Oracle’s best-of-breed strategy, as described by president Mark Hurd

It used to be easy journalistic shorthand to write ‘database-giant Oracle Corp.’, but that labeling no longer fits a company that’s now a key player in applications, appliances, servers, development tools, operating systems and, yes, even cloud computing. How do all these components gel into a coherent plan for IT customers? What makes Oracle better than the other big integrated systems players like HP and IBM? In this latest installment of the IDG Enterprise CEO Interview Series, Oracle President Mark Hurd spoke with IDGE Chief Content Officer John Gallant about Oracle’s strategy and why the company is uniquely positioned to help IT leaders deal with the difficult challenges they’re facing today. Hurd also clarified Oracle’s stance on cloud — a position clouded — sorry — by some earlier comments from CEO Larry Ellison — and what makes Oracle’s approach better than ‘very old’ cloud solutions like salesforce.com. He explained more about customer migrations to Oracle’s new Fusion applications and discussed how Oracle plans to win in the evolving server market.

Talk about the unifying strategy at Oracle today. We hear a lot about Oracle wanting to be the ‘one-stop shop’ or owing the entire computing stack. But put it in your own words: What’s Oracle’s strategy?

Right now we’re working on four things. We’re trying to be best-of-breed at every layer of the stack, whether that’s at the hardware layer, silicon or storage. We’re trying to be best-of-breed in OS’s, in databases, in middleware and applications. We want to work in heterogeneous environments and have a high level of enterprise fit — to be the best at everything we do. And we line up — engineering to sales — to do that.

Secondly, we then vertically integrate those pieces. We will take those very same piece-part capabilities that I described and bring them together into a vertically integrated system, like what you see in Exadata, Exalogic and Exalytics, that can provide extreme performance and extreme benefits from a total cost of ownership perspective. For example, the Exadata solution can deliver 70-times improvement in performance — a report that took 70 minutes now takes one minute. So we’re vertically integrating for extreme improvement in performance and TCO for our customers.

Thirdly, we are building out our industry capabilities. We’re building out our ability to solve our customers’ problems that are unique by industry. We have a group focused exclusively on building out solutions in industries like retail, banking, health care, utilities, areas like these. That supplements the other two pieces I described.

Fourth, we want the ability to deliver all the capabilities I just described any way the customer wants to get them, through whatever delivery architectures are appropriate for them. We’ve announced the Oracle Public Cloud — and I want to make sure I’m clear in differentiating the Oracle Public Cloud. This is an open public cloud. If you want to move data from our cloud to Amazon and then move it back to our cloud, our cloud is open. It won’t be like a proprietary cloud from another company, where once you’re in their cloud you can’t get out. Ours is standards based. At the same time, we can help you architect a private cloud or you can take our applications and our capability onsite and — just as important — you can mix and match. You can have a division that’s on HCM [human capital management] applications in Asia in the cloud and you could have a division in HCM onsite. You can have your CRM the opposite way, if you so choose and you can change your mind.

For us, it’s all four: best-of-breed; vertically integrate for extreme differentiation; build out our industries; and deliver with whatever architecture is best suited for the customer. That’s our strategy. [More on Oracle announcements on cloud and other technologies from the recent OpenWorld conference. ]

Staying at a high level, compare or contrast that strategy with three of the big names in the industry who also provide a lot of the pieces of the stack. Let’s start with IBM.

Well, they’d be better to tell you what their strategy is. I will say that IBM is a partner of ours. They are a services partner of ours and we cooperate/team with them in the marketplace on Oracle implementations, and I think from a services perspective they do a good job. In some of the pieces of the technology stack that I referred to earlier, we compete with IBM. We believe that we have better technology in those parts of the stack, as I described earlier, and that’s how I would size us up with IBM.

HP?

I think we’re very different companies, and I’d probably leave it at that.

What about Dell?

Dell is also a partner of ours. We do some work with Dell on the services side. Dell is a partner of ours on the technology side, and I think Dell is a company we can do more with over time. Obviously, they’ve got very strong distribution channels in some emerging markets, they have very strong access to the U.S. SMB market, if I can use that term. In the U.S. those are attractive areas for us to partner together. Dell is also a very, very good customer of ours. So we have a good, cooperative relationship with Dell.

But when you look at the world, what is it that’s different in the Oracle philosophy than the kinds of companies I mentioned here? What’s the unique world view you bring to customers?

