Oracle's Decade of Acquisition: Innovative or Just Well-Financed?

CEO Larry Ellison's "about face" on acquisition strategy, beginning with the hostile takeover of PeopleSoft in 2003, kicked off a decade of unprecedented software vendor consolidation, altering the marketplace for customers and vendors alike.

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Of course, consolidation among the supervendors is now a fact of life, and for customers, the vendor they didn't choose during last quarter's RFP process might just be the vendor they'll be forced to do business with next quarter. Which, industry analysts say, doesn't bother high-tech vendors in the slightest. "Overall, consolidation is less about what a single competitor is doing," Wilson says, "but more about vendors seeing opportunities to expand their solution footprints and customers seeing value in integrated solutions—even if they subsequently fret about lock-in."

Ellison saw massive consolidation coming, sermonized the trend and opened his checkbook to make damn sure it happened as he predicted it would. A November 2004 CFO.com article noted that "weeks before Oracle began its quest for PeopleSoft, Ellison publicly predicted a massive wave of consolidation that he said would eliminate about 1,000 high-tech companies, leaving a few giant category-killers, presumably including his own company. The scenario, he told The Wall Street Journal, 'is the end of Silicon Valley as we know it.'"

Changing the 'Not Invented Here' Stigma

Executive personalities aside, Oracle's aggressive acquisition strategies are, more or less, begrudgingly accepted. But at the time of Oracle's first major acquisition, PeopleSoft, the anti-Oracle sentiment was widespread.

How about this June 2003 CNET headline: "Oracle's Bid Is Bad for All." A CFO.com article in late 2004 cites a report by market-research company Techtel that found that Oracle's corporate reputation reached its lowest point in 12 years, most likely due to the very public battle over PeopleSoft.

Oracle's newfound strategy is emblematic of a significant shift in Silicon Valley's long-time perception of innovation: that buying the intellectual property of others—quite often and for the occasional staggering amount—can be a successful, long-term business strategy for the vendors and their shareholders. "By acquiring the most profitable revenue streams and customer bases, Oracle took out competitors and carved a footprint for continuous growth," says Ray Wang, a partner for enterprise strategy, at Altimeter Group. "This [new strategy] makes a lot of sense as Oracle has gained new talent, reduced the overall cost of general administration, and gained huge install base to pump new acquisitions and products."

Ellison, ever the pragmatist and engineer seeking out a solution to a problem, has done an admirable job putting a spin on Oracle's "about face": Remember, before PeopleSoft, it had made no major acquisitions (or those it cared to publicize). In a 2008 interview with The New York Times, Ellison said: "It's crazy to say you will only grow through [in-house] innovation. It's bizarre that there's a stigma to buying something rather than building it yourself."

In fact, executives sitting in the offices of the shimmering towers that overlook Larry's Lagoon in Redwood Shores have gone so far to attach the "innovative" label to how they have made their acquisitions during the past six years. Analysts aren't totally sold. "Innovative is not the first word that comes to mind to describe this strategy," Forrester's Hamerman says, "but it has been very well thought out and executed." The strategy, he adds, has given Oracle more market leverage by building a full technology stack and a broad portfolio of applications.

But as with all things, Ellison reserves the sovereign right to change his mind. Nearly two years ago, for instance, Ellison appeared steadfast to stick with the software market. According to a Wall Street Journal article, he said, back then, that computer hardware isn't "a business we have any ambitions in."

Oracle Forcing the Hands of Other Vendors

One could also argue that Oracle's aggressive buying strategy has nudged other enterprise vendors, including SAP and IBM, to make purchases that it might not have otherwise made if Oracle wasn't a deep-pocketed and everpresent threat to buy up every promising vendor in sight.

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The flurry of market-shaping BI acquisitions in 2007 is emblematic of Oracle's acquisitive impact. That year, Oracle picked up BI vendor Hyperion as well as middleware-maker BEA Systems (which was finalized in early 2008). Total purchase price for the two: nearly $12 billion.

Following the March Hyperion purchase, SAP bought BI stalwart Business Objects in October for nearly $7 billion. A month later, IBM acquired Cognos, another BI player, for $5 billion. Ovum's Wilson concedes that Oracle "may have forced SAP and IBM to move more quickly than they would otherwise," however, he says that Oracle didn't force them "to fundamentally alter their strategies—all three purchases continued the long wave of consolidation across the industry in the last several years." He notes that IBM and Microsoft also have bought dozens of companies over the years.

SAP, in particular, might have felt some searing heat by Oracle's move. "You could make a case that buying Business Objects was a strategy shift for SAP, but I view it as a major exception that doesn't change its core strategy of relying mainly on in-house development," Wilson says. "It was forced by circumstances because it couldn't afford to be without its own strong BI solution set, couldn't develop one in-house fast enough, and there were only a few independent players to acquire."

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