The legacy of Larry Ellison at Oracle

by admin on October 9, 2014

Larry Elllison of Oracle

Larry Ellison will be remembered for founding one of the most successful companies of our times. Only time will tell if he will also be remembered as king of the acquisition. Ellison, of course, was a specialist in product engineering, but he was also an excellent salesperson to corporate clients and extremely good in analyzing whether potential acquisitions made sense. In a tech world full of acquisition disasters (the aQuantive acquisition by Microsoft sounds familiar?), Larry Ellison shone brightly by completing many successful acquisitions and integrations.

Larry’s acquisition strategy was to buy software companies that were selling complementary products, and then incorporating the acquired functionality into Oracle’s main product line. This allowed him to offer its clients and prospective clients products with very rich feature sets. Since for a long time Oracle was exclusively a software company, this strategy helped Larry lock his clients into Oracle’s true profit center—the business of selling software updates. Once Oracle’s software has been put in place, it cannot be switched out easily—it becomes an integral part of a company’s business processes and the switching costs to the client are enormous.

The $10 billion 2005 acquisition of PeopleSoft was transformative for Oracle. Prior to that, Oracle had been known only as a database company (i.e., the electronic “containers” that hold data). PeopleSoft was a producer of application software (i.e., the programs employees use to capture or enter data that will be stored in a database). After the PeopleSoft acquisition and subsequent purchases of application software providers Siebel (2006), Hyperion (2007), and BEA (2008), Oracle became a major player in the field of enterprise application software. Oracle’s 2010 acquisition of computer/server maker, Sun Microsystems extended its product footprint into hardware. While some in the investment world derided the acquisition, I believe it has had an extremely beneficial effect on the Oracle’s profitability.

Oracle worked for roughly the first twenty years of its existence on increasing the functionality and user acceptance of its database products. It began its foray into developing application software internally in the late 1990s. However, considering that the firm ended up buying PeopleSoft a few years’ later, we can presume that management decided that it was easier and quicker to develop a presence in application software by buying existing competitors rather than building it from scratch. Existing competitors have well-established client bases to whom Oracle’s primary database products could also be sold.

These are some of Oracle’s most successful acquisitions, carefully planned and executed by Larry Ellison:

  1. i-flex in Banking and Financial Services: August 2005 for $900 million
  2. MetaSolv in Communications: October 2006 for $219 million
  3. Siebel Systems in CRM: January 2006 for $5.85 billion
  4. Hyperion Corporation in Enterprise Performance Management: March 2007 for $3.3 billion
  5. Agile Software in Product Lifecycle Management: May 2007 for $495 million
  6. Sun Microsystems in Hardware: January 2010

I expect Oracle’s acquisitions of Endeca, RightNow, InQuira and Taleo in 2011 will further add to its software revenues. In the near future Oracle may be targeting even more interesting acquisitions such as Workday (WDAY) or Salesforce (CRM).

Being successful in acquisitions in any industry it is not an easy task.  During the last shareholder meeting of Berkshire Hathaway, Warren Buffet said that mergers and acquisitions are often so bad, because big companies have people working full time solely to look for these deals, and they are compelled to complete some, even if ultimately they don’t make much business sense. That’s their job and that’s why they are being paid. From the outside at least, it appears that the acquisition culture at Oracle is different, all their acquisitions make good business sense, and they are implemented in a timely manner – ostensibly without market or stakeholder pressure. This is the biggest legacy of Larry Ellison at Oracle, and a culture that Oracle must work hard to preserve. As long as Oracle continues to make smart acquisitions, they will go far.

Leave a Comment

Previous post:

Next post: