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JUNE 1, 2005
A Bad Case of Google Envy Software veteran-turned-VC Ray Lane talks about tech and his current passion, spotting the next big thing For eight years, Ray Lane made his name as president and chief operating officer of Oracle (ORCL ). He served as the pragmatic yin to the sometimes rash CEO Larry Ellison's yang. After a well-publicized falling out with Ellison, Lane was forced out in July, 2000, and some expected him to quickly land in the corner office of another Silicon Valley company. After all, Lane had rebuffed offers to run high-tech outfits like Hewlett-Packard (HPQ ) and Compaq Computer, while still at Oracle. Instead, he landed at Kleiner, Perkins, Caufield & Byers -- perhaps the Valley's most storied venture capital firm. He has surprised many of those same industry gossips by staying there. His name still comes up whenever there's a CEO vacuum in techdom, including a second opening at HP earlier this year. Lane not only says he's content in venture capital but also jokes that his old friends at Oracle and SAP (SAP ) envy him. After all, he gets to see new technologies as they bubble up. He works and travels less. And he spends more time with his two young children, all the while keeping a toe in the enterprise-software world where he made his name. YEARNING FOR A HIT. That's not to say Lane has pressure-free workdays. He entered the venture world just as the software market got considerably harder for small companies -- and good deals became harder to come by. So he has had to scramble, even doing deals in unfamiliar turf like podcasting. He hasn't had a big hit yet, and he wants one -- badly. Among potential home runs, he counts Visible Path, a social-networking startup aimed at companies, and Virsa, which makes software that enforces real-time Sarbanes-Oxley compliance. Even on a lazy Friday before a three-day weekend, Lane has a hard time sitting still, frequently jumping up out of his chair to pace, lean against his desk, or illustrate his points by drawing graphs on the well-used whiteboard in his office. Lane recently met with BusinessWeek Online reporter Sarah Lacy to talk about where he's placing his bets, what he likes about the venture business, and why all the consolidation in the software world will only continue. Following are edited excerpts of the conversation: Q: How tough is it to be an enterprise-software startup these days? A: Right now, the enterprise market is a tough place. [Companies have] consumed a lot of technology and want to consolidate a lot of the technology they've bought. They want a few platform players -- and innovation. The challenge is: How do large enterprises hear about innovation? They used to have entire staffs who would spend thousands of hours listening to thousands of startups and trying to figure out which ones are the most innovative. They don't do that anymore. If they can put out a fire by having one of the big vendors add a feature, they'll do that. If it's going to take a new company to come in, they'd like to hear how innovative it is and why the current vendor couldn't supply that feature. Then, they'll listen. If that new vendor has to turn their environment upside down, that's hard to do. It's not an easy environment. Q: Where have you invested? A: Security is huge, but all these [customers] have 10 or 15 products installed already, so you have to be clear what you're talking about. A year-and-a-half ago, I invested in Visible path, a social-networking company totally dedicated to enterprise relationship management. I mention them, because they are part of a new category called search. Visible Path is built on search technology using algorithms to look at data, like Google (GOOG ). Where Google looks at Web pages and links, Visible Path looks at people pathways. They'll be lots more applications developed using search the same way we used relational databases 25 years ago. It's a different way of looking at the network of data. Open-source is a big deal. In fact, we incubated an open-source company. It was the only time I've felt like an entrepreneur. Two years later, that business has become SpikeSource, and Kim Polese is the CEO, and it's off and running. [Polese, a former Sun Microsystems (SUNW ) manager, is a longtime software exec who also started Marimba.] They certify and test stacks of software in the open-source world, so I think that's going to be a big deal. Q: What do you think about the consolidation going on in the software world? A: No one should be surprised about this. It's probably long overdue. We had this renaissance period in the late 1990s driven by the Internet, where some enterprise-software companies really built big businesses. Once you come back to reality, if you're a $100 million software company trying to do what a $1 billion software company does, you're probably going to get consolidated out. The numbers are unbelievable here. The top 15 software companies are 84% of the revenues in the industry. The top three generate 75% of the profit, and the top one generates 57% of the profit. [Underneath that] it's becoming a wasteland. Some of the more interesting ones are BEA Systems (BEAS ) and Siebel Systems (SEBL ). Do these companies have a value proposition that's interesting in the future, or do you just say, "I'll buy it all from SAP or Oracle"? Q: Do you think there's any way they will stay independent? A: Without a time frame on it, no.
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