Can guy in Ironman 2 whip IBM in real life?

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Lessons learned


As he enters the hardware business, Ellison is looking to repeat the success he had with his last big strategy shift -- an acquisition spree that began in June 2003 with a hostile takeover bid for PeopleSoft, a maker of programs for managing human resources.

Prior to that, Ellison was known to mock advisers who recommended that he consider acquisitions, saying "we write software, we don't write checks." But he changed gears after more than a decade of unsuccessful attempts to design his own business management software, an area where Germany's SAP AG was rapidly consolidating its lead.

At the time there were few examples of successful acquisitions in the software industry, let alone hostile deals, but the purchase proved a winner, and Oracle has since spent more than $35 billion buying some five dozen software makers.


"He said it's going to get harder and harder to build on our business because we have such a large market share. When everybody else was standing on the sidelines, he went deep and he went long," said Howard Anderson, a lecturer at the MIT Sloan School of Management.

Oracle quickly cuts duplicate costs and waste at a newly acquired company, boosting its margins and absorbing its technologies. Meanwhile it cross sells its vast line of business software to an acquired firm's existing customers while generating revenue from maintenance services for the programs they already use.

Shareholders have benefited. Oracle's stock price has nearly doubled since Ellison began his shopping spree, compared with a 21 percent gain in the S&P 500 Index.


Deal time

Ellison said he will expand further in hardware, adding providers of semiconductor, storage and server technologies to his list of acquisition targets. "We'll buy in all areas of our business."

He is looking for technologies he can incorporate into what Oracle is betting will be its next line of blockbuster products: gigantic appliances made up of servers, storage equipment, networking gear and software working together to handle specialized tasks.


Everything is tweaked at the factory for optimal performance in the data center. "We don't want customers making those decisions. They never quite tune it the way we would," said Oracle President Charles Phillips.

This approach traces back to Ellison's strategy for building his software business. He has spent two decades telling customers that they should buy pre-integrated software business management suites from Oracle, rather than dealing with myriad vendors. His mantra: best of breed is good for dog shows, but not software.

"Where we think we'll make our money - where we think we're able to differentiate ourselves from IBM and everybody else - is by building complete and integrated systems from silicon all the way up through the software, all prepackaged together," he said.


His first appliance was developed as engineers found that hardware bottlenecks slowed the pace at which computers could process information stored in Oracle's database software. So the company forged a deal with Hewlett-Packard to jointly develop an appliance known as the Exadata database machine, whose chief components were Oracle's database software and an HP x86 server.

Ellison introduced that first appliance in 2008 with the intention of developing other machines with HP. But when Oracle had a chance to buy Sun, Ellison ditched HP and entered the hardware business on his own. Last year he unveiled Exadata, version 2, based on Sun technology, which he says initially has nearly $1 billion in potential sales and will likely have annual sales measured in the billions of dollars within a few years.

The machine costs more than $1 million, stands over 6 feet tall, is two feet wide and weighs a full ton. It is capable of storing vast quantities of data, allowing businesses to analyze information at lightening fast speeds or instantly process commercial transactions.


But rivals remain unimpressed. They say that Exadata does not provide customers enough flexibility to customize the systems to meet their own needs.

"It's got a very narrow band of applicability. It's a one trick pony that has no ability to integrate," said Dave Gelardi, vice president of systems strategy at IBM, which sells more than 20 types of computer systems optimized for specific tasks.

IBM also has the world's largest technology services organization, which generates billions of dollars a year in fees by helping companies build customized systems. "We don't say 'The answer is Exadata. What's the question?' We operate from the perspective 'What is the business problem you are trying to solve?'" says Gelardi.


Hewlett-Packard and Dell followed IBM's example of building a large services organization over the past two years with their acquisitions of EDS and Perot Systems. Ellison says he's not going down that path. While Oracle will maintain a relatively small force of consultants, his strategy is to do most of the integration work in the factory, based on the Exadata model.

The next step

He plans to unveil at least two new appliances in September, when the company holds its annual Oracle World customer conference in San Francisco, a gathering that had some 40,000 attendees last year, making it the world's biggest tech users conference.

The machine that will likely get the most attention is one that will run Oracle's yet-to-be-released next-generation suite of business management programs, dubbed Fusion Apps, which will compete with SAP's existing software line.

That appliance will include servers, networking equipment and storage gear along with a database, middleware and the Fusion Apps programs. Oracle has spent five years and billions of dollars developing the software, which helps businesses manage accounting, human resources, sales and marketing as well as more specialized tasks for companies in industries including financial services, telecommunications, healthcare and retailing.

Ellison says he will also show off an appliance that runs Oracle's so-called middleware - the plumbing of a data center's software network, performing tasks such as helping various computer systems communicate with each other.

His key rival in this area, too, is IBM. And that fight won't be easy - or short.

But Ellison says he expects to see it through and has no plans to leave Oracle any time soon. "They may kick me out, but I have no plans to retire," he said.