Larry Ellison and the "Living Dead"

Dear Larry:

We read your WSJ interview today in which you say  "Microsoft is clearly a survivor (in the software industry), Oracle is clearly a survivor, as is IBM, as is SAP. I think I'm finished."

If you had not included SAP in that statement we would have thought you were just talking about the database software market,  but you are broadly talking about software and we, the "non-survivors",  are puzzled:

a) The 4 vendors you mention TOGETHER do not provide even 10% of software for insurance claims processing, bank trading systems, mortgage processing, telecommunication billing, utility billing, patient and health care accounting and several other enterprise applications.  Lifeblood systems for our economy.

b) The 4 vendors you mention TOGETHER do not provide more than 25% of all testing, security, storage, systems management and a whole variety of other infrastructure software

c) Service Providers like Accenture, Infosys and others write way more code each year than the 4 of you do. They build custom apps, extensions to your functionality, clean up your buggy code.  That is software too. You may not agree but over 70% of Oracle's own revenue comes from such support and services.

d)  FEW of the major software innovations  in the last few years -  planning and optimization, eProcurement, CRM, web services, several other areas has come from these 4 vendors. You have always been "fast followers". If  only the 4 of you survive, it is a scary proposition for all our customers.

e) Adjusting out IBM's hardware business and Microsoft's games, MSN and other personal software business, the market cap for the 4 vendors makes up about 35%  of the various Yahoo Finance categories for business software and services. That does not even account for the many private companies in the categories.

Larry, we love you. You have been good for our industry. But, a few years ago you dismissed some of our companies as "features".  We are still around.

Our investors would like to see it, but not sure how with 35% of the market cap, the 4 of you will consolidate the rest of us in the 65% category. 

We would rather see the four of you become well behaved Tier 1 suppliers and work better with us Tier 2 and 3 suppliers - and even compete with some of us for Tier 1 business.

Respectfully,

"The Living Dead"

Accenture, Adobe, Ariba, Apache, BEA, BMC, CA, Cerner, Cognizant, Cognos, Compuware, Epicor, FiServ, Infosys, Intuit, Lawson, Mercury, Novell, Parametric Technology, Progress, RedHat, salesforce.com, SAS, Siebel, SSA, SunGard, Symantec, Tibco, TCS, Wipro and hundreds of other business software and services companies

Author's Note: I put a revised, expanded version of this blog on July 18, 2005 on Sandhill.com - Larry Ellison's version of "Survivor"

Comments

[David Scott Lewis]

Vinnie, I agree with Larry. Okay, I might have a personal bias toward Microsoft and Oracle - alma mater bias. But I suspect that Larry is viewing the four as the only surviving platforms. In this sense, I agree with Larry. Open source may become an alternative, but Larry is spouting off companies -- and I wouldn't quite put Red Hat in this league. Matter of fact, I'd give IBM a lot more credit in the open source space than any of the pure play open source vendors.

Score one for Larry!!

[David Scott Lewis]

Follow up comment (which I forgot to include). I wouldn't put the SIs and solution providers in the same boat as the software vendors. Different monkeys.

[vinnie mirchandani]

David, I am not an Oracle alum and I am still a Larry fan. How can you not be of the entrepreneur who without VC money succeeded against IBM in its prime, and has since survived and conquered so many other competitors? Also, how can you not admire someone with that flair, sense of humor...

I did not mean to suggest that RedHat or Lawson would individually get to Oracle’s or Microsoft’s stature. I also was not getting in to the Open source debate. In my list of vendors at the bottom only Apache and RedHat represented that community.

However, the market share or market cap numbers do not lie. You have to look at the software industry as a whole – including apps, infrastructure software and services. I know you say exclude the systems integrators – but then you have to remove 70% of Oracle’s revenues. which come from services. And the software and services markets are converging rapidly – hence the recent attention to ASP, SaaS or BPO concepts. And if you just want to talk just platform, remove Oracle, PeopleSoft and JDE apps numbers.

Once you look at comparable numbers, you see that Oracle had 6% of the market cap in the Yahoo list I referred to. With PeopleSoft, Larry added 1% more. Would you agree a 7% player should not be yelling “consolidation”?

Larry is nothing, if not shrewd. While at PwC, we used to deflect the fact that we had 5% market share by telling clients “we have 40% of the market we choose to go after”. His consolidation message is aimed at 2 audiences. Buyers – “Do not bother with the other riff raff, just look at me, IBM, SAP and Microsoft”. And other riff raff vendors “Sell to me below market before you get “consolidated” out”

The only problem with the logic is the “riff raff” is still 65% of the market cap (and a lot more if you include all the still private plays).

Also, the platform market is increasingly going to get price squeezed. See my blog “The Giant Crunching Sound” about how CIOs are squeezing Utility Spend (mostly around incumbent infrastructure and apps vendors) to free up Innovation spend. Frankly, Larry would be better off putting more money into R&D v/s acquiring legacy products (or revenues).

I would like to hear more on Innovation, not consolidation, from him. When he has 25% of market cap (up from 7% now) talking about consolidation will be more appropriate.