Larry Ellison Interview: SAP’s Bill McDermott Market Share Claims are “Ridiculous”

This detailed interview with Ellison by the San Francisco Chronicle gives the expected trenchant jabs at SAP, and gives a good sense at how Larry sees the industry at the moment.

ORACLE CORP.
ON THE RECORD: Larry Ellison
-
Sunday, May 8, 2005

The last time Oracle Corp. CEO Larry Ellison visited The Chronicle was in late 2003, when the Redwood City software giant was waging a bitter takeover campaign against rival PeopleSoft Inc.

Oracle prevailed in that controversial battle, which led to two trials, the firing of PeopleSoft Chief Executive Officer Craig Conway and the loss of 5,000 jobs. The merger also turned Oracle into an even more formidable technology behemoth.

Ellison returned to The Chronicle recently to reflect on the battle over PeopleSoft and its meaning for Oracle and the tech industry.

He also talked extensively about his personal life, including his marriage to novelist Melanie Craft and turning 60 in August. He shared his insights into friendship, his legacy and reaffirmed one of his unfulfilled dreams: to own a sports franchise.

Below are excerpts of the conversation:.

Q: It’s been an eventful year. You’ve had a lot of personal changes, changes in personal life and also in business. You also turned 60. What does Larry Ellison want to be known for?

A: Gee. (Laughs.) You had to mention (my age)? That’s a brutal way to start.

Q: You must be thinking of what you want to be known for. What do you want people to remember you for?

A: Want to be known for? That’s an interesting question. In terms of a legacy, I don’t think I’ve ever thought about it that way.

Q: Well, you’ve thought about your business, obviously.

A: Yeah, I certainly like to be successful in my business. I’d like to be able to leave the business in good shape. I think one of the measures of a business is in how well it does after you leave.

I think Jack Welch did a great job building General Electric. That’s quite a high standard. Jeff Immelt took over, and they haven’t missed a beat. So I certainly would like to do that.

But I don’t know… I mean it’s such an interesting question… I have to think about it for the first time. What I want to be known as? Or known for? (Laughs.)

Q: What do you feel you’ve done at Oracle in terms of the culture that you’re talking about?

A: I think I’m very goal-oriented. I’d like to win the America’s Cup. I’d like Oracle to be the No. 1 software company in the world. I still think it’s possible to beat Microsoft, believe it or not, for us to be a more important company than Microsoft.

Q: And personally?

A: To have a good relationship with my family and friends. I think it’s all you really can do.

Q: What constitutes a good relationship with family and friends?

A: Freud said there are two things that make up life: love and work, not necessarily in that order. I think one of the components is a certain number of accomplishments that you can measure in your work, and having some number of close relationships with a handful of people inside of your family and your friends, where you can tell the truth and they find out who you really are and you are not afraid of disclosing who you really are.

Q: Is it hard for someone like you to choose your friends, to be friends with anybody?

A: This sounds funny, but in general I like people. I find people interesting. But there are only a handful of people that you spend enough time with to really get to know them well and they get to know you well and that you rely on. That’s a fairly small group of people.

One of the best things about my life is I get to meet all sorts of interesting people. I got to spend a lot of time with Bill Clinton, who I think is just a fascinating guy. It made my life more interesting to meet him in person.

Q: Who are your closest friends?

A: Oh, Steve Jobs, David Geffen are a couple. I assume you meant outside of my family. My nephew’s a judge, and I’m very close friends with him.

Q: How about philanthropy?

A: I have a medical foundation. There’s going to be a big announcement with Harvard very soon about a large database and journal we’re starting, basically assessing how government and private foundations do in measuring improvements to world health.

I had a big interview a long time ago where I said we measure philanthropy the wrong way. We measure the input: how much someone gives. It’s better to measure how many lives we save. So those are all goals I have for myself.

But I’m not sure it’s realistic to set a goal how you want to be thought of. I know how I want my kids to think about me. I think (public perception) ebbs and flows. During the bubble, CEOs were heroes.

During the aftermath, what did the Economist say? That the last 50 U.S. CEOs were seen headed for the border swearing they would not be taken alive. So a lot of how you are thought of is based on the fashion of the time.

