Second, Oracle needs a turnaround. Oracle is still an amazing cash machine, but there is no doubt that Oracle needs to make one of those dramatic turns into a shifting wind that Ellison's America's Cup-class racing boats execute so gracefully. Its database business is under assault, its applications server business is in serious danger of commoditization, and its applications business has been floundering without strong marketing leadership for well over a year. Revenues are down, and, while cost controls are making it possible to eke out impressive profits, there is no doubt that captain Larry can see which way the wind is blowing.
The blowing wind that Ellison worries about most, in my opinion, comes from IBM. Sure, Microsoft is out there too, but IBM is the one that understands the enterprise market and can give Oracle a genuine run for its money. The triple threat that IBM presents -- high-end business consulting, database and systems software, loss-leader hardware sales -- has to keep Ellison up at night. Other companies, like SAP, compete directly with Oracle. But only IBM threatens to dominate. And domination is not a word Ellison likes to hear in any context but his own.
So, while PeopleSoft would be an interesting acquisition, it wouldn't solve the IBM problem. Buying a major enterprise applications vendor would give Oracle a larger installed base to sell its applications -- the classic upsell/cross-sell opportunity -- but there wouldn't be much more headroom for its database and other technology, which are already predominant in the PeopleSoft installed base. And acquiring PeopleSoft today would only highlight the weakness that Oracle currently has in its applications position -- I have to admit some astonishment that Oracle is doing so well in applications licenses, considering how little it actually promotes those products.
My take is that the next big acquisition by Oracle will be in the high-end services business, along the lines of IBM's PriceWaterhouseCoopers acquisition. The logic is simple: High-end business consultants can define and deliver next-generation innovation that is industry and customer specific.
While this is the obvious goal of packaged software vendors like Oracle, the PWCs of the world are showing that they have an extraordinary ability to take innovation dollars away from Oracle, SAP, PeopleSoft, and the like. Buying a PWC-like integrator would help Oracle keep that innovation based on Oracle database and tools and help keep the revenues coming home to Redwood Shores.
Once that acquisition is done, Oracle can complete the picture by buying out Sun Microsystems. Don't laugh, I don't mean the Sun of today, which is a threatened but on-going concern. I mean the Sun of 18 months from now: a latter-day DEC that can be bought for considerably less than anyone ever thought it would be worth. I don't think Ellison would do it for the revenues. He'd do it for the customer base and the loss-leader sales model that helps get IBM in the door all day long.
The alternative for Oracle to not emulating IBM is to sit back and watch a steady erosion of its market position as a technology and business innovator. Software always seeks to remain innovative in the face of an inexorable process of commoditization: yesterday's strategic differentiator is today's me-too product. Software companies have the same imperative, and none more so than Oracle.
So don't think of PeopleSoft as the end-game, think of it as only the beginning. Whatever happens to that deal, Oracle has only just begun to fight.