Well, listen, it’s important to understand that we’re not trying to be like anybody. We’re trying to be Oracle. We’re an IP-based company. We value IP [intellectual property]. We’re not trying to be a services company the way some of the companies you described are. We’re really driven by our IP, our value-add, what makes us better, what makes us different, what helps us help solve customers’ problems. Every move we make, we make with the objective of trying to improve the capability of our technology and our ability to translate that into intellectual property that helps solve customer problems. In 2010 we spent over $4 billion on R&D — I think $4.3 billion to be exact. We’ll do that again in fiscal 2012, plus we’re acquiring. I’ve had people say they don’t see any theatrical acquisitions or big ones out of Oracle. We’ve been on a pretty steady rate of making, we think, very strategic acquisitions and you can think of that as another form of R&D. Our R&D plus these acquisitions keep building out this strategy that I’ve described, and that’s what we’re focused on. [Recent Oracle acquisitions include the proposed buyout of RightNow Technologies and Endeca Technologies ]

I want to talk about that acquisition strategy, but before we do that you touched on something that I wanted to discuss. Why aren’t services a bigger component of the strategy? Why not have that big services arm that these other companies have built or acquired?

Well, I think a couple of things. The Oracle ecosystem is very large. There’s 260,000-270,000 Oracle certified professionals in the marketplace and the strategy we have is to use that partner ecosystem to extend our reach, therefore enabling our growth. We have 20,000 Oracle consultants who have Oracle badges, and we use them to both help our partners execute, give them domain knowledge, domain capability, deeper reach, more breadth, more depth, and also to help our customers govern and support their implementations. Sometimes we’ll actually take the prime contractor role and help them with various deals. But the fact that we can lean on these partners to extend our ecosystem, that we can train them, we can prepare them, we can certify them — it actually allows us to grow faster and extends our reach in the marketplace. Strategically, we think it makes a lot of sense from a growth perspective.

In addition, we believe we have the opportunity to change the services market. It gets back to our IP strategy. Much of what we’re doing now, with things like integrated systems and engineered systems, where we bring the hardware and software and we engineer them together, is we actually engineer out services. Take an Exadata or Exalogic solution. In those cases we can integrate server, storage, database, in some cases middleware and applications. We literally provision all of that, test all that, install all that for you. And we do it as part of our R&D, not part of your IT budget. In that context, we are in the services business, but we’re in the services business in that we do it as a pre-provisioned product and a solution. Larry [Ellison] has been on this really for a long time: that software is the key to the services market because you do two things when you automate a process — you eliminate cost and raise the service level.

So, one, our services strategy gives us a lot more reach and a lot of growth capabilities through some great partners that focus with us on various regions, various industries, various business problems. Second, we work from an R&D perspective to disintermediate some of these services as part of our R&D. That’s what we’re focused on.

How is Oracle’s acquisition strategy evolving?

I don’t know that it is. We continue to stay focused on making acquisitions that make strategic sense for the company. If it doesn’t make strategic sense for us, we’re not doing it. [In a recent analyst meeting] I got peppered with questions about [Oracle] having a lot of cash. ‘Don’t you feel pressured to use it?’ The answer is no. Now, on the flip side, if there are acquisitions that make sense, we’ll obviously pursue those. But they have to make strategic sense for us, they have to make financial sense for us. We’re not going to go out and do things that don’t make financial sense for our shareholders. And then they have to be things that we can run, we can actually operate them, we can integrate them. Because it’s not just important that we have technology, it’s also that we have to make that technology work together, and it’s got to be something that we can operate. That’s what we’re focused on.

What are the gaps in the portfolio?

We feel really good about our portfolio. I’ve been on record in the last couple months saying that right now we’re very focused on execution in the marketplace. We think we have the best portfolio in the industry and the biggest issue right now is making sure it’s in front of customers, and that we can help our customers solve their problems. But that doesn’t mean there aren’t areas where we’ll release new products and incremental products. You’ve seen us very active in the hardware layer at Oracle OpenWorld. You’ve seen us release some appliances. We released SPARC SuperClusters, released Oracle Database Appliance.

I wouldn’t call these so much holes as they are opportunities for us to continue to build out our stack. You’ll see us be more aggressive, with more releases. You’ve even seen us since Oracle OpenWorld being aggressive in industry applications, with some other industry releases. But we feel very good about the portfolio right now. [For more information about the SPARC announcements see: Oracle shows super-fast, IBM-killing SPARC T4 and Oracle’s Sparc SuperCluster due by year end. For more on the Database appliance see Oracle launching ‘Big Data,’ in-memory appliances.]