Q: What will you do with your fortune? Are you giving it to your kids? Are you going to give it to your charity? I assume you’re not going to try to take it with you.

A: (Laughs.) Well, no one has figured out how to do that yet. I think my kids will get some. Certainly, a majority of it will go to different charities.

Q: Any particular charity?

A: I have a very large medical foundation. I’m expanding it. I spent time with (Harvard President) Larry Summers, another fascinating guy, the day after the faculty voted to censure him. (Summers was censured for comments he made about women and science.) The day after was better than the day he had before. (Laughs.)Q: What is it about your friends? Do they have anything common? Are they like you or unlike you? Do you see any commonality there?

A: These are all very hard questions. This is not what I expected to talk about. (Laughs.) Meaning of life questions. Yeah, I think some of my friends live in a similar world that I do. I think Steve Jobs does. David Geffen does. Some of them not at all. A very good friend of mine — I won’t mention his name — is a local FBI agent in San Francisco. I’ve known him since he was a little kid. I knew his dad. He and I are good friends and play basketball. So not all of my friends are billionaires.

Q: You mentioned Steve Jobs as one of your friends. In an interesting coincidence, you’re both adopted. Did you ever discuss what role that has played in your lives?

A: It’s funny you said that because we don’t discuss it. I know it’s something Steve and I have in common, but no. We go on hikes and chat about a lot of different things, about our families and about business in the valley.

I ask him for advice. He never asks anyone for advice, but I give it to him anyway. Even without him asking, I volunteer it. (Laughs.) He doesn’t need any advice.

It’s very hard to know what the impact of being adopted is on your life. I had a reasonably happy childhood, so it’s hard to talk about, “Gee, this is really awful or that was awful.” Neither one of us suffered terribly when we were young.

So no, we don’t talk about it. But maybe its just repression. Maybe it’s so painful we can’t go there, but it’s impossible to know that.

Q: You were married last year. Can you discuss how that changed your life?

A: We were living together for years. I think we were together for 6 1/2 years before we got married. We knew each other well. We’re close friends … and I think that’s a great foundation for marriage.

She works hard at her job. She’s a novelist. She’s writing her fourth novel right now. She used to be a romance novelist. She swears she’d rather be dead than write another romance novel. She’s writing a different kind of book now. I guess I shouldn’t say anything.

Q: One of her books was about marrying a rich executive. Did she talk to you about that?

A: I read her books. I get them a chapter a time. I do early editing. And she says, “Thanks for sharing,” and throws my comments away. Once in a while, she’ll take a single word to make me feel better. The theme or the plot of bright, spunky girl meets rich playboy and tames him, it’s a classic romance novel plot. She wrote the same exact plot before.

Q: Does that story line speak to your relationship?

A: I don’t think so. (Laughs.) Not at all.

Q: Thanks for sharing such personal information. Now let’s get to some business news. (German software giant) SAP reported recently that its share of the market share has grown to 41 percent in the United States, and Bill McDermott, CEO of SAP America, predicted it would be 50 percent by the end of the year. What is your reaction to that?

A: Well, they clearly don’t know how to calculate market share. I mean that’s just the most ridiculous thing. If you sold one license yesterday and we sold zero yesterday, did you achieve 100 percent market share yesterday?

That’s how they do their calculation. They look at the last three months of sales, the last 12 months of sales. They didn’t count the PeopleSoft sales during that period, so they just threw those out. We have about twice as many customers as they do in the United States. They can’t move up nine points in market share in one year.

Q: There’s been a lot of talk about your acquisition strategy. You’ve acquired two companies (PeopleSoft and Retek) in the past three months. Is there any concern about indigestion?

A: No. I think we know how to do this. I think you just measure us by our numbers. I don’t ask you believe anything I say, but we report, on penalty of jail, numbers every three months. Our growth is spectacular. Our profit growth is spectacular, and our profits are growing much faster than SAP’s. Our license revenues are growing much faster than SAP’s.

