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Can Larry Beat Bill?


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CAN LARRY BEAT BILL?

On any other mountain, Lawrence J. Ellison would be king. From scratch, he has built Oracle Corp. into the overwhelming leader in the market for powerful database programs, one of the most important and fastest-growing software businesses in the world. He has overcome setbacks that would have sunk most others, including a failed stab at college, a nearly fatal surfing accident, and a financial scandal that had his company on the road to ruin.

Today, Ellison's success is unassailable: His wealth, topping $3 billion, places him among the two dozen richest people in the U.S. He's an impeccable dresser, a notorious ladies' man, a physical-fitness fanatic, a gourmet, and an adventurer.

But on the mountain Ellison is climbing, that's good enough to make him just second-best. The software industry, of course, is dominated by Microsoft Chairman William H. Gates III--younger, richer, and more famous. Oracle is the industry's second-largest company, Ellison its second-richest CEO. Gates has three times Ellison's fortune--and the reputation for being a visionary and an unparalleled businessman. Even if Gates occasionally indulges in hyperbole, customers and competitors listen when he spins his vision of the future. However, "when Larry says something, you do a reality check," says analyst Rick G. Sherlund of Goldman, Sachs & Co. "He has a tendency to get carried away."

Ellison, 50, has come too far to settle for No.2. He has spent years transforming himself from a causeless rebel to a driven, disciplined warrior--a self-styled New Age samurai. Oracle's software is at the heart of thousands of networks, making Oracle an indispensable partner to every computer maker from Digital Equipment and IBM to Unisys, all of which use Oracle software to help sell their machines.

TO THE SUMMIT. With an explosion in demand for the systems Oracle software makes possible--customer service, direct marketing, and sales and inventory tracking--the company is on a steep ascent: Revenues are expected to jump 50% in fiscal 1995, ending on May 31, to around $3 billion, and to $4 billion in 1996. With shares trading at around $30--up from $18 a year ago--Oracle has a $13 billion market capitalization.

That puts Ellison in a position to make his move--to storm the summit and plant Oracle's flag where the Microsoft banner has long waved. His plan is to get there on the Information Superhighway. Just as Microsoft dominates the personal-computer industry today, Ellison wants to supply key programs for the next phase of the Information Revolution. He envisions a time when computers, smart TVs, video phones, and other appliances will connect to a worldwide network of information and entertainment services. Ellison wants Oracle to supply the software, starting with databases that will provide the foundation. "Microsoft is the past. Oracle is the future," he declares.

As Ellison explains it, the Information Age is all about storing and distributing data. Computing power will be applied to the task of whisking digitized information--anything from a personnel file to a snippet of video--across a network. Oracle's database program, called Oracle 7, already manages all sorts of data for companies throughout the world. So Ellison asks: What better company for creating a super data pipeline than Oracle?

With that in mind, Ellison began putting his I-Way strategy together a few years ago. First, he spent millions of his own to buy supercomputer startup nCube. It builds so-called massively parallel machines--ultrafast computers with hundreds or thousands of chips that simultaneously store, reassemble, and feed data to thousands of destinations. Oracle's database software has been rewritten to work with supercomputers from nCube, IBM, Unisys, and others. Such machines, says Ellison, are the only hope for delivering video-on-demand at a reasonable price. A new video-server program now allows these machines to split a movie into thousands of chunks, store them on different disks, and distribute them to hundreds of viewers (page 96).

That's not all. Ellison's engineers have adapted Oracle 7 to run on all sorts of computers, from PCs to mainframes, so it can be a universal standard. To help write "content" for the I-Way, Oracle is producing programming tools: Media Objects for digitized images and sound and Context to sift through the Internet.

A critical ingredient in Ellison's plan is to get I-Way carriers--phone and cable companies--and content providers in his corner. For two years, he has been circling the globe on a nonstop schmooze tour: to New York, London, and Tokyo to sign up technology partners, establish links with media moguls, and preach Oracle's Infobahn message.