Does Oracle need to be in the storage or the network business?

We’re in the storage business today, in multiple, multiple areas. One, when you’ve got an Oracle environment, Exadata is a storage play. If you’ve got an Oracle environment, you can actually get integrated storage with Exadata. We have the ability to compress data in some cases four or five times, meaning if you had a petabyte of storage, you now have 200 terabytes of storage. When you think about sheer performance, I just increased your performance by the amount I compressed the data. So Exadata in itself is a storage strategy.

Second, we have a solution called ZFS, which is a file system and some great technology that competes directly in the marketplace with NetApp. ZFS will have some of the very same compression capabilities that Exadata has for Oracle environments. Even in mixed workloads, it will be a very high-performing solution.

We acquired a company called Pillar [Data Systems] in the summer. We have focused that directly on the enterprise and it will compete with EMC head-on. Again, it will have the same sort of compression capability and will be a very high-performing storage architecture, as well.

You’ve got different target markets: for a completely integrated Oracle environment, you’ve got an Exadata capability; in a file environment, you’ve got ZFS; in a block environment, you’ve got Pillar. All are going to have the technical advantages that we bring in Oracle environments and they will be high performing. So we feel very good about the storage portfolio that we bring to the market today.

What about the network side? Is that something that you have to play in?

I’m not going to comment on that one.

Okay, moving away from technology, one of the things that we’ve heard from customers is that they have at times felt like they get overwhelmed by Oracle, that they are approached from many different pieces of Oracle regularly. What are you doing to make life better for the Oracle customer from a sales perspective?

Listen, our customers are very important to us. We survey our customers every quarter. And when you look from our customers’ point of view, the strategic relevance of Oracle to them is extremely high. We are very sensitive to that and we understand how important it is that we perform so that our customers can perform. We really cherish that relationship.

In the field we’re doing three things at the same time right now. We are adding salespeople. By the way, customers don’t congratulate me and thank me because we’re adding salespeople. But because of the strength of our portfolio, we actually think we need more coverage, not less. So we’re adding salespeople and we are growing the company.

Second, we are specializing our sales force even further, which gets to the question you describe. We believe our people have to have deep domain knowledge of the products they represent, our sales organization needs to be capable of articulating those [capabilities] and customer benefits.

Thirdly, we are trying to integrate those specialties and capabilities into a deeper customer relationship, and we are bringing programs to market with our customers, doing things like customer insight programs where we actually align our entire portfolio with our customers’ strategy.

When I look at what customers are going through today, I think it is very challenging. I won’t ramble on too long about it, but customers are facing a very challenging environment. People are going more mobile. In my heyday in the computer industry there was a minicomputer called a [Digital Equipment Corp.] VAX and now the iPhone in my hand is more powerful than a VAX. There are going to be two billion of these smartphones. Think of it as two billion VAXs out there in people’s palms accessing not a terabyte, not a petabyte, not an exabyte, it’s going to be a zetabyte, maybe 70 zetabytes of global data, doubling roughly every two years. We’ll have 1.3 billion mobile workers running around this planet, more growth coming in G10 countries as opposed to the existing economies that we think of today. And, frankly, corporate applications that are on average 20-plus years old plus trying to solve all these problems. And our customers are getting no budget increases. No one’s showing up saying — hey, spend whatever you want. But the CEO is saying to our customer ‘hey, get me into e-commerce, get me global, get me mobile, get me into social networking’.

So, to your point, we have to help customers do two things, and this requires a level of engagement that’s really important, for us and for the customer. We have to help them save money. We have to help them get money out of the old things they were doing and save it. And that’s why being able to do compression, being able to add more performance, things that can help them take cost out is so important, so strategic to them. Simultaneously, we have to bring these new, great capabilities we’ve got and help them innovate.

I believe we’re one of the few companies, if not the only company on the planet, that can do both for our customers at the same time. We can help them save lots of money with the various capabilities we now bring with our architectures and our solutions, and we have to help them innovate with new products. That requires a level of intimacy and a level of engagement and a level of dialogue that we’re anxious to get after. So we’re adding people, we’re continuing to keep them specialized. We’re trying to add this dimension of strategic alignment that’s just so important to get to these issues I described.

