How Oracle Could Own Linux and Own the Market


Back when I was a competitive analyst, one of the projects that I enjoyed the most was writing scenarios. We would look into the future, define an event we either wanted to avoid or have happen, and then write how it came about in the past tense. In other words, let's say you were IBM in the 1980s (which is where I did this) and were concerned that Microsoft might become dominant (which few believed at the time). You would then write as if it were a few years later and Microsoft was dominant. How did it get there? You would then use this document to make sure that critical decisions that would enable this outcome were blocked and decisions that would prevent this outcome were encouraged. In our case at IBM, this went to the core of why my organization tried to spin out the IBM software division as a separate and independent company.


Unfortunately for those of us on the project, we were both right and the response failed to get the needed approvals because hardware believed they couldn't survive without us. This showcases that the practice can actually be very predictive but not necessarily effective at avoiding the predicted outcome. It is still a great deal of fun to do, though.


Oracle Dominance


Earlier this week, I wrote about what appeared to be the lowest risk path for Oracle with respect to its Sun acquisition. However, Oracle is not a low-risk company, and Larry Ellison, its CEO, is one of the most predatory CEOs in the world. This suggested another path, one where Oracle could end up in a position similar to where IBM was at its peak and with power that exceeds Microsoft's. So, taking this as a premise and moving to 2020, what would have had to have happened to get it there?


Keeping Hardware


First need: hardware control. Any path that doesn't include hardware doesn't get you to anything but some level of parity with Microsoft -- and you have to go through Microsoft to get there. Going through a large dominant company is nearly impossible. You have to find a way to go around, like Microsoft did to IBM. For that, Oracle would need to retain hardware and grow it to a level of dominance using tools unique to the new model. How it would get there is through hardware subsidies pulled from software revenue. Somewhat similar to what the carriers do with cell phones and the opposite of how IBM started, where software was 100 percent subsidized by the hardware, this idea of free hardware coupled with software annuity contracts could cut through a market starved for capital like a hot knife through butter. Given that Sun hardware is still perceived as premium hardware and Oracle is perceived as a high-quality vendor, this should work. One issue would be anti-trust problems once Oracle got to about 70 percent of the market, but this is likely the only path that might get it to 70 percent quickly. You'd want to pray for whoever was doing the logistics and I'll bet that if this breaks, this will be the cause. But this could be done.


Google or Apple Client: Could Ellison Be the New Steve Jobs?


Only two companies have viable non-Microsoft clients in the segment at the moment. Google, which uses a Linux-based platform called Android, and Apple, which uses a UNIX-based platform, the MacOS. Initially, I thought only Google could play but then it hit me that Larry Ellison is on Apple's board and Apple has a serious problem with respect to Steve Jobs' health and tenure at the moment. Larry and Steve are also reported to be friends. An Oracle-Apple partnership/merger, as a result, is actually much more likely than I initially thought and the combination has almost no overlap. Oracle could validate the MacOS for the enterprise, Apple could help Oracle with marketing, and Oracle would suddenly have a hardware portfolio in line with HP or Dell. Google, on the other hand, doesn't get it any hardware, and would be vastly more difficult to merge or partner with. In addition, there would be even more difficult culture and control issues involved in making this work. Finally, both Steve and Larry really want to take Microsoft out personally and their time is running out to do this. Granted, so does the Google leadership, suggesting the possibility of a three-way alliance, though I don't think that is necessary for this to be successful.


Owning Linux


If we go the Apple route, the MacOS has massively outperformed Linux on the desktop and the core aspects of both offerings are similar enough that Oracle shouldn't have to merge them. If it went the more difficult Google route, Android is a version of Linux and likely to become the dominant desktop distribution. But Unbreakable Linux, to give Oracle the control it needs, would have to either be the dominant or the only enterprise-level server Linux distribution. To make this outcome work, it needs to have a similar level of control to what Microsoft enjoys with its platforms. Granted, it would get there vastly differently, but Oracle has shown strong competence in this area. Control does not have to equal ownership but, with Oracle, I would expect that connection.


Wrapping Up: Oracle, the New IBM


If Oracle were to be as dominant as IBM was by 2020, this is the only reasonable path I can see that will get it there, and clearly this will be no walk in the park. However, it would be incredibly difficult for Microsoft alone to block, and cutting the deals needed to do so may be impossible with the current anti-trust restrictions on the company. While I'm not actually expecting this outcome, I did think it would be interesting to discuss. Hope you agree.