Post of the Day
December 29, 1999

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Oracle Corp.

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Subject:  Re: MARKET CAP ORCL VS. MSFT
Author:  BobSutton

Why does he have to beat MSFT to succeed?

Having often wondered the same thing, I'll take a crack at this...

Among all Oracle's competitors, Ellison's fixation on Microsoft is motivated by one over-riding concern: beginning with Windows 3.0, Microsoft has pursued a single-minded business strategy that relies upon subsuming "outboard" software functionality into its monopoly operating system where it has the most control over distribution, pricing, time-to-market, and integration issues.

By "embracing and extending" into corollary markets like desktop applications, databases and tools, utilities, web browsers, and even novelty products, Microsoft has built a fortress of consumer lock-ins around Windows, such that today it is the overwhelming beneficiary of the worldwide Wintel PC standard and a key determinant of everything else that happens in the computer industry. (Compare Microsoft's gross margin performance during the late nineties against ANY company that abutts it in any competitive respect.) George Gilder calls the resulting assemblage "bloatware": software that, Borg-like, assumes immense proportions by constantly assimilating the new features it encounters.

"Take away Microsoft's ability to substantially re-sell its installed base every twelve to eighteen months and you have a much less interesting software company..."

Microsoft needs to do this because a constant stream of new, inter-dependent features is the ultimate key to its upgrade business, a permanent cash-cow that is immune from new industry competition and provides formidable pricing advantages. Take away Microsoft's ability to substantially re-sell its installed base every twelve to eighteen months and you have a much less interesting software company whose innovations would face competition on every front.

Why is this of interest to Larry Ellison? A decade ago, Microsoft linked up with Oracle's then-most significant competitor, Sybase, to develop a desktop RDBMS intended to compete directly with Oracle and Gupta in the desktop and client/server markets. No sooner than its secrets had been assimilated, Sybase found itself shouldered aside as Microsoft incorporated SQL Server into its MS-Office suites and peddled the underlying Jet technology as "free" database functionality beneath its applications. Grabbing the desktop database space was just the beginning, however.

With the subsequent development of "open" ODBC interfaces, Microsoft soon staked out a dominant role for itself in the emerging client/server applications architecture. Given the difficulty and expense customers face in integrating enterprise applications across distributed platforms that include the Windows GUI, Microsoft portrays the integrated Windows/SQL Server/ODBC value proposition as superior to one based upon separate "best of breed" software products. The trick is to make opponents compete with Microsoft's "whole product" and not just the features under contention, an argument that works as long as Windows remains a crucial piece of the end-to-end solution.

However we may regard Mr. Ellison's personal peccadillos, we must agree that this market positioning is a direct and consequential threat to Oracle's franchise and one that needs to be opposed vigorously. In battling SQL Server, it's no longer enough to rest on Oracle's superior, industrial-strength database technology; Microsoft wants the whole Borg engaged and Larry has engaged it.

"However we may regard Mr. Ellison's personal peccadillos, we must agree that this market positioning is a direct and consequential threat to Oracle's franchise..."

That the man has done so by first becoming a visible and credible advocate of a "new" architecture that thwarts Microsoft's huge advantages is fine by me. Sometimes it takes a visionary to start a fire. Gilder will say that Microsoft's bloatware strategy is destined to be undermined by the internet no matter what, and I think that Ellison would agree with this: it's wrong-headed engineering. While he fans that outcome, who cares if he relishes being seen around town with a little gasoline and matches?

That he is busily re-shaping Oracle's products and organization to leverage that architecture profitably is even better. Knowing when to seize first-mover advantages is a sign of good management.

That industry pundits and journalists now recognize these steps as a brilliant, necessary defense of Ellison's company just makes my day. It's about time the guy got some credit for stepping up to this fight.

My prediction that Oracle's rehabilitation in the press will merit a FORTUNE cover for Mr. Ellison soon stands as issued. (Since I don't read that biz-glam rag however, will someone kindly post here when it appears?)

Bob Sutton

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