I want to shift over to ask you some questions about Oracle’s cloud strategy. Some of Larry’s statements in the past have led a fair number of people to doubt Oracle’s commitment to the cloud. What do you say to people who doubt Oracle is really supportive of cloud?

Just look at the evidence. We’ve announced the Public Cloud, we’ve announced our commitment to Fusion [applications in the cloud]. We’re users now. By the time we get to our next fiscal year, we’ll have our entire sales organization as users of our technology from the cloud. Everything is being cloud engineered. But again, for us, it’s customer choice. We’re trying to make it so you do what you, the customer, want. We think that cloud may be a delivery architecture that’s going to be one of choice for some customers, and we’re putting money behind it. So I think dismissing the words, just look at the actions, and I think the actions are evidence of our commitment. [For more on Oracle’s cloud announcements, read Oracle fleshes out cloud plans at OpenWorld.]

What’s the model of cloud that you envision customers embracing? Is it the salesforce.com model, where the vendor owns the apps and stores the data and manages that whole process? Or is it something different?

Well, of course, salesforce.com is going to be very different because that’s very old technology, it’s a couple decades old now, from the ’90s. I think you’re going to see things obviously change a lot. I think you may see environments that are hybrids, where people use a combination of capabilities to solve their problems. Those can be very easily some mix of on-premise applications, private cloud architectures for people that are obviously very concerned with data that could get outside their firewall, and some service capabilities that are not as sensitive that could be accessed from the public cloud. We want our customer to have the right to choose. You choose what’s best for you. I don’t think every industry and every solution and every customer is going to be the same. You can pick the architectures that fit the best for you and we’ve now got the capability to do it in the way that’s optimal for the customer.

Does Oracle need to be in the platform-as-a-service business? Do you need to create a development environment that expands the application ecosystem, gives customers new ways to build off the cloud capabilities?

We announced that at Oracle OpenWorld. You can now get access to Java tools, you can get access to development environments, and you can get access to the database, all out of the Oracle public cloud. The Oracle public cloud was designed for multiple purposes. You can get access to new applications, you can get access to our development tools. We agree with you, and it is part of our Oracle public cloud offering.

Mark, let’s shift over to the Fusion applications. If you’re an existing customer and you’re looking at the training or the skills or the purchases required to get to the new Fusion applications, would it be wiser for them to just make the leap to the cloud-based options for Fusion?

Let’s go back to the design principles of Fusion. Fusion is all based on Fusion middleware. It is modular, so that you the customer, again, have choice. It’s a common theme through everything here, that you have the choice. If you’re a PeopleSoft customer today, you don’t have to change out your entire PeopleSoft environment to get access to Fusion HCM. You can take a Talent Management application from the cloud while you maintain your existing PeopleSoft environment onsite. We leave it to the customer. Will customers say ‘I want to replace my entire this or my entire that and completely move over to a brand new application set’. They may. They may. But we think you’ll also see a lot of modular movement as we go through the next generation of apps, not the rip and replace.

Some people think that customers will go and get every app from a separate silo and get it all from some delivery vehicle like cloud. That might make sense if we look at this in piece parts, but our customers have to integrate horizontally as well as vertically. There will be hundreds and hundreds of separate, siloed [cloud] suppliers who have no method to communicate horizontally. But it’s just not how the world works. In many cases, it’s just as important how an IT system works across functions as how capable it is at the specific vertical function it’s performing. There are a lot of people that don’t embrace a best-of-breed strategy per app, because it’s more important how the entire system of applications works together and how data gets transferred across. We’re sensitive to both of those needs. We’re trying to build best-of-breed at every layer, but also an ecosystem that allows you to work across the enterprise as well. Each customer is going to have a different set of objectives depending on where they’re coming from, and that’s why I wouldn’t prescribe the answer is black or white. I think it’s about us doing the work with the customer to get the right fit and we’ve got a breadth of capabilities that allows us to help them do that.

Will you be providing them, for lack of a better word, templates or migration paths that show them the ways to do that?

We’re building out, obviously, demonstration capabilities of our software, templates. They’ll not only get templates for how to do it, but roadmaps that we’ll bring forward with our products so that they’ll know what modules come at what time. It’s a very extensive process.

When will you clarify for existing E-Business Suite, Siebel, PeopleSoft, J.D. Edwards customers what they’re entitled to with their current maintenance programs that takes them to Fusion, what they get as current customers that moves them to Fusion?