I think we’re doing very well. That’s not a sign of indigestion. I think that’s a sign of a successful acquisition, first of PeopleSoft and then of Retek. Our profits are up 30 percent. SAP’s profits are up 11 percent.

Q: One analyst has described your acquisition strategy as too reactive. For instance, you made a bid for PeopleSoft a few days after it acquired J.D. Edwards.

A: Is reactive a compliment or a criticism?

Q: Criticism. That you’re paying too much.

A: We’re reacting, and we paid too much. Well, our profits are up 30 percent. That’s all I can say — I’ll just keep repeating our profits are up 30 percent. What we paid we have to write off.

So after all the accounting for the acquisition, our profits are up 30 percent. SAP’s are up 11 percent. We are doing a lot better than they are, partially because of the acquisition. We don’t think we paid too much. And the proof is our profits are up 30 percent. That’s just a fact.

Q: How do you see this competition with SAP playing out?

A: I think there are some industries where they are strong like oil and gas, and there are other industries where we are strong. We have all the banks in North America. They have half a bank in North America right now. There are some industries where we just utterly dominate them. Financial services, for instance.

It’s not really us versus SAP. It’s us versus SAP in the oil and gas business. If you’re an Exxon or a big gas company or a big oil company, you probably have an SAP implementation. If you’re a big bank, you probably have an Oracle implementation.

Q: What industries are growing, and where will you two be going head to head?

A: We bought Retek because retail is up for grabs. SAP is not strong in retail. We are not strong in retail. Retail is a relatively green field. In banking, it’s pretty wrapped up by us. Oil and gas is pretty much wrapped by them. Telecommunications is pretty much wrapped up by us.

So I think you have to look at industry by industry to understand who is going to be the eventual winner in the applications space. In the database space, which is very different than applications, everyone uses the same Oracle database. And there, I think, we are overwhelmingly the dominant company.

Q: Across the board, IT spending in general, where is it right now?

A: Up a little. Up maybe 4, 5 percent, something like that, which is not bad. I think the days of people talking about IT spending up 20 percent or more are over.

Q: Does that lead to a consolidation period?

A: The industry is maturing. It is going to consolidate. That’s exactly what happened to every other industry. I didn’t invent the idea of consolidation. What happens during a period of consolidation is (the company in) second place can suddenly move and become the winner.

One of the interesting things is (that) when you look at when the automobile industry, the clear winner in the early phase of the automobile industry was Henry Ford. Ford was the No. 1 car company in the world by far. Then a guy by the name of Alfred Sloan decided to get all of the good losers together — Chevrolet and Buick and all those guys — and built General Motors. Then General Motors passed Ford during the consolidation phase in the automobile industry.

So during the entrepreneurial growth phase, Ford won. During the consolidation phase, Ford lost and found itself in second place.

Q: So you don’t want to be Henry Ford.

A: It’s too late for anyone to be Henry Ford. That phase is over. We did pretty well in the database business. We have the No. 1 database in the world, and I’ll argue that, at the dawn of the information age, that’s not a bad position to have.

Q: Let’s talk about the PeopleSoft acquisition. Did that play out the way you thought it would?

A: In some ways, hats off to Craig Conway. He did a very good job, I think, of trying to keep PeopleSoft independent. Now, he did the wrong thing. He did something that was very self-serving, but he was good at it.

Keep in mind that Conway was the one who had the idea of merging the two companies in the first place. Craig approached me about the merger, except his idea was that he would run the merged company. He loved the idea of the merger with him running it. He hated the idea of the merger with me running it.

In fact, if you actually just removed him and put me in his place, the merger was suddenly an antitrust problem. So it was a little bit wild.

Q: Is that why you thought you could beat the Justice Department?

A: We thought we could beat the Justice Department because they had no case. They had no case at all.

Q: What would be wrong with Conway running the merged firm?

A: Since we own the merged company, I would have had to believe that Craig would do a better job than I would, and I don’t believe that.

Q: How long are you going to stay at Oracle? Is there a succession plan in place?

A: I’ll say that Oracle must have a great succession plan because virtually every software company in the Bay Area is run by an ex-Oracle (employee.) The CEOs worked for Oracle. We must have a lot of talent. (Laughs.)

