Subject: Re: Larry Ellison on FSBs
From: "Stephen J. Turnbull" <stephen@xemacs.org>
Date: Fri, 28 Apr 2006 18:42:08 +0900

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

    Ben> I'd be shocked if MySQL has been stupid enough to set up
    Ben> contracts that are so disadvantageous to itself.  Rather,
    Ben> MySQL gets outside funding to have programmers do projects on
    Ben> the innards of MySQL. Those same programmers are then
    Ben> available to MySQL for other projects, and bring with them
    Ben> the knowledge and expertise that they developed working on
    Ben> the innards of MySQL.

What did you say that is different from what I did?  You simply focus
on the possibility of doing other more strategic projects later, where
I point out that the margins for that are pretty slim compared to
Oracle.

    Ben> That means that MySQL has a better understanding than Oracle
    Ben> does of the strengths and limitations of MySQL, and what
    Ben> people would like to be different about MySQL.

Of course.  How does that pose a threat to Oracle, which doesn't want
to be in that market?

    Ben> I did say that they are going to undermine Oracle's core
    Ben> market.

I believe LE when he says that the market MySQL is in isn't Oracle's
core market.

    Ben> Attempting to pilot without feedback loops in place is
    Ben> generally a good way to crash.  I'd therefore see Oracle's
    Ben> luxury as more of a risk if it attempts to seriously exercise
    Ben> it.

"Risk" was my word, wasn't it?

Ellison said he wants to make $10 billion.  Do you know any way to
make $10 billion that doesn't involve risk?  Seems to me LE *likes*
risk.

    Ben> Let me reframe what LE said.  LE said that Oracle cannot
    Ben> compete in the medium to long term with open source, and as a
    Ben> result is preparing to flee what used to be a profitable
    Ben> market for them.  That's a very dangerous pattern.

Uh, what's dangerous about recognizing reality and responding to it,
*ten years in advance* by your estimate?  Are you suggesting that he
should sit in the flames and get roasted?

    Ben> CC's theory says that as disruptive innovation heats up, you
    Ben> expect to see a pattern where incumbents flee markets as the
    Ben> innovators enter them.  As long as that motion continues to
    Ben> be one-directional, the incumbent eventually runs out of
    Ben> places to flee.

That's a downright silly theory.  Flat-earthers, unite!  A much more
plausible metaphor is that the incumbents trip over their own feet as
they try to change direction, despite having plenty of running room
left.  The implication is that if the incumbent walks, does not run,
to the nearest exit, he's much more likely to escape unscathed.

    >> Nobody says otherwise.  I'm saying that Oracle-brand MySQL
    >> would be at most one order of magnitude harder to install than
    >> true-blue MySQL, and that should be enough to defend Oracle's
    >> market from MySQL.

    Ben> If Oracle-brand MySQL is an order of magnitude harder to
    Ben> install than true-blue MySQL, then Oracle-brand MySQL can be
    Ben> expected to have a market that is at least an order of
    Ben> magnitude smaller than true-blue MySQL.

That doesn't matter, as long as that itty bitty market is MySQL's main
route to Oracle's lunch.

Please write with the consciousness that neither LE nor I think the
Oracle wants to go head to head with MySQL in MySQL's market.  The
question is how much is it going to cost Oracle to deter MySQL from
entering Oracle's core market, which may not be databases any more.

    Ben> MySQL is a threat to Oracle because of an inherent asymmetry
    Ben> in their relationship.  Oracle can never be interested in
    Ben> MySQL's business, and MySQL wants Oracle's.  On the margins
    Ben> where they wind up in a head to head competition, MySQL
    Ben> inevitably wins.

What makes you think MySQL wants Oracle's business?  Oracle is a
business process consultancy that happens to use a lot of database
technology, AFAICS.  MySQL is a relatively small group of database
hackers who wish to continue hacking.  Neither wants to be in the
other's business.

    Ben> Given that MySQL can improve its ability to deliver on
    Ben> customers' needs faster than those customers needs change,

But that's the relevance of my point about eXtreme Business.  Oracle
is going to try to sell its customers on systems to make their
businesses much more flexible, so that they can deal with their own
"MySQL threats".  Can MySQL really keep up with that?  If they do,
what is to stop Oracle from just taking MySQL and plugging it in to
the same slots that MySQL would, at a *negative* price if necessary to
protect their consulting business from customers who would migrate to
MySQL and a third party consultancy?

    Ben> Larry Ellison already accepts that in the future his margins
    Ben> don't include licensing revenue.  How is that not a case
    Ben> where open source is a threat to Oracle's margins?

Because in LE's business plan for ten years from now as I understand
it there are hardly any new license revenues anyway.

    Ben> Furthermore losing those margins removes a competitive
    Ben> advantage that Oracle enjoys in the new businesses that it
    Ben> was going into.

To continue my metaphor, MySQL is an unwanted visitor, and Oracle is
just going to have to barbecue that calf a week early.  It's in the
contingency plan.

    Ben> Now Peoplesoft was good enough that Oracle couldn't
    Ben> outcompete them, even with this advantage.  But still this is
    Ben> an advantage that Oracle currently has in a lot of its new
    Ben> business lines, and Oracle's life will become harder after it
    Ben> loses this particular edge.

Sure.  So what?  Life is hard, then you die.  That's life.  LE plans
to deal with it, or says he has plans.  Specifically, "subscription
revenue".  I'm not sure what his customers are subscribing to, but to
show that Oracle is in trouble and that open source is an important
factor in it, you either have to show that the "subscription revenue"
is a mirage, or that MySQL is going to be able to eat into that, too.

    Ben> I meant the Oracle company.  Depending on when LE bequeaths
    Ben> Oracle to his successor, you may be right.  But I doubt that
    Ben> Oracle will enjoy its current size and margins in, say, 20
    Ben> years.

I already knew you doubted that.  I just haven't seen reasoning that
makes sense to me yet.

    Ben> I was talking about things like Sun's failed attempt to sell
    Ben> Linux servers.  Sun goldplated the wrong stuff and couldn't
    Ben> deliver what customers actually wanted at a competitive
    Ben> price.

This is long-known, well-known stuff.  Sun is in the business of
selling servers, they don't pretend to be getting out of it, let alone
have figures to show, do they?  In his 1970 book _Up the Organization_
Robert Townsend tells an anecdote about how he was going to have Avis
(car rental) do a similar thing for a similar reason (protect market
share), only to be shot down "in one sentence" by a regional VP who
responded "We [ethnic group elided] call that 'pissing in the soup'."
Townsend obviously expected his audience to get the point.  Business
is business, it really hasn't changed that much.

All Christiansen seems to have done is to identify yet another excuse
for top managements to panic themselves into pissing in the soup.

OTOH, Ellison admits to selling database licenses, but he doesn't
think it's a very good business and he's planning to get Oracle out of
it.  He says "We make more money selling software-as-a-service than we
make just selling software."  That suggests he's made a lot of
progress.  Note that saas kicks the legs out from under one of your
main arguments (that Oracle is hard to maintain and install); in the
saas model, that's Oracle's problem, and the client only needs to look
at the bottom line.

    Ben> The fact that Ellison took a public position on open source
    Ben> suggests to me that he has already spent more than 5 minutes
    Ben> thinking about MySQL.

Ellison has been taking public positions on these issues for years.
Oracle has been cuddling up to Linux since 1998 or so IIRC.  Of course
he's thought about MySQL; the question is has he thought about it
being a serious threat, that he should change his business plan just
to deal with that threat?

    Ben> Also Christensen's second book documents how hard it is to
    Ben> purchase a disruptive innovator and not accidentally destroy
    Ben> what makes it work.

Ellison's comments about the "Berkeley DB people" in that interview
suggest he's well aware of all that stuff.

Why do you insist on assuming that LE and I have no clue about this
stuff, and that Ellison is lying about Oracle's progress in going in a
direction that you agree is plausible?  Sure, I've apparently missed
some of the nuances of Christiansen's terminology, but that's not the
same as bein unfamiliar with the reality he's interpreting.


-- 
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