Subject: Re: Larry Ellison on FSBs
From: "Stephen J. Turnbull" <turnbull@sk.tsukuba.ac.jp>
Date: Wed, 26 Apr 2006 02:24:56 +0900

>>>>> "Ben" == Ben Tilly <btilly@gmail.com> writes:

    Ben> Clayton Christensen would disagree.  His finding is that by
    Ben> doing everything that you're supposed to do (paying attention
    Ben> to your customers, etc) a company will be successful in
    Ben> ordinary business situations but will fail miserably at
    Ben> dealing with disruptive innovation.  Because it is the nature
    Ben> of disruptive innovation that your customers will tell you
    Ben> that they are not interested in it until it is good enough
    Ben> for their needs, at which point it is too late for you
    Ben> because you have entrenched competitors whose cost model you
    Ben> can't compete with.

Yes, that part of Christiansen's thesis is hardly disputable these
days.  But who's entrenched?  Oracle.  Who can't compete with whose
cost model?  MySQL cannot compete with Oracle's cost model, because
whatever MySQL has put together at great expense, Oracle has too, for
free.  Ellison said, sure, we recognize that open source is a threat
to our software product, and we have no intention of competing with
it; when it's good enough to hurt us, it's good enough for us to adopt
it.

"That's hard!" says Mr. Anderson.  I beg to differ.  If it was hard
enough to be a problem, this list wouldn't exist, and neither would
the FSF.  Nobody would care about FLOSS, nobody would bother with
enforcing copyright, and even patents wouldn't be a big deal, because
*existing* software would be a rival resource, embodied in the
particular programmers who are the only ones able to extend it.  Sure,
it's not easy, either, but the problems that Oracle faces in adopting
an *existing* "good enough" open source product can be addressed with
money.  After that, they're in the same place they are now.[1]  Note
that Oracle can fund an army (1000 or more) of software engineers just
on the interest on cash-in-hand.

Oracle moving toward open source databases could easily kill MySQL.
But if Ellison isn't just grandstanding in that interview, Oracle is
already over the hump; they're not dependent on selling technology.
Yes, they need to *offer* technology, but it's not clear that they
even *want* it to be proprietary.[2]  And Ellison (says he) knows that.

Is it really that easy?  Of course not.  Timing is always difficult.
It's one thing for a database company to throw away its webserver
product; it's another for it to throw away its database product.  But
*Christiansen's "incumbency is a burden" thesis doesn't apply* to open
source threats, not if the incumbents are paying attention to it.

    >> KISS for the new millenium: "Keep Investing in Service,
    >> Stupid."  The software business is not about software.  It's
    >> about business---your customers' business, and how you support
    >> that.

    Ben> There is exactly one situation that I'm aware of where paying
    Ben> attention to your customers becomes a losing long-term
    Ben> strategy, and that is the situation that Oracle's core
    Ben> business is in right now.

eh.  "The customer is always right" is not what I'm saying, and it's
not what Oracle et al are doing.  Have you heard of "XP"?  Well, what
Oracle and SAP and IBM are trying to offer their customers, with a lot
of success, is "XB".  What MySQL and Red Hat are not yet in a position
to offer their customers is "XB".  But whatever MySQL and Red Hat
offer their customers in terms of technology is available to Oracle to
offer its customers, well before their subscriptions run out.  That's
what Ellison is saying.

Ellison is also saying that developing software for sales is not
Oracle's core business any more.  Sounds plausible to me; I know that
Oracle (and SAP and IBM) are what scares my former students now
working for NTT Data and Nomura Research, two of the leading Japanese
business process consultancies.  Do you think Ellison is just blowing
smoke?  (Not a rhetorical question!)

    Ben> Furthermore new businesses or not, it still hurts Oracle to
    Ben> see their cash cow evaporate.

    >> Companies like Oracle don't drink milk, they eat steak.
    >> Unexpected visitors?  Kill the fatted calf and have your
    >> barbeque a week early.

    Ben> Strangely enough this kind of confidence has not helped any
    Ben> other company that I know of which has faced disruptive
    Ben> innovation.

LE on open source: "So it is not disruptive at all - you have to find
places to add value."  But let's just ignore that. :-)

How about System/360?  You don't think Thomas Watson did that because
he thought risking his company would liven up the talk at his
investors' cocktail parties, do you?  The story may be apocryphal, but
supposedly Andrew Carnegie tore down a nearly completed, multi-
million-dollar steel mill and started over because his engineers
offered him a three cent/ton saving.  Disruptive innovation is nothing
new, and history shows that sometimes the big boys get the answer on
the first try, and some times they don't.  Christiansen is only
reports on the latter, IIRC.

Any good MBA course on strategy will start and finish with the
importance of cutting your losses, and adapting to the environment.
It's not always possible.  But it's not always impossible, either.

What does this mean for FSBs?  Same old same old: take care of your
customers, and they'll take care of you.  And to quote LE himself:

    So it's all very interesting.  You can build a sustainable
    business [in open source], you just can't charge a lot
    for it.  There's brand value - there's real brand - there's
    people, and that's it.


Footnotes: 
[1]  Of course MySQL will know their database better, which gives them
a small technical edge.  But Oracle has the same edge with *their*
database.  The technology is a horse race.  So what is going to tell
is the service.

[2]  Consider the cost savings, for one thing.

-- 
Graduate School of Systems and Information Engineering   University of Tsukuba
http://turnbull.sk.tsukuba.ac.jp/        Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
        Economics of Information Communication and Computation Systems
          Experimental Economics, Microeconomic Theory, Game Theory