How IBM Plans to Make Oracle Obsolete

IBM almost fell apart in the 1980s because it treated its customers like cash machines and not, well, customers. Oracle (and Sun) happily swept in to take this business. Now Oracle customers increasingly feel a similar squeeze -- and guess who's ready to take advantage of that?

At this week's IBM Power event, I had a chance to chat with Tom Rosamilia, senior vice president of IBM's Systems and Technology group, about some of IBM's current challenges — the divestiture of both PCs and the x86 server group and the expectation that Oracle would treat IBM like it did to HP and pull support for these products.

Rosamilia has an interesting strategy: Go on the offensive against Oracle and position Power as a better alternative to ARM in servers. The combination of these two things, if successful, would assure Power remains strategic to IBM (and thus unlikely to be divested) — and it would remove Oracle once and for all as a threat. Let's talk about how that might work.

Oracle of Today Looks a Lot Like IBM of Yesterday

I was in IBM in the 1980s. The company's defining mistake, which almost put it out of business, was treating customers like food instead of its lifeblood. Having reached a pinnacle of customer loyalty in the 1960s and 70s, and having dominated corporate IT structure, IBM used the resulting lock-in to milk the firms. Customer satisfaction cratered.

IBM executives at the time believed that customers couldn't move. All they needed to do to raise revenue, then, was come up with new and creative ways to get money out of customers. Once viable migration plans and products were created, customers left IBM in waves. As a result, IBM fired its CEO and CFO, along with a lot of my coworkers, and fixed that foolishness.

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If there's a company on the planet that knows the outcome of using lock-in against customers better than IBM, I don't know of it. This also gives IBM a unique skill set when it comes to benefiting from another firm's foolishness.

Larry Ellison made no bones about wanting to implement a similar lock-in strategy for Oracle customers — and Oracle's customer satisfaction numbers are starting to look a lot like IBM's figures from the 1980s. Customers are particularly frustrated with Oracle hardware — even Oracle's own salespeople say it blows — and Oracle's creative pricing and its moves against HP put a large segment of Oracle's customer base at high risk.

These people want to move. The company in the best position to benefit from this sentiment is IBM, which clearly learned from watching Sun Microsystems and Oracle carve IBM up a couple decades ago.

IBM Power's Strategy: Revenge Is Sweet

Rosamilia plans to take advantage of customers' desire to get the heck away from Oracle by offering an easy migration path to IBM DB2-based solutions on IBM's more capable hardware. Showcasing performance improvements that can exceed 50x, along with vastly more customer-friendly pricing, Rosamilia plans to gut Oracle the way that IBM was once gutted.

At the core is IBM's Open efforts, which give customers access to hardware, systems and software to create highly customized and optimized solutions designed around their specific needs. This should give customers a clear choice: Continue to be milked by Oracle so Ellison can buy islands and airlines, or shift to a company focused more on their needs than finding creative ways to empty their bank accounts.

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As IBM itself knows, once customers start to leave a company, it's hard to stop the exodus. So IBM is positioning software, hardware and services against this massive opportunity and providing access to more core IBM technology under license than ever before to both customers and partners. If Rosamilia and IBM can execute, Oracle as we know it will likely be wondering where its market went in a few months.

Oracle has done a nice job of putting first IBM and then HP in defensive positions over the years, but now IBM in particular plans to return the favor by offering systems tuned from the ground up to significantly outperform Oracle's and wrapping them with services and software that reduce the pain of migration. For firms sick to death of being treated like food, this could be a godsend.

I expect IBM to gleefully enjoy doing to Oracle what Oracle once did to it. Sometimes turnabout isn't just fair play. It's fun, too.

Rob Enderle is president and principal analyst of the Enderle Group. Previously, he was the Senior Research Fellow for Forrester Research and the Giga Information Group. Prior to that he worked for IBM and held positions in Internal Audit, Competitive Analysis, Marketing, Finance and Security. Currently, Enderle writes on emerging technology, security and Linux for a variety of publications and appears on national news TV shows that include CNBC, FOX, Bloomberg and NPR.

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