Larry Ellison Wants To Own The Whole Widget. Kind of Sounds Like His Buddy Steve Talking

Posted by: Peter Burrows on April 20, 2009

A source with knowledge of Oracle’s $7.4 billion purchase of Sun Microsystems acquisition says Larry Ellison has been talking with Sun co-founder and chairman Scott McNealy on a fairly frequent basis for the last month and change. But I’m wondering whether Ellison has also been spending time with Steve Jobs.

I say this not just because Jobs and Ellison are friends, but because Ellison’s latest acquisition seems built on a Jobs-like philosophy. Just as Apple “owns the whole widget” in consumer gizmos, Ellison says he wants to meld Oracle’s database software, applications and middleware with Sun’s server, storage and infrastructure technologies such as Java to create tech’s most vertically-integrated, soup-to-nuts corporate computing giant. One idea: to create “industries in a box”—machines that are so integrated that data center owners would need little or no other gear to serve a given market.

No doubt, this DIY philosophy has worked incredibly for Apple. Not so long ago, it was taken as gospel that even a whiff of vertical integration meant certain strategic death. Indeed, Apple was exhibit A for this viewpoint, having evidently lost the PC Wars in the 1980s and 1990s to armies of specialists—Microsoft in operating systems, thousands of ISVs in applications, Intel in chips, Dell and other PC makers in hardware. But Jobs has thoroughly discredited such thinking. Apple provides not just its iPod and iPhone hardware, but the iTunes software and ITMS online store. In the Mac business, the company has become more vertically integrated in recent years, given its progress with iLife, iWork and other software offerings. The reason: controlling the key technologies means Apple can tweak its offerings to work out all the kinks, and throw in some pixie dust to create stand-out user experiences. And since consumers are willing to pay up, Apple enjoys by far the industry’s highest margins.

But will it work for Oracle in the corporate computing world? First off, I need to be convinced Oracle really intends to push this back-to-the-future strategy, with Oracle re-incarnating the mainframe-like approach of IBM before that pesky PC came along.

But assuming Oracle is serious, I’d say the odds are long for any Apple-like success. I get why Oracle and Sun insiders are excited. This new combination would truly have the broadest set of capabilities of any other player—vaulting ahead of IBM, Cisco and others in this regard. But truth be told, Apple commands those higher margins because it sells to people who use their own money to buy its products. They are willing to pay for things like style, cache and ease of use.

Companies, on the other hand, are far more cost concious. Even if Oracle can cobble together a system that offers the world’s lowest operating costs and smallest carbon footprint, purchase price will still matter. True, Oracle has done an incredible job of lifting its profits in recent years; my source says the company actually raised the average selling price of its software by 10% in 2008. But many companies will still opt for lower-priced options. And Oracle is creating new competitive risks by entering the hardware business. Now, many longtime server partners would just as soon push database software from Microsoft or Salesforce CRM than help a rival.

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/