Oracle’s CEO Divines a New Future for Computing

Lawrence Ellison, the billionaire chief executive of database software giant Oracle Corp., loves a challenge. He drives fast cars, pilots his own plane and recently sailed his yacht, the Sayonara, to victory in a storm-tossed race off the coast of Australia in which six sailors lost their lives.

The executive who founded and built the world’s second-largest software company is now building a 23-acre Japanese-style compound complete with 1,000 cherry trees that will house his Japanese art collection and easily rival the $50-million lakefront home of Microsoft Chief Executive Bill Gates.

But the next great challenge of Ellison’s career will involve a lot more than navigating rough seas or directing Japanese carpenters. He is engaged in what he calls his “last transformation at Oracle,” where the goal is no less than displacing Microsoft as the driving force of the Information Age.

“It’s not the Operating System Age or the Personal Computer Age,” Ellison said in an interview, seated in front of a 16th century Japanese silk screen in his office. “It’s the Information Age, and we are the best company offering software for managing your information.”

In this new age of “Internet computing,” Ellison argues, Microsoft and its Windows software built for personal computers will be “pushed out of the center of our industry just like mainframe computing was pushed out of the center of our industry a decade ago.”

Today, Oracle will take a major step in that direction when it begins shipping a new version of its database called Oracle 8i (the “i” being for Internet).

“Just as Microsoft’s foundation technology is Windows,” said Ellison, “our foundation technology is the database”--software that organizes vast amounts of information such as payrolls, customer orders and inventory for easy retrieval and analysis. Just as Microsoft used its success with Windows to establish a dominant position in desktop applications, Ellison believes Oracle 8i will be the foundation, or in computer parlance, the “platform,” for a broad range of software products that would exploit the Internet to revolutionize corporate America’s business practices.

Oracle is already benefiting from the Internet. In the 12 months ended Nov. 30, the company had $8 billion in sales, an impressive 20% increase over the year before. Growth has been modest in the traditional corporate database market, so most of the company’s surge has come from the booming Internet sector, where demand is strong for database software to serve up electronic commerce, for example. Oracle has become the database of choice for many of the largest Internet businesses, including Cisco, Yahoo and Amazon.com.

“Every single company with a Web site is living our vision, our strategy and our story,” said Mark Jarvis, Oracle’s senior vice president for worldwide marketing, emphasizing the company’s Internet focus.

But while Oracle is stealing market share from smaller rivals such as Informix and Sybase, it is facing new competition from the two superpowers of computing: IBM and Microsoft.

Ellison insists that the growth of “Internet computing,” in which programs are run off large, centralized computers rather than on less-powerful personal computers, favors Oracle because of the company’s early start in converting most of its database applications to work through Web browsers.

“Only Oracle has that. SAP doesn’t and PeopleSoft doesn’t,” said Ellison, referring to two of its major competitors in the high-end business software market. “We can go after SAP, displace SAP as the No. 1 applications supplier.” The company expects as much as half its revenue to come from applications within the next few years, up from 25% today.

Sending another arrow aimed at the heart of Microsoft’s power, Oracle has persuaded PC makers Dell Computer and Hewlett-Packard to begin offering specialized database machines that include Oracle’s database but no Windows software.

Ellison takes full credit for Oracle’s Internet strategy. “I place the bets,” he said. “I run development.”

But when it comes to vision, Ellison’s track record is less than stellar. Four years ago, he announced Oracle would cash in on the information highway by building a “video server” that would store movies for interactive television. The business never took off.

Three years ago, Ellison began flogging the idea of the Network Computer, a $500 replacement for the personal computer that would get its information and applications by linking to the Internet. But personal computer prices plummeted and buyers proved unwilling to give up the convenience of a machine that could not only browse the Web but also play games and run thousands of applications.

“The focus on Microsoft as the enemy has gotten them to take their eye off the ball of delivering the products they say they are going to deliver,” said Martin Marshall, an analyst at Redwood City-based Zona Research.

Although Oracle has straightened out problems in the sales organization of its software applications--the data-analysis portion of the corporate data business--analysts say an overall slowdown in that market will make it difficult for Oracle to gain share against such established firms as SAP. And analysts are skeptical of Oracle’s claims that its Internet strategy will give it a significant competitive advantage.

Oracle has been trying for years, for example, to penetrate the market for software used to automate sales forces, the “front-office” sector led by Siebel Systems.

“We just don’t see them,” said David Schmaier, a senior vice president at Siebel, which tripled its sales last year to $380 million. Schmaier says Siebel’s software is accessible by browser, and Ellison’s claim that Oracle is the only one that has made its applications truly Internet-ready is simply wrong.

Even if Oracle is ahead of its competitors in Net-readiness, says Joshua Greenbaum, a Berkeley-based consultant, that doesn’t give Oracle a major competitive advantage, because few corporations are about to abandon their PC-based software.

