Oracle's Larry Ellison Wastes Time Looking for an HP Showdown

Last Updated Oct 28, 2010 2:36 PM EDT

Over the last few days, many have shaken heads at Google (GOOG) CEO Eric Schmidt. But for all the public gaffes Schmidt can make, he doesn't come near to the seeming insanity and pure entertainment value of Oracle (ORCL) CEO Larry Ellison. But the time has come to ask whether amusement is justification for what seems a giant waste of his company's resources at a time when the entire industry is changing and competition is more of an issue than ever.

Ever since Hewlett-Packard (HPQ) dumped Mark Hurd, its former CEO and Ellison pal, Ellison has provided a regular stream of ranting. It's not as though the man is normally placid. Ellison has a long history of aspiring to the status of a technology wise guy, and not in the smart aleck sense:
Since coâ€"founding the Redwood Shores, Calif.â€"based Oracle in 1977, Ellison's antics, which have included everything from hiring a private investigator to snoop through Microsoft's (MSFT) garbage to unceremoniously punting a series of wouldâ€"be successors to his throne, have earned him the distinction of Silicon Valley's consummate meanie. "Ellison," observes Karen Southwick in her unauthorized 2003 biography Everyone Else Must Fail, "is like a modernâ€"day Genghis Khan who has elevated ruthlessness in business to a carefully cultivated art form. His weapons are not the marauding hordes but his company's possession of a key technology platform, his willingness to exploit it, and his disdain for anyone who gets in his way."
This week, Ellison has shifted into overdrive, flailing away at HP, its new CEO, Léo Apotheker, and Apotheker's former employer, SAP. Alleging knowledge of illegal activities and making threats to subpoena Apotheker, Ellison has transcended the typical level of CEO rhetoric. Brad Stone and Aaron Ricadela of Bloomberg Businessweek think that the tirades are indiciative of increased competitive pressure. I'd agree. It's been clear for some time that companies needed to take over each other's traditional feeding grounds if they were to continue the growth investors crave.

Some think that being the high tech bad boy actually pays off, but I remain unconvinced. Is Oracle an important technology company? Absolutely. But as an insider told John Paczkowski of All Things Digital, " "Larry should have stopped at 'I'm speechless -- He's spent $42 billion on acquisitions to still be No. 2 in software."

Now Oracle wants to be a hardware company as well. To put all this into perspective, here's a table, using last reported annual results, comparing Oracle to some rivals:

Comparative Annual Results

Company Name

Revenue ($B)

Net Income ($B)

Oracle

$26.820

$6.135

Dell

$52.902

$1.433

HP

$114.175

$7.660

IBM

$95.795

$13.425

Microsoft

$62.484

$18.760

SAP

$10.672

$1.748

Oracle is highly profitable, as you might expect in software. But if it is successful in growing the hardware side that came with the Sun Microsystems acquisition, the margins will drop. Furthermore, compare the revenue sizes. For all its effort, Oracle bests SAP, but then has a broader software product line with its popular database. Relative speaking, it is significantly smaller than most of its competitors.

Furthermore, at least some of those competitors -- including HP -- are also customers that sell a lot of Oracle's software. As HP's last annual report said about its service business:
Our competitive advantages are evident in our deep technology expertise, which includes multi-vendor environments, virtualization and automation, our strong track record of collaboration with clients and partners, and the combination of our expertise in infrastructure management with skilled global resources in SAP, Oracle and Microsoft platforms.
In its last annual report, Oracle mentioned HP only as a competitor and failed to note its likely significant status as a reseller. However, it did offer this:
Our strategy of transitioning from Sun's indirect sales model to our mixed direct and indirect sales model may not succeed and could result in lower hardware systems revenues or profits. Disruptions to our software indirect sales channel could affect our future operating results. ... Our software indirect channel network is comprised primarily of resellers, system integrators/implementers, consultants, education providers, internet service providers, network integrators and independent software vendors. Our relationships with these channel participants are important elements of our software marketing and sales efforts. Our financial results could be adversely affected if our contracts with channel participants were terminated, if our relationships with channel participants were to deteriorate, if any of our competitors enter into strategic relationships with or acquire a significant channel participant or if the financial condition of our channel participants were to weaken. There can be no assurance that we will be successful in maintaining, expanding or developing our relationships with channel participants. If we are not successful, we may lose sales opportunities, customers and revenues.
In other words, beware urinating on those who can push your competitors' software products rather than yours. And that's exactly what Ellison continues to do to a company that happens to be an important business partner as well as a competitor.

Ellison is known to be a devotee of the Chinese book on military strategy, The Art of War:
So it would seem that he should wait and surprise his opponents in the court room next week, especially if his legal team has something up its sleeve that could help Oracle win the $2 billion settlement it seeks from SAP, which has admitted that its business unit, TomorrowNow, stole Oracle's software code.Not necessarily, according to one translation of Sun Tzu's manifesto.

"If your opponent is of choleric temper, seek to irritate him," says the Art of War. "Pretend to be weak, that he may grow arrogant."
However, military strategy assumes two mutually aggressive bodies that don't also need to cooperate. Add in HP's importance as a channel for Oracle, and the strategy wisdom of Ellison's rants become questionable. And no matter how personally satisfying he may find the verbal ventilation, there is no excuse to endanger the company's financial position unnecessarily. There are reasons that societies invented diplomacy as well as war. Perhaps it's time that Oracle recognize that trying to solve all problems with one tool is limiting and even foolhardy.

Related: Image: Sigismund von Dobschütz, Creative Commons Attribution-Share Alike 3.0 Unported license
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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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