Oracle Database Too Big to Fail?

I can’t remember how many times I have attended Oracle OpenWorld, and even was one of the many Oracle hosts at several, including in faraway places like Beijing.  They all merge together somehow in my memory.  But here I am again, on a Sunday morning near the Moscone Center in San Francisco, awaiting the main event which gets going late this afternoon with CEO Larry Ellison’s first keynote.

Needing a cup of coffee I walked two blocks from the hotel, and the streets of San Francisco were already hopping because of Oracle OpenWorld:  Moscone West sported long registration lines.  The corner of 4th and Howard Streets in downtown SF was in process of a final transformation for the show – looking more like a Broadway show than downtown SF.  Just walking the streets and seeing the overwhelming fixed and moving (on buses) signage, the enormity of the event and Oracle, seemed inescapable.

Oracle is a nearly $40 billion company in terms of annual revenues that is the largest enterprise software company on the planet.  By comparison, IBM makes around $25 billion per year in software, SAP revenues are around $21 billion.  Microsoft might argue they are bigger, given their recent recasting of their segments, with their newly defined “commercial” sector now accounting for $45 billion in the most recent fiscal year.  But Microsoft’s numbers include businesses of all sizes.  When you say “enterprise” in the tech industry, you more or less mean the Global 2000, which mostly means companies with $1b in annual revenue and up, and the larger non-for-profit organizations on the planet like the U.S. Government.  Put another way:

Oracle is the world’s largest software company for big companies and governments.

Oracle is also amazingly profitable, which is why it can afford to put on this kind of show.  The Global 2000 is defined by market capitalization, not revenue, but if you sort the list by “profits” you will find that Oracle sits right underneath Google.  Google made $10.7 billion in profits on $50.2b in revenues.  Oracle made $10.6b in profits on $37.1b in revenues.  That is right, Oracle’s margins easily eclipse Google’s.

Those healthy margins have been for years, and continue to be, the primary target of tech entrepreneurs all over the world.  From the NoSQL database vendors, to the SaaS application suppliers, to new cloud-based middleware/development platforms (“Platform-as-a-Service”) providers, Oracle and its massive and complex product mix plus its margins offer up-and-coming software vendors a clear value proposition to offer to enterprise IT buyers:  “We are cheaper and simpler than Oracle.”  Sounds good, but there are two problems with that value proposition.

(1) Enterprises generate so much data, and there is so much governance associated with the data, official (regulatory) and unofficial (hang on to that data so we can serve customers), that excellent management of all that data has become the lifeblood of large organizations.  Shut down the databases and you are out of business.   Therefore, once you have invested in a database and it has gone operational, and become useful, changing that database to another type of database is about as appealing as a heart transplant to an IT professional – IT surgery of last resort.

Oracle is the leading enterprise database vendor on the planet.    Ask IBM, SAP/Sybase, and Microsoft who have been trying to displace Oracle databases for decades, more or less, without much sustainable success.  The swarm of new NoSQL databases just can’t quite breakthrough all the existing production databases running  on Oracle technology, but perhaps more importantly cannot quite pierce the community of database administrators who have grown comfortable being the local enterprise expert on Oracle database technology.

(2) What immediately struck me while walking the streets this morning was is that Capgemini, one of the world’s and definitely one of Europe’s largest IT service providers, co-sponsored the buses with Oracle.  If you head to the sponsor list for Oracle OpenWorld, you will find that Deloitte, Fujitsu, Dell, Accenture, Capgemini, HCL, IBM, Infosys, KPMG, pwc, Tata, Wipro, Cognizant, and Hitachi Consulting all signed up for a Platinum level sponsorship or higher at Oracle OpenWorld – all the largest IT services providers in the world.

Oracle depends on its ecosystem for value-added  professional IT services.    Oracle has cannibalized its hardware channel through its acquisition of Sun several years ago.  But all due respect to hardware vendors, it is the systems integrators, consultancies, and outsourcing providers who are the “trusted advisors” of IT.  Oracle seldom offers professional IT services beyond its core set of basic education, implementation and support services.  Yes, Oracle occasionally clashes with its IT services channel, but for the most part has let that channel add value without much competition from Oracle.

This two-pronged formula of being the biggest enterprise database vendor, and letting its ecosystem deliver additional value without stepping on their toes too much, over the course of decades, has put Oracle in this position of where it is nearly “too big to fail.”

Of course, the highway shoulders of IT are littered with the rusted bumpers and torn tires from IT leaders that seemed unassailable in their era – Burroughs, Wang, DEC, Lotus, Sun, Nokia – we all know the names.  So never say never, but the Oracle enterprise  database has been an IT franchise that has managed, like the Intel CPU, Microsoft Windows, the Dell PC, and the IBM mainframe, to hold up after decades in an industry where reinvention is a daily exercise.  In fact, the Oracle database seems to be holding up better than the others at this point in time.

Expect announcements here at Oracle OpenWorld this week, and into the future, about more innovation in the Oracle database.  Every time Oracle adds innovation, the services ecosystem has more value to add, and the circle remains unbroken.