They are the largest IT services organization in the world, in a number of industries that are important to us. We will work with them where it makes sense to. They have middleware and databases, and we are happy to be open to their middleware and their database. We will compete on price, performance and security, and we think we can beat them. Customers like having a choice, and if it means we will lose some, we will gain more than we lose. Q: What percentage of your acquisition customers are on non-Oracle database.

ELLISON: We have 60 percent of Siebel, 60 percent of PeopleSoft, and 80 percent of SAP. The larger the customer, the larger the penetration for Oracle. How many of those customers choose to switch to Oracle depends on many things. If they perceive we did a better job supporting their applications than PeopleSoft did, they will be more disposed to looking at other Oracle products. They will be amenable to buying other Oracle products. The next thing is we have to make sure our database initiatives build greater distance between DB2 or SQL Server. If we do both of those things, we will get our fair share of those customers moving to Oracle. It&s a sales process not done by sales people. It&s a sales process done by high-quality engineering every day.

Q: You&re making a bigger push into the SMB market, which means a greater commitment to the channel. Oracle hasn&t had the greatest success record, there. What are you doing that&s different?

ELLISON: Our biggest problem with the channel before was not that we couldn't get channel partners--Dell is one of the biggest resellers in the channel--it was getting pricing that makes sense on Dell machines for the SMB marketplace. We are doing better in the channel, especially with certain key partners. Dell is my favorite example. We also have a channel we inherited and are building from JD Edwards products. We were heavily biased toward direct sales. But I think we are doing better. It&s a learning process.

Q: What&s the outlook for Oracle consulting?

ELLISON: We&re in consulting because it gives us an intimate look into our customers& needs. We believe we have to be in a mode other than handing over a disk to Global Services and say 'use it. I dare you.' We are trying to take the labor out of running Oracle applications, which puts us in the awkward business of competing against our partners, like Accenture. We had cut back our consulting business, and now there&s a boom. We have to be in this business. Demand for our consultants is now way higher than our ability to supply them.

Q: Do you have any idea yet on job cuts at Siebel?

ELLISON: We don&t know. I can tell you we didn&t acquire the company to lay all the people off. Siebel has already had a number of staff reductions. We are buying the company because they have an experienced sales force. We are tripling our investments in CRM engineering, so we will retain the bulk of those people. Having said that, I think we can maintain 40% margins.

Q: When can shareholders see high margins on applications?

ELLISON: I see all these numbers, like 80 percent of our business is from our database. The truth is about one-third is about applications, and two-thirds comes from technology. And our margins are in excess of 40 percent. Our application business is enormously profitable, or we wouldn&t be increasing. And the growth rates are higher than the database business. We don&t break out the numbers for the applications business.

No one has asked, in your license renewal business, how much is applications and how much is database? And we make all our money in license renewals, not in new licenses. That annuity is the largest and most profitable part of our business. And about a third of that is our applications business. It&s a story we have not done a good job of telling. But it&s a very good business. It&s a sticky business. There are not a lot of migrations in applications, and it&s high on the value chain. That&s why we are expanding. And we are the category leader in a lot of industries. And it&s when you&re the category leader that you make money.