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"The first six months will be rocky. Once we have a mature product, which will be six months to a year from now, I think this will be explosive," said Oracle (Nasdaq: ORCL ) CEO Larry Ellison in describing the Next Big Thing ...
... in September 1996.
At the time, he was talking about a now-defunct concept called the Network Computer (NC), a diskless machine with Web access. Think of it as part 3270 terminal -- otherwise known as the access point to the mainframes of old -- and part Web browsing PC. Sun Microsystems (Nasdaq: JAVA ) and IBM (NYSE: IBM ) joined Oracle in producing them and yet by 2000, the NC was no more.
Fast-forward to last week. Oracle said it would team with Hewlett-Packard (NYSE: HPQ ) to introduce a new database "appliance," a slab of hardware filled with storage, memory, and processing power whose sole purpose would be to manage and process database transactions. Pricing is expected to be about $1.5 million, The Wall Street Journal reports.
Second verse, not same as the first
This isn't exactly the same as the Network Computer. But it is Oracle's second try at the hardware biz. Two things lead me to expect a better result this time around:
- Databases are Oracle's specialty. The NC was a bold idea but an entirely new market for Oracle. Not so with databases, where Oracle leads IBM, Teradata, and Sybase (NYSE: SY ) in market share.
- Oracle doesn't need new capital to fund growth. I have just two words for you: $7.5 billion in free cash flow over the trailing 12 months. OK, that's 11 words, but the only two words that matter in that sentence are $7.5 and billion. Chief competitor SAP (NYSE: SAP ) has produced less than half that over the same period.
Still, hardware can be a brutal business. Ellison takes a risk entering the market now, with so many firms selling low-cost servers and cheap open-source alternatives. Take Red Hat (NYSE: RHT ) , for example.
And yet I understand the bet: Database transactions are the foundation of networked computing. Single-purpose appliances can serve transactions faster -- up to 10 times faster, Oracle claims -- than a general-purpose server. They also reduce complexity and, as such, can cost less to deploy. A modular, plug-and-play design will do that for you.
So yeah, the database appliance could be the new NC. But that, too, was a big bet worth taking. Oracle has more resources this time and, by my math, an even bigger financial motive to ante up. I applaud Ellison for putting a few of Oracle's chips in the middle.
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