We have some very talented people. Charles Phillips certainly could be CEO. Safra Catz certainly could be CEO. We have a couple of senior engineering managers who are candidates. But for me to pick one of them now and say this is the anointed successor, I think, is a huge mistake. Jack Welch didn’t do that.

Q: Where is the mistake in that? Intel, for instance, makes its line of succession very clear.

A: Why would you decide in advance? It’s a little bit like saying, “I’m certain this guy is going to win the marathon,” 10 miles into the marathon. Why do that?

Q: You just keep growing with more mergers. Who’s next?

A: I think you’ll see us growing much deeper into banking. You might see us acquiring companies in the banking area. You might see us acquiring in the retail area. I think you might see us acquiring companies in telecommunications. I think you’ll see us getting stronger in business intelligence.

Q: Why do you want to be bigger than Microsoft?

A: Because software is all about scale. The larger you are, the more profitable you are. If we sell twice as much as software, it doesn’t cost us twice as much to build that software. So the more customers you have, the more scale you have. The larger you are, the more profitable you are.

Q: That’s the technical answer. But what’s really driving you? Don’t you have enough money? Is it about winning?

A: That’s one of the unknowables. Am I doing it for purposes of vanity or because of my obligation to the shareholders? That’s my job. I’ll bring up Barry Bonds. What’s he trying to do? Is he trying to hit those home runs to help the team win, or is he trying to hit those home runs for vanity?

Q: Could it be both of them?

A: Yeah. It’s hard to figure out. The honest answer is probably a little of each. That’s what you do. If someone said, “Ah, we won the World Series last year. Let someone else win this year. I don’t need to try as hard because it’s just not fair.” I’m not sure you want that guy on the team.

Q: At what point did you realize that you had won in the PeopleSoft battle?

A: When in the $24 a share tender offer, 60 percent of the shareholders voted “yes.” I think at that point, the board of directors’ position of “just say no” was completely untenable. And it was over.

Q: So why did you agree to sell at $26.50 if you knew that there was chance you get it for $24?

A: Because there’s also a chance we wouldn’t. There’s also a chance the judge wouldn’t pull the pill. And we thought it was worth $26.50. Our calculations were worth more than that. I mean, pay $26.50 and it’s accretive to profit.

Q: So how much did they leave on the table?

A: Well, who knows? It’s like the question: How much do we overspend? If some things are worth more to you, if you really covet your neighbor’s house for some reason, because you want to put in a swimming pool right next door, then that house is worth more to you than anybody else.

Q: Does it bother you that PeoleSoft employees resisted your takeover bid?

A: I think engineers are very funny. Different groups reacted differently. Some of the marketing people were very emotional and set up little — I don’t know — shrines to the company. (Laughs.) Peculiar thing.

The engineers were saying, “Well, I just hope I get a parking space closer to my office.” (Laughs.) The engineers were very funny. You can decide which is better. It’s up to you.

Q: Well, those two groups had very different job prospects.

A: Yeah. And we offered 90 percent of the engineers that were from PeopleSoft jobs. And 99 percent that we offered jobs, took the job.

Q: What percentage was it for marketing?

A: Less. There are a lot fewer people in marketing communications.

Q: So the shrines didn’t work out.

A: The shrines prayed to the wrong god, obviously.

Q: Can you talk about having to let go a large number of people?

What was it like for you? Do you stay up at night? Do you see these people at the supermarket?

A: I have a really tiny supermarket near my house. Well, no, listen. The first layoff I did at Oracle — the only one I’ve ever done at Oracle till this one pretty much — was 500 people in 1991 when we badly missed one of our quarters. Worst day I ever had at work.

Q: You mentioned the bubble a couple of times. How goofy was that? How illusory was it? Did you know?

A: Did I know? I certainly would walk around Oracle saying, “Maybe I’m the one’s that crazy.” Ariba is worth more than Daimler-Benz, the largest industrial corporation in Europe? These guys make Internet procurement software that my cat could have written on a free weekend. What is going on?

Q: But you’re not questioning the Internet as a viable business technology. You’re questioning the business models that were created.

A: Exactly. I had an argument with somebody over WebVan. Someone said, “Larry, I love WebVan.” “Of course, you love WebVan. They give you $20 worth of meat for $10, and they deliver it to your home. Everyone would love that.”

Q: Google is at $200 right now. Is that a fair value?

A: It’s high-ish, but Google is an unusual company. I think in the long term it’s very hard to figure out where their competition will come from and if there’s such a thing as a global Yellow Pages and if we all use Goggle for comparison shopping when we buy tennis shoes or tennis rackets or cars or whatever. If you spend a lot of time at Google, what’s that all worth? It could be worth a lot of money.

Q: We noticed you have a security detail with you today. Is that a regular thing?

A: Depends where I am. Sometimes I have security with me. Whenever I’m with the media, I always have guys with guns. (Laughs.)

Q: Is that a recent addition for you?

A: I’ve had some strange (incidents). I finally got security when someone climbed over my fence at midnight on a Saturday night and knocked on my door.

Q: What did they want, sugar? Options?

A: She just said she was wondering what I was doing. (Laughs.) A very attractive young lady, but it’s midnight, and she’s knocking. No thank you. It’s not a good thing.

Q: Let’s finish on the sports page.

A: Yes! (Laughs.) Sailing or …?

Q: Do you still have an interest in buying the 49ers or another NFL franchise? How close did you come with (49ers owner) Dr. (John) York?

A: I never talked to him. I’ve got friends who found out for me whether he wanted to sell. He doesn’t want to sell. I did talk to Chris Cohan and tried to buy the Warriors. He didn’t want to sell either. No way to make a hostile takeover. (Laughs.) He was the only shareholder.

So there’s going to be a franchise in Los Angeles that I’m interested in, and there are some other NBA teams that might be available, or Major League Baseball in Los Angeles is a possibility.

Q: Which sport do you like the best?

A: I play a lot of basketball so I suppose. … It’s funny. Playing? Watching? I think football is a great show. I think baseball has gotten very good. I like sports.

I sail competitively. I drive my America’s Cup boat a lot. Sailing, playing tennis, basketball.

In terms of owning a team? I think an L.A. franchise and building a really amazing stadium for football is something that quite interests me. And enhanced television for football interests me.

Q: Would you want to become an owner for the vanity part of it or for business purposes?

A: Oh, it’s for fun. I’m not sure that it’s the vanity part that I’m interested in. Competing. The fun of competing. It’s going there with your family and friends and having a great time.

Q: You also mentioned the Warriors.

A: I tried.

Q: What would you do to make them more competitive?

A: It’s pretty easy to make them more competitive. I would go with better players and coaches and front office. Uh, I get into all sorts of trouble when I criticize different teams. I just think they’ve got the worst record in basketball over the last 10 years. They’re the worst-managed team in basketball.

——————————————————————————–

ON HIS FRIENDSHIP WITH STEVE JOBS:
I ask him for advice. He never asks anyone for advice, but I give it to him anyway..

ON LAYOFFS AFTER THE PEOPLESOFT MERGER:
When you’re merging and consolidating functions, jobs are lost. That is a fact … . It’s certainly not fun..

ON BUYING A PROFESSIONAL SPORTS TEAM:
There’s going to be (an NFL) franchise in Los Angeles that I’m interested in, and … some NBA teams … might be available.

——————————————————————————–

BRIEFCASE
Name: Larry Ellison

Age: 60

Job: Chief executive officer and co-founder, Oracle Corp.

Family: Married to novelist Melanie Craft; two children from a previous marriage

Residence: Woodside

Interests: Sailing, basketball, playing guitar

Participating in this interview were Chronicle Executive Vice President and Editor Phil Bronstein; Business Editor Ken Howe; Deputy Business Editor Alan T. Saracevic; Assistant Business Editors Marcus Chan and Sam Zuckerman; Insight Editor James Finefrock; reporters Benjamin Pimentel, David Baker, Todd Wallack, George Raine, Benny Evangelista, Ning Yu and Kathleen Pender; and editorial assistants Steve Corder and Colleen Benson.

Page E – 1

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