Will such jet-lagged frenzy really pay off? Ellison has charmed, cajoled, and pushed his way into a series of impressive early contracts. Bell Atlantic Corp. is using Oracle technology in trials of video servers. So are British Telecom, Telecom Italia, and U S West. Meanwhile, Apple, General Instrument, Hitachi, Samsung, Scientific-Atlanta, and 55 others are working with Oracle to set software standards for TV-set-top boxes. And Ellison has signed up content developers including Capital Cities/ABC, Washington Post Co., and Home Box Office to use Oracle software for interactive TV.

But now, everybody's hat is in the I-Way ring--from DEC to IBM to Silicon Graphics. And Microsoft is pulling out all the stops to extend its software dominion into the online era. While Oracle rules among the minicomputers and mainframes that run big databases now, Gates sees a different future: Networks of microcomputers--running Microsoft database technology, of course--will take over. Gates has snagged deals to test his Microsoft Media Server with Tele-Communications, SBC Communications, and Nippon Telegraph & Telephone. "Oracle's not doing that much," says Gates. "Larry's hype has expanded to fill his ego."

"PRIVATE IDAHO." That there is plenty of hype--from Ellison, Gates, and other I-Way wannabes--is not in question. What is at issue is whether Ellison really has what it takes to make Oracle the dominant technology company in the coming era. A year ago, Ellison was saying Oracle's I-Way business might generate as much profit as its database business within a decade. But revenues from Info Highway deals are still so scarce that Wall Street analysts do not even factor them into their mostly bullish projections for the company.

Clearly, the I-Way frenzy has cooled. "There is no business on the Info Highway yet," says Nathan P. Myhrvold, Microsoft's senior vice-president for advanced technology. "Anybody who says they're ahead must be in their own private Idaho." Some of Ellison's projects, such as the Bell Atlantic trial, are on a slower timetable. And some deals Ellison said he was about to close months ago--with Ameritech, Viacom and Nynex--have yet to jell. William Bluestein, an analyst at Forrester Research Inc., likens Ellison's high-profile quest to former Apple Computer CEO John Sculley's crusade to lead the way in an era of wireless communications with the wildly overhyped Newton personal digital assistant. "Larry Ellison could be to interactive TV what John Sculley was to PDAs," he sniffs.

That's a harsh view. Unlike Sculley, Ellison isn't diverting huge sums and inordinate management resources to his pet project. And as the arrival of interactive TV and movies-on-demand recedes further into the future, Ellison has refocused on projects that are closer on the horizon, including using the integrated services digital network (ISDN) high-speed phone lines to deliver to PCs such services as video E-mail.

Ellison remains the key to Oracle's bid for leadership, however. "Is Larry smart enough?" asks a former executive. "Yes. He has the bandwidth Bill Gates has. Is he inspiring enough? Visionary enough? Yes. But when you're talking about building a long-term institution, the fabric is important."

What kind of cloth is Ellison cut from? It's not easy to judge. His public image is as carefully crafted as the Gieves & Hawkes suits he buys on London's Saville Row. The Larry Ellison you see today--poised, athletic, articulate, charming--is a far cry from what classmates and relatives expected (or feared) for young Ellison. Growing up in the south side of Chicago, he was a bright but unambitious student--so indifferent that his family feared he might not finish high school. He wasn't a bad kid. He admits to such boyhood stunts as "laundernauting"--taking a few spins in a laundromat dryer--but he never got in serious trouble.

But Ellison was no ordinary kid next door. What the neighbors didn't know was that Lillian and Louis Ellison were really Larry's great-aunt and great-uncle. His birth mother, their unmarried niece, gave up the infant Larry in 1945 and headed for California. She didn't see her firstborn again until about 1990. Even now, Ellison says little about his upbringing. "Some issues I'm just not going to go into," he says. He will say that he was close to his adopted mother, but not his adopted father. "My father was very tough," he says.

Louis Ellison, a Russian immigrant who took his name from Ellis Island, failed in real estate and in a run for Congress. The family wound up at the lower end of his neighborhood's economic ladder--a situation the teenage Ellison was painfully aware of. A high school sweetheart wouldn't marry him, he says, because her father thought he was below their station. Doris Linn, his adoptive sister and a retired social worker, believes Ellison's tangled parentage played a big role in forming his sometimes shy, sometimes arrogant personality. "Being rejected by your mother, for whatever reason, is something that I don't know people ever really get over," she says. "Larry can be very arrogant."

