Oracle Is About to Go Down One of Two Different Paths: '90s Apple or Apple 2014

Larry Ellison announced last week that he is handing over his CEO responsibilities at Oracle. This change marks the last transition of powers from the company’s founder to professional managers within the enterprise software market. The founding fathers of this industry had built products and platforms that enabled four decades of massive innovation, shaping and enabling every aspect of global business. This transition marks more than just a change of personalities, it could be a sign that the industry has shifted from its growth and innovation years to an industry that is mostly focused on consolidation and value extraction. Or is it?

Larry, actually drove this industry consolidation, through a massive shopping spree – where Oracle aggregated most of its smaller application competitors, leaving SAP and Oracle as the last two standing. Oracle followed that act by acquiring SUN, integrated an end-to-end stack competing directly against IBM. The lines so carefully delineating the layers of the enterprise space a decade ago blurred – as Oracle, IBM and SAP bravely ventured into each other’s territory.

While this battle was going on, Oracle, SAP and Microsoft had all gone through a very significant transition from their respective founders’ era to a new generation of executive managers. These exceptional executives who were groomed to become CEOs, were mentored to lead their companies through another decade of massive challenges. This mentorship is so critical in keeping the “DNA” that directs product innovation, customer relationships, and talent management. Yet, there is a critical role only founders can really play in establishing a visionary long-term direction. After all, only true giants can see farther than the visible horizon.

Founders have the prerogative and sense of urgency that is required to take bold steps and reinvent their company every decade or so. Hasso Plattner drove SAP through such change every time the computing fundamentals were changed. He led the transition from mainframe to three-tier client server with R/3. He responded to the Internet sea-change by creating mySAP.com (years before Alibaba showed how valuable on-line markets can become). He drove the drastic change of SAP from applications to platform with NetWeaver. He led the effort on HANA – pushing SAP into the data layer with in-memory databases. Hasso did so because he believed that without such innovation the company risks losing its relevancy, and he was able to push it through because he had the credibility, inside and outside SAP, of an “industry founder”.

When SAP decided to hand over responsibility to its next “management generation”, Hasso tapped Leo Apotheker and myself to become co-CEOs – a plan that did not materialize when I decided to pursue a different path in life. A few years later, the company appointed Jim Snabe and Bill McDermott – two of the most talented executives I have ever had the pleasure to work with. Jim and Bill truly drove SAP to new heights – but it was Hasso guiding a lot of product innovation (this time through Visal Sikka – now CEO at Infosys). Hasso’s drive for HANA was an extremely bold move – pushing SAP from apps into the data layer with the creation of in memory databases and a whole set of applications that leverage this innovation. In doing so, Hasso decided to venture deep into Oracle’s territory. Then, after many decades of having co-CEOs, Bill McDermott took over sole CEO position, proof of his great professionalism and the wonderful trust he had built with Hasso over the years.

I remember one of the lessons Hasso taught me about the emergence of R/3. As he introduced this new set of applications, demonstrating his real-time accounting concepts to CFOs, most of his ideas about accounting were unprecedented. His was the way “SAP did accounting.” After a few of these meetings, Hasso became an accounting expert and the way SAP did accounting eventually became the global accounting standard. I called it “leadership by code” – the company that codifies a certain way of doing business first gets to defines those processes for the entire industry. SAP got there first, most of the time, all other times it was Oracle who beat it to the punch. These two companies defined the way business was conducted around the entire globe – and they did so through the vision of these industry founders.

Looking at other founder transitions, there are two that stand out, good and bad. Both include the same iconic leader – Steve Jobs. When Steve was replaced by John Scully, a professional manager – Apple lost its ability to lead. John Scully was an extremely professional manager, but he lacked the boldness and willingness to “bet the farm” on innovation that came from Steve’s deep understanding of the PC industry dynamic. Over the years, Apple under Scully produced “me-too” products – with Jobs vision pushing it forward for a decade after his actual departure. The Mac didn’t die, it simply became irrelevant without Jobs’ vision.

