IBM vs. Oracle: What Larry Ellison Didn't Learn from Steve Jobs or 1960s IBM

Rob Enderle

With all of the drama surrounding HP, Oracle, and SAP, we tend to forget the primary competition is between Oracle and IBM because Oracle supposedly wants to be like IBM was in the 1960s. Part of this is absolute account control, but Oracle tends to forget that IBM had both the strongest customer satisfaction and loyalty, and the strongest employee loyalty in the segment at that time.


Larry Ellison served on Apple's board for a short time and became friends with Steve Jobs. And this recent Harvard Business Review post on how Apple pursues customer perception got me thinking about what Ellison and Oracle are missing in their pursuit of 1960s IBM. I think what Oracle needs to realize is that, for customers, it doesn't matter if you are locked in a room if you don't want to leave.


IBM of the 1960s


While I didn't start at IBM until the '80s, I did a report while there that detailed what happened when IBM slipped and had to go back and study what had changed. In the 1960s, IBM was an employment-for-life company, which was pretty common at the time. While IBM salaries weren't always the most competitive, benefits, including pensions, tended to be better than most. There was a company uniform-wingtip shoes, plain suit, stark white shirt and conservative tie-and even company songs that employees were required to memorize and sing. One of my co-workers transferred to IBM in the 1980s and one day wore a pastel blue dress shirt. He was called into the office and accused of being a rebel. The idea was consistency. Customers saw one IBM, and it was a company they could depend on.


President Thomas Watson Jr. took a personal interest in company integration and would drop in unannounced at plants and ask random employees how they fit in with the company's goals and objectives. If you didn't know the answer, he was not particularly kind to the chain of command above that employee.


Customers were a huge priority, and executives took personal responsibility for their care and feeding. The slogan "no one ever got fired by buying IBM" was formed, and IBM had the strongest employee satisfaction and loyalty in its segment. Yes IBM owned its customers, who didn't get much choice. But IBM was highly trusted and these customers didn't want to change.


Antitrust actions forced IBM after the 1960s to separate hardware and software. IBM's focus drifted away from employee and customer care, and in the 1980s, tried to maintain account control without focus on customer loyalty and satisfaction. The company almost failed.


Apple and Perceptions


As the Harvard Business Review article points out, Apple lives on managing perceptions, and it, too, has customer lock-in to its key products. It keeps its solutions simple. They command a premium price, but generally provide a premium experience, and the company has the highest Net Promoter Score in the segment. As a result, Apple has nearly legendary customer loyalty, much like IBM did.


The lesson from both IBM and Apple is that the most important part about locking in a customer is to ensure their loyalty and satisfaction, not just assure they can't leave.


IBM and JD Edwards


In August, IBM and JD Edwards ERP systems, now owned by Oracle, did a white paper that showcased that JD Edwards solutions on IBM I Solution hardware (Power7) and software were up to two-thirds less expensive than an Oracle-only solution. This is because IBM tuned the solution for JD Edwards to make the result more attractive to customers. IBM has learned, largely by almost going out of business, which customers are under severe cost pressure and are interested in saving money, not fleshing out the coffers of Oracle or anyone else. I'm not a huge fan of white papers, but since JD Edwards appeared to bless the results, this one struck home.


As a result, JD Edwards and Oracle continue to rely heavily on IBM hardware and software solutions because they apparently better meet the needs of the targeted customers. This suggests that IBM is doing a better job of assuring customer acquisition and loyalty than Oracle, and that the closest company to 1960s IBM is probably 2010 IBM.


Wrapping Up: Oracle's Selective Understanding


I'm still struck by the quote that was played over and over again last week by Oracle's Safra Catz about how Oracle didn't have to worry about customer satisfaction because Oracle customers can't move. In the 1960s, the IBM customers didn't want to move and that sustained IBM as the largest tech vendor for almost three decades until IBM forgot about the importance of maintaining customer loyalty. IBM relearned that lesson and its current offerings reflect that. But this lesson appears to still be in Oracle's future. That means that what happens for Oracle could be far closer to what happened to IBM in the 1980s than in the 1960s.


In the meantime, I'm kind of dying to hear Ellison sing the new Oracle theme song and show up in a plain suit, non-distinct tie and wingtips as he returns Oracle to the days of "Mad Men" and IBM of the 1960s. What I actually expect, however, is that customers will increasingly fear Oracle and do to that company what they did to IBM in the 1980s. Ironically, IBM will probably be the big beneficiary this time. Something to think about.

Add Comment      Leave a comment on this blog post
Oct 30, 2012 12:27 AM Anand Anand  says:
Truly believe to this article. Not Sure about IBM but Oracle has turned into truly account management then customer satisfaction and they try to make them vendor lock in then premium quality offerings. Reply

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