Years later, Ellison let Oracle's public-relations department rewrite his life story. They told reporters that Ellison had pulled himself up from an impoverished, crime-ridden neighborhood and wrote press releases saying he had gone on to get advanced degrees from the University of Illinois and the University of Chicago. Today, the South Shore area is run-down. But when Ellison was growing up, "it was a nice, middle-class neighborhood," says Linn. By the time Larry was in high school, Linn, 20 years his senior, was married to a prominent lawyer. "When he went on dates, he used my car," she recalls.

Ellison entered the University of Illinois with vague hopes of becoming a doctor. But he ignored courses that bored him, and records show he was dismissed in June, 1964, for failing to maintain a C average--after skipping final exams two semesters in a row. He then attended the University of Chicago for a semester before dropping out. About this time, he got his first programming job.

"I DID INHALE." With the hippie era in full flower, Ellison packed his belongings into his 1964 turquoise Thunderbird convertible and headed for Berkeley, Calif. The year: 1969. "I had long hair, but I did not wear beads," he says. "And, unlike Bill Clinton, I did inhale."

But not for long. He stumbled onto the computer revolution and, after years of drifting, got serious. What changed his course? "I wish I knew," says his sister. She didn't hear from him for years after he left for California. She suspects he was simply inspired by Silicon Valley. "He seems to have found God in the system," she says.

His first taste of it was working as a programmer at various outfits, including Ampex Corp. and Amdahl Corp. In 1977, Ellison left to start a consulting company, Software Development Laboratories, on $1,200. He persuaded his former boss, Robert N. Miner, to kick in an additional $400 and join what would become Oracle. The pair made two correct bets: Minicomputers would take over many mainframe jobs, and relational-database technology would be a boon to business because it made organizing and analyzing data far easier. At the time, businesses were using "flat-file" databases that made it difficult to spot trends--a sudden spike in demand, say.

Ellison's own explanation for his success: "I've always been an iconoclast. I've gotten into enormous trouble. It cost me dearly in school. It has helped me make out like a bandit in technology, where the conventional wisdom changes every five years." He also says a trip to Japan in the mid-'70s opened his eyes. During a lunch in Kyoto, a bluebird flew in the window and landed on the black lacquered table. Cherry blossoms drifted in and landed in a bowl. "Nobody spoke for an hour," he says. "When I saw Kyoto, I knew where God got the idea for heaven."

Too poetic to be true? Jenny Overstreet, his longtime personal assistant, insists it's for real. "I've arrived at his house to work, my arms full of papers, and we spend the first 45 minutes watching two squirrels playing in the trees, or a duck couple returning to the pond for the third year in a row. This is fascinating stuff for him. It's life-reaffirming."

ELVIS SIGHTINGS. This side of Ellison is rarely on display around Oracle's headquarters--twin black high-rises at the northern edge of Silicon Valley. There, the CEO is so aloof that some employees have nicknamed him Elvis and refer to his rare appearances as Elvis sightings. Unlike Gates, a frequent speaker at industry events who enjoys verbal sparring with peers and reporters, Ellison dislikes crowds and rarely attends non-Oracle gatherings. "I think Larry is a very shy person," says Steve Jobs. Ellison counts Jobs as one of his closest friends and sits on the board of NeXT Computer Inc. Adds Jobs: "He can get up in front of a crowd now because he's learned how to do it. But Larry's a very sensitive guy."

Others would disagree. He can match anyone in Silicon Valley with a put-down of a rival or its technology. Of Microsoft's video server, he says: "It hasn't worked, it doesn't work, it cannot work, and it'll never work." And he's not known for diplomacy. At the April unveiling of a DEC computer, for instance, he told reporters that Oracle 7 ran much faster on the DEC machines than on IBM's--and proceeded to denigrate the IBM product. That helped DEC's stock, but enraged IBM Chairman Louis V. Gerstner Jr., say IBM insiders. Ellison's associates concede he has sharp elbows. Intel President Andrew S. Grove, a friend, says: "I find him a kick. He's an amusing, interesting person. Nevertheless, notwithstanding his charm, I would beware of him as a businessman."