Steve second transition back into his role as CEO brought back his unique quality – one that only founders have. Simply put, Steve knew what people will want. He didn’t ask us if we wanted a music player or tablet or smart phone – he told us we will want them. His visceral instinct was enough for him to bet the future of Apple. An instinct that was rooted in years of founding this industry. Steve didn’t just revive the personal computer industry with his convictions – he reinvented Apple and the entire consumer electronic industry. In the process, he disrupted so many giants - Sony, Microsoft, Nokia, HP – Giants who fell asleep.

Larry, a close friend of the late Steve Jobs, had the same founder’s quality. The conviction in his vision and boldness to bet the company on the direction he had set. When he did not agree with the industry’s latest “vision” he simply declared it wrong, expecting the market to adjust back to his way of seeing the future. When he was right (and that was more often than not), the result was another decade of growth at Oracle. When the future did not agree to align back to Larry, Oracle faltered.

Over the last decade, Larry believed that the application space had become a mature industry. Customers seemed so locked into their existing massive deployments that none of them would abandon their current landscape. So, Larry had placed a massive bet on consolidating the entire industry (other than SAP) into one App Supermarket. The company’s profitability and the stock price seem to have proven him right. Did this consolidation mark the end of innovation in the enterprise software age? Has this market reached the same phase every technology market gets to eventually?

I truly believe that the only answer to that question is a resounding NO. The enterprise software market is purely a codification of the latest business processes. If there is no real innovation in the enterprise software space – we would be implying an end to business innovation. The thought that our business world will remain the same for years has disastrous implications not just for software developers, but for the global economy.

Interestingly, the most exciting business model change is found adjacent to the enterprise software space. Just look at the cloud software market – a market that eliminated the need to purchase capital-intensive assets like servers and software. The idea of offering a robust and scalable enterprise solution without selling the equipment required to run it, based on a simple monthly subscription pricing is more convenient and affordable to most customers. Customers loved the idea, but Larry ridiculed the cloud space. The leader in this cloud software space, Saleforce.com, is now truly the last enterprise software company that has its founder – Mark Benioff - still as CEO. Larry mentored Mark as well, many years ago…

This model of replacing asset acquisition with a remote, shared and scalable service – the utility model – is not longer reserved to the enterprise space. Companies who offered consumer cloud solutions have had great success – micro-utilities offering storage, mail, even design and variety of web services. Especially noteworthy is the amazing success Amazon is having with their elastic cloud set of services. Yet, most software vendors will not even consider Amazon part of their competitor space.

I have no doubt that the utility model will migrate to other parts of our lives – well beyond software. This model will drastically change every aspect of business, requiring a redefinition of the accounting rules - rules that were designed in an era where key assets were found in our inventory not in our relationships. In this era of massive data collections, companies will need to codify and quantify customer relationships, predicting the security of future recurring revenues and assessing financial tools that project asset profitability over time. Companies will need to assess the value of innovative products not in the market yet, by understanding the total addressable market these products have within the company’s subscriber base. It is a brave new world requiring innovative ideas “imagineered” by bold product visionaries.

I only hope that with Larry free of his daily operations he has the liberty of mind to innovate on Oracle’s vision. Much like Apple at the time, Larry and Hasso are the founding fathers of this industry, and their companies will not be as bold and visionary if they remain merely well managed.

Safra Katz and Mark Hurd need to take a page from Tim Cook's management book. Tim never asks himself “What Would Steve Do?”. I am sure that they will not simply “guard Larry’s vision.” Safra had the benefit of 15 years with Larry as mentor. She is more than ready to lead. Mark is a natural leader. The two of them are a formidable team at the helm. They need to chart their course and drive Oracle to new grounds. If they can define a new balance, Larry will invent the next generation of software, Safra will bring those ideas to perfect execution and Mark will manage to execute sales at maximum efficiency.

If they re-ignite innovation at their company, we will again see a beautiful race between Oracle and SAP – with ideas that will make the global economy run more efficiently – helping every one of us in whatever business we are.

Photo Mashup: creative commons licensed (BY) flickr photo by Oracle_Photos_Screenshots and Alan Dejecacion / Contributor / Getty Images