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Oracle’s Ellison out

But is Oracle’s new strategy like herding cats?

 

Oracle’s charismatic frontman Larry Ellison has stepped down as CEO. But has anything really changed strategically? Chris Middleton reports.

LEADERSHIPAt 70, Larry Ellison is one of the last of the tech titans, a business generation whose nearest equivalent would be Hollywood’s ‘easy riders and raging bulls’, filmmakers such as Scorsese, De Palma, Hopper, Lucas and Spielberg, who rose to prominence in the 1970s by forging an independent vision outside the studio system of the day.

On 18 September 2014, Ellison  – a raging bull more than an easy rider – stepped down as CEO of Oracle, the company he founded in 1977 and turned into a heavyweight. He is replaced with immediate effect by co-CEOs Safra Catz and Mark Hurd, who have been serving as presidents.

Catz joins the expanding ranks of female CEOs in the US software sector, alongside IBM’s Virginia Rometty, HP’s Meg Whitman and Yahoo’s Marissa Mayer, while Ellison’s friend Mark Hurd gains his first C-level appointment since leaving HP in 2011 in the wake of a scandal.

Larry Ellison

Larry Ellison founded Oracle in 1977 with $1,200 of his own money and turned it into billions.

A double-headed approach

But can that strategy succeed? Having joint CEOs is unusual in any sector and has met with mixed success in the technology market, where companies have long favoured being associated with a charismatic figurehead, such as Steve Jobs, Marc Benioff, and, of course, Ellison himself – the man who created the mould in which others’ leadership styles have been cast.

The most notable recent example of joint leadership was at SAP, where former co-CEO Jim Hagemann Snabe (‘the software guy’) recently stepped aside to leave Bill McDermott (‘the sales guy’) in sole charge.

Markets prefer clarity and a single point of focus. With Ellison, Oracle had a leader who was equal parts technology strategist and consummate salesman – one who sometimes sailed close to the wind, like his beloved super-yacht.

Catz and Hurd – expect the inevitable ‘herding cats’ jokes from Salesforce.com’s Benioff – play complementary roles. Hurd is a cost-cutter and an aggressive figure cut from the same cloth as Ellison, while Catz combines vision with an iron will that has helped Oracle preside over one of the strongest balance sheets in the business. Importantly, she is also investor- and customer-friendly, counterbalancing Hurd’s damaged reputation.

In a sense, therefore, Catz and Hurd each represent a single facet of Ellison’s more complex, driven personality. However, few business double-acts survive in the long term, and this feels like an interim measure designed to steady the ship and hang onto talent. Perhaps the combative Ellison wants to sit back and watch the two duke it out for supremacy, or perhaps he knows that appointing one over the other – Catz over Hurd, for example – would have destabilised the company and risked leaving an old friend out in the cold.

Behind the scenes

Hurd and Catz

Meet the new bosses. Mark Hurd and Safra Catz: Natural allies, or rivals for the crown?

In a move that echoes arch rival Bill Gates when he resigned as CEO of Microsoft, Ellison becomes Oracle chairman and CTO, allowing him to continue guiding Oracle’s technology strategy from the boardroom. This may be a mixed blessing, as Ellison’s management of Oracle’s cloud positioning saw him publicly lambast the concept for years as “vapourware” before announcing a complete change of tack two years ago. (Ellison ‘gets’ the cloud as much as Bill Gates understood the internet.)

Yet while Ellison may have stood against the tide of the cloud sector for years – its on-demand services culture sat uneasily alongside Oracle’s aggressive sales – he had a point. At its core, cloud computing may represent a shift from sales to rental, but it is still about software running on hardware, about data centres built on land. But only someone with Ellison’s flair on the conference stage could have executed a u-turn into the cloud with such confidence that customers cheered. It was almost as if cloud was Oracle’s in-house innovation: Oracle Cloud, in fact.

Ellison’s determination to stay on at the company he founded has been slammed by at least one analyst. “It’s the same people, nothing’s really changed – and that’s not a good thing,” says Forrester Research’s John Rymer. “Quarter after quarter they continue to slide, they’re not making the transition quickly.”

Indeed, the ‘nothing’s changed at Oracle’ mantra has already been taken up by Benioff – a man who may regard himself as Ellison’s true heir in waiting. Like Tom Siebel before him, Benioff learned from Ellison how to run a company with a mix of in-house innovation, powerful branding, and aggressive acquisition.

Cloud results

However, there has been a notable shift of emphasis at Oracle’s Redmond HQ. On 18 September, Safra Catz presented Oracle’s cloud results first in the company’s Q1 2015 earnings call. She said: “Cloud revenue totaled $477 million, growing by 29 per cent. In that cloud, SaaS and PaaS were $339 million, up 31 per cent from last year and up four per cent sequentially. Cloud infrastructure as a service was $138 million, up 25 per cent.”

She set out the company’s cloud goals in no uncertain terms. “Q1 results in the cloud were better than expected, with us now three times bigger than Workday. Now that’s not enough for us, as our goal is to be bigger than Salesforce and faster-growing than Workday, while growing cashflow and improving our already high levels of profitability.”

Nevertheless, the extent of Oracle’s on-premise enterprise heritage was clear in the results: “New software licences were $1.4 billion, down two per cent from last year, while software updates and product support were a record $4.7 billion, up six per cent. Software and cloud revenue totalled $6.6 billion in Q1, growing six per cent,” explained Catz.

Also explicit in Catz’ commentary was the overall trend in enterprise technology: “Customers have started to move from on-premise systems to the cloud, but with so many on-premise customers and only 30 per cent of our support-base in applications, we haven’t seen a reduction in software updates and product support renewal rates, which continue at their usual high levels,” she said.

“However, as the movement to the cloud grows we expect this transition will affect our revenue to the positive. These customers will essentially replace their software support payments with a cloud subscription, which will mean substantially more revenues for Oracle.”

Whether enterprise customers will see cloud computing as an opportunity to deepen their lock-in with a single, large enterprise provider or escape it by mixing and matching cloud solutions is another matter. At present, the market favours hybrid solutions and open options, not large-platform proprietary choices. TS

The Strategist says

Ellison stepping down as CEO – albeit to guide his company from behind the scenes – represents the end of an era. But while some of his bravura and showmanship is visible in the likes of Marc Benioff, the new generation of IT companies has a very different vision to the one that Ellison represented: one that is about connecting people to each other, rather than telling them what to think and what to buy. For customers, cloud is about ‘us’, not ‘them’. How Oracle goes about positioning itself for that future is the big question, and Catz may be the key.

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