At Oracle OpenWorld, we released 100 separate Fusion products in seven separate product categories. We’re in the process of bringing them to market so customers are first aware of everything that we’ve got and to show them pricing capabilities so they know what those options are. We’re in the process of bringing that to market right now.

You mentioned the middleware piece of Fusion. Is that something that’s a component of the application license or is that something customers will have to license separately?

Well, it would depend on the application and how you bought the stack. Most of the middleware is licensed separately. But in some cases, like a vertically engineered system, it can be part of one integrated solution.

A final question on the cloud version of Fusion. Will it be sold on a perpetual license model or is it more a pay-as-you-go model, like a salesforce.com approach?

It is designed to be more of a subscription model as opposed to a different model, similar to what you think of today with a salesforce.com. But you’ll see both models come out of us.

I wanted to shift over and get in some questions about the Sun acquisition. Mark, what do you think you have done well with the acquisition of Sun and what would you have done differently in retrospect now?

The Sun acquisition has been a great acquisition for Oracle. Start with getting access to Java. I mean look at what we’ve been able to do with Exalogic and Java-based applications. We’ve got OLTP [online transaction processing] applications that we can put on Exalogic that can run four, five times faster. We’ve got examples even higher than that. The ability now to integrate Java, tune it, etc., this is a tremendous asset for us.

Second, when you see the energy we’ve put into the silicon, with T4, and what we can do with access to Solaris, we now have great silicon technology and high-end Unix capability. I don’t think there’s much argument that Solaris is the leading high-end Unix in the industry. It is the premier Unix operating system in the world. We got that as part of the acquisition. We’ve got access to a very significant user base, which is the Sun Solaris user base. We have building blocks for what are now probably the hottest products in the enterprise in Exadata and Exalogic and in engineered systems. Some great products and some great building blocks that came along with the acquisition.

The server market is a big one with a lot of competitors. What’s the sweet spot for Oracle? What differentiates Oracle as a server vendor?

The server market, depending on whose numbers you believe, is [about] $55 billion. It doesn’t grow much, but there is a lot of change within it, there’s growth in certain segments of it, it declines in other segments. The traditional older-line mainframe market is declining. The midrange market has been sort of flattish over this last timeframe. The low-end part of the market, or the Intel server part of the market, has historically been growing with these scale-out architectures. That’s the server market.

But I think to have the conversation properly you have to add the storage market. When you add the storage market you get, I don’t know, a $100 billion-plus, $115 billion market, again, depending on whose numbers you believe. Then you ask ‘how does that market evolve going forward’? We talked earlier about engineered systems and you prognosticate as to what percentage of the market goes to that type of architecture where I can get extreme performance, where I can get a different TCO, where I can get a fully integrated solution. So the question would be when you combine those two, what percent of the market is going to move to that type of architecture? You can tell me whether you think it’s 90%, 80%, 60%. It’s going to be some number that’s awful exciting. That’s one sweet spot, certainly for us. We think anybody that’s going to want and need a highly available, high-performance computer is going to be interested in one of our solutions. We believe we’re going to have the highest performing silicon, the most mission-critical set of operating systems on the planet, the best database on the planet, and we’re going to integrate those with the leading middleware and applications in the ecosystem. For us, that leverage of that ecosystem is our sweet spot.

I can tell you what we’re not interested in. We’re not interested in something where we put sheet metal around a bunch of other companies’ intellectual property and send that to market with our logo on it. We’re not working on that. If customers say to us they want us to help fill out some of their ecosystem with other products, that’s a request we sometimes get. But what you see us doing with our portfolio is continuing to get rid of products that don’t have Oracle IP and focus on the places where we do. And that’s where our sweet spot is.

Appliances like Exadata play a big role in the strategy, but is there a risk of customers being overloaded with too many of these appliances for too many specific things?

We can drive tremendous performance with these appliances when we can integrate the hardware and software together with multiple layers of engineering. We get hardware engineers and software engineers working together to optimize each level of the stack within the appliance to get us the best answer that we possibly can. We can now start to talk about how Exalogic works with Exadata and how Exalytics works with Exalogic and Exadata. That’s the way you’re going to see the world evolve. If I can get this kind of extreme TCO, then I’m going to work for ways to get my architectures integrated horizontally as well as vertically. With the breadth of capability we’ve built out, we have the ability to do that.