More important, while Oracle wants to use its database as the launching pad for its oveall business, its very foundation is under attack.

IBM, which stood by while Oracle used IBM-developed technology to become the dominant database vendor, is finally fighting back. The company has rewritten DB2, the IBM database that dominates the mainframe market, to run on smaller computer systems and is including it in its “E-Business” package to help businesses put up storefronts on the Internet.

IBM’s sales of DB2 on non-mainframe computers are up 70% over a year ago, and Janet Perna, general manager of IBM’s database group, says the company plans to maintain the momentum with aggressive pricing and 2,000 new salespeople.

With bids that sometimes come in at one-third of Oracle’s, Perna said, “we are really putting the squeeze on Oracle in terms of their price.”

1-800-Batteries, a company that sells batteries by catalog and on the Web, says it recently switched to IBM’s DB2 after realizing that it took customers six minutes to access data on its Oracle database via the Web. Although the company could have turned to Oracle’s service organization to fix the problem, Charles Osborn, the company’s Internet marketing manager, says he was able to cut access time in half, and for a far lower price, by switching to IBM.

“IBM is the one to watch in 1999,” declared Merv Adrian, senior analyst at Norwell, Mass.-based Giga Information Group. “You are going to see IBM gain significant market share.”

If Oracle is facing growing pressure from above, the pressure is even stronger from below, where Microsoft is exploiting its power on the desktop to push up into the database arena.

Betsy Burton, a research director at GartnerGroup, estimates that while sales of database systems on Unix-based computers, Oracle’s power base, will be largely flat for the next three years, sales of databases that run on Microsoft’s Windows NT will triple to $2.5 billion from its 1997 level. International Data Corp. predicts Microsoft will lead that Windows-based market with database sales of about $1.1 billion by 2002, compared with Oracle’s $836 million.

While Oracle likes to dismiss Microsoft’s SQL Server database as a weakling, Microsoft is proving a tough competitor in the fast-growing market for small business and departmental systems.

L.A. Cellular (now part of AT&T; Wireless) uses Oracle to store data for its corporate accounting system, for example, but when senior manager Ron Martinez wanted to build a system for analyzing information about customer accounts, he turned to SQL Server because it was cheaper and easier to use.

The rise of viable, cheaper alternatives to Oracle presents problems not only for Oracle’s database business but for its applications business.

Oracle’s largest customers are applications providers such as German software giant SAP that sell their software along with Oracle’s database programs, which companies use to automate record keeping in their human resources departments or sales organizations, for example. In the past, the applications companies suffered quietly as Oracle intruded into their markets because they had few alternatives.

‘It’s dicey when they use their revenues from database sales to compete with us,” said Kevin McKay, chief executive of SAP America.

Now SAP and other application vendors have a choice, and many are reworking their software to run more efficiently on the latest products from IBM and Microsoft.

“Oracle has more share today,” said McKay, “but Microsoft is a formidable competitor.”

Computer services companies that put together elaborate software systems for clients are also beginning to promote Microsoft over Oracle because they perceive Oracle as a competitor in the services business.

Cambridge Technology Partners, a worldwide consulting company, used to recommend Oracle for most of its work with large corporations. But over the last year, the company has built closer ties to Microsoft.

“With Microsoft, the business model is extremely synergistic,” said Sandy Blyth, the Cambridge executive in charge of relations with Microsoft.

Oracle isn’t sitting still. To tap the small-and-medium-sized-business market for this complex software, Oracle plans to launch an online service that would handle all of a business’ software needs for a monthly fee.

“If you go to doctors.com, this future site would do the accounting for doctors’ offices and dentists’ offices,” said Ellison. “All you need is an Internet browser. You don’t have to buy that $20,000 PC server and $10,000 worth of software and train someone to back up the software.”

Added Oracle’s Jarvis: “We can offer posh-quality software at a Volkswagen sticker price.” The company believes the business could eventually count for $1 billion in revenue.

To encourage new companies to develop software Oracle can offer online, the company recently announced a $100-million venture fund.

But these efforts will only partially counter the onslaught from Microsoft and IBM. Oracle’s long-term success may ultimately depend on its ability to use its database savvy to build better applications.

Analysts say the jury is still out on this point. Already a major negative for Oracle is its enmity toward Microsoft. For Oracle to be most effective with its applications, Ellison must be willing to make those products work with all major databases, including Microsoft’s, as its competitors have done.

But that would be a bitter pill for Ellison to swallow, and Oracle has no plans to make such a move. For all Ellison’s criticism of Microsoft’s closed strategies, “Microsoft is more willing to interoperate with others than Oracle is,” said John Parkinson, chief technologist at consulting firm Ernst & Young.

That alone could keep Oracle out of the driver’s seat.

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Times staff writer Leslie Helm can be reached via e-mail at leslie.helm@latimes.com.