Although Ellison keeps a low profile in the industry, he does make headlines--some of which he would rather forget. Terence J. Garnett, a former Oracle executive who has on occasion vacationed with Ellison, sued his ex-boss last October, charging he was wrongfully dismissed after refusing to obey Ellison's orders to funnel business to nCube. The suit was dropped without a settlement. Oracle executives and board members say they are careful to review all deals for potential conflicts.

Ellison's most notorious lawsuit was brought last year by an ex-employee who accused Ellison of firing her because she ended their sexual relationship. Ellison does not dispute the relationship, but denies the charges. Thrice married and divorced, he's happily aware of his reputation as a ladies' man. He recounts what Miner, who died last year, said: "As long as Stanford keeps turning out beautiful 23-year-old women, Larry will keep getting married."

Ellison acknowledges, even celebrates, his toughness. He says he draws inspiration from Miyamoto Musashi, a 16th century Japanese samurai who knew how to kill but was also an artist and poet. Ellison collects Japanese art and weaponry, and his elegant Japanese-style house in Atherton, Calif., has a three-acre garden, complete with a koi pond. (He's also building a house overlooking San Francisco Bay.)

On his own time, Ellison keeps racking up new interests. He has taught himself to play piano and guitar and dabbles in cooking. He has a personal trainer and last year raised money for a crippled athlete by competing in a bar-dipping contest against a triathlon champion. Ellison won. Never one to back away from a challenge, Ellison once broke his neck and punctured a lung while body-surfing during a storm in Hawaii.

Ellison's manic drive can be dangerous in business, too. In the early 1980s, Oracle began to dominate the high-end database business, partly with technology and partly with a hypercompetitive sales force. The CEO set extraordinarily ambitious sales goals, rewarded successful reps handsomely, and tossed aside those who failed. It was a high-burnout environment, but sales doubled every year until Oracle reached $1 billion in 1990, leaving Informix Corp. and Ingres Corp. in the dust. Ellison ruled like a dictator, making all big decisions, even writing ads. But when it came to finance, he treated the subject like a boring college course. (He admits he didn't even know what retained earnings were at the time.)

Then came the morning after: To meet the aggressive sales goals, Oracle's domestic salespeople had been booking revenues before their time, even selling products that hadn't been developed. Revenues and earnings had to be restated for fiscal 1990, and the company risked defaulting on its bank loans. Ellison now admits Oracle was on the edge of bankruptcy.

The company was saved by bringing in seasoned executives, including Chief Financial Officer Jeffrey O. Henley and Oracle USA President Raymond J. Lane, former head of Booz, Allen & Hamilton Inc.'s technology consulting practice. Lane recruited thousands of consultants to help major customers install applications such as payroll, accounting, and sales tracking on Oracle databases. Lane also changed the compensation system so that salespeople get paid only when products are delivered. Henley revamped accounting and introduced a more conservative approach to finances. "There is professional management inside the company now," says Sherlund.

While Lane and Henley run the day-to-day operations, Ellison plots his big moves. In addition to lining up I-Way deals, he has been seeking acquisitions. His boldest move: a stillborn plan last fall to mount a hostile takeover of Silicon Valley icon Apple Computer. Ellison figured he could create a huge Mac clone business and use the Mac interface for interactive TV. His board gave him permission to explore the idea, but most directors considered it a long shot. Sources say the deal fell apart only when Ellison's Japanese partners got cold feet. Ellison hasn't given up: "At some time down the road, if Apple's [stock price] became attractive, we would reconsider," he says. Apple declines to comment.

Another target has been Lotus Development Corp. Ellison admits discussing an acquisition with Lotus CEO Jim P. Manzi but says that the talks never got serious. A few weeks ago--before Lotus had a surprise $50 million loss and become an obvious takeover candidate--Ellison acknowledged that he was still interested but said the price was too high. "If Lotus was cheap, we'd buy Lotus Notes and cc:mail," he said then. Today, his response to rumors that he's accumulating Lotus stock is: "No comment."

Yet another candidate on the list: Novell Inc.'s Unix operating-system business. In March, Ellison met with Novell CEO Robert J. Frankenberg to discuss buying Unix, on which Oracle 7 is the leading database program. The idea was to make Unix a stronger competitor to Windows. Eventually, he says, he gave up because the deal might spoil relations with other software companies that depend on Unix.

Monday mornings, Henley and Lane meet with Ellison to discuss new opportunities. That's when the Oracle boss usually floats his latest acquisition or technology wish list. "Sometimes, Jeff and I absolutely fall off our chairs," says Lane. "Very few of those ideas get implemented." Some analysts are concerned that one day Ellison will succeed in talking Henley and Lane into something that's too big. "Larry's desire to grow at an unsustainable rate could put negative pressure on the company," frets one analyst.

For now, most of Ellison's energy is focused on keeping a step ahead of Bill Gates, which is getting harder. In addition to snagging some of its own I-Way deals, Microsoft has joined Hollywood's Jeffrey Katzenberg, Steven Spielberg, and David Geffen in Dreamworks, a new movie studio. And Microsoft is plotting an assault on Oracle's core business--database programs that run on powerful servers--with Sequel Server for the Windows NT operating system.

Does Ellison ever tire of the hustle? After a long day of meetings with New York media executives, he slumps in the back of his limousine on the way to La Cote Basque and reflects. He recounts a long-ago conversation with his sister. "One day, she asked me: `Which is more important, to be loved or to be respected?' I said: 'Respected.' She said: 'Wrong,' and left the room." He pauses, thoughtfully. "With wealth and fame, you get respect. But 20 years later, I figured out she was right. Ambition is a false god."

In recent years, Ellison has made more time for family. He fusses over the two children from his last marriage. And a few years ago he hired detectives to find his birth mother and her family. Now, his 35-year-old half brother works at Oracle, and Ellison is putting a half sister through college.

But he hasn't exactly mellowed. During a lunch break from a business meeting at his house he declares: "We're very ambitious. We want to be the No.1 software company in the world." Does that mean he would like to displace Gates? "You mean, do we want a monopoly like Bill's? I've always resented it when other people have monopolies. Our own monopoly would be swell." And a great way to beat Microsoft at its own game.

Oracle's Info Highway Partners

BRITISH TELECOM (March, 1994) Completed first trial of video-on-demand services to 60 households in November, 1994.

BELL ATLANTIC (January, 1994) Video-on-demand trial to 200 homes began this April. Will be expanded, with Nynex and Pacific Telesis, later this year.

U S WEST (May, 1993) Alliance to create interactive information service for business, education, and consumer markets. Running experimental interactive television system in lab.

TELECOM ITALIA Video-on-demand trial to 50 households in Rome launched early this year. Will expand to more than 1,000 by yearend.

APPLE COMPUTER Working on a software operating system, based on the Macintosh but modified to control smart television set-top boxes that send and receive signals for interactive TV.

INTEL Sources say Ellison is currently negotiating with Intel Corp. and AT&T to create a data network that carries video.

DATA: COMPANY REPORTS

Portraits of Two Software Billionaires

BILL

EDUCATION: Dropped out of Harvard

CHILDHOOD: Son of a prominent Seattle family; private schools

START IN BUSINESS: Co-founded Microsoft Corp. in 1977

PUBLIC IMAGE: Widely hailed as a visionary

PERSONALITY TRAITS: Brainy and combative

STYLE: Disheveled

MARITAL STATUS: Recently married a Microsoft marketing manager

DIGS: A $30 million high-tech compound on Lake Washington is nearing completion

LARRY

EDUCATION: Dropped out of the University of Illinois and the University of Chicago

CHILDHOOD: Brought up by a great-aunt and Russian-immigrant great-uncle in a modest apartment

START IN BUSINESS: Programmer for Amdahl Corp.; co-founded Oracle Corp. in 1977

PUBLIC IMAGE: Avoids public forums

PERSONALITY TRAITS: Charming and tough

STYLE: Dapper

MARITAL STATUS: Thrice-divorced; two kids

DIGS: A sprawling, Japanese-style estate in Atherton, Calif. New San Francisco houseBy Richard Brandt in Redwood Shores, Calif.


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