Thursday, May 26, 2011

The long term effect of short term returns

Another day another rant about Oracle.

- the act of intimidating a weaker person to make them do something.

Business decisions might not make sense to everyone but they typically serve a specific purpose. A company might tell employees that they must bring a coffee mug instead of using the disposable cups if they wish to drink the coffee in the break room. To some employees this decision is terrible because they now have to get a mug and bring it to work just to enjoy the coffee that they drink every day. On top of that they have to clean the mug instead of just throwing the cup away. The employee might see this as an inconvenience but to the business they are now able to save a little money that they were previously spending on disposable cups.

As time goes on more and more of these decisions are made by business leaders. The true impact of these choices might not be fully realized until a much later time. The short term results of a decision could prove to be desirable because the long term impact has not manifested.

After taking over Sun Microsystems the Oracle corporation has been tasked with making all kinds of decisions. Oracle CEO Larry Ellison is considered by many to be a very savvy business man. Others however might instead regard him as a bully who will do anything to squeeze every last possible cent out of his customer base. Doing whatever it takes regardless of what happens to anyone else just as long as the profit returns continue increasing. This type of activity has been going on in mass ever since the SUN acquisition was completed.

One of the first decisions was not widely published but had a large impact. Solaris 10 will now require service agreements if you wish to continue using the operating system. This decision was definitely aimed at increasing revenue. To use Solaris 10 you must now pay for a support contract which will entitle you to receive the operating system patches which were previously free under SUN. There were a few problems with this choice. First, the way which the message was communicated was atrocious. The support agreement fine print was modified to reflect these changes. Second, now if you are running Solaris 10 you are paying Oracle or you are out of compliance and owe them money. Also, this new policy made it where Solaris 10 could no longer compete directly against Linux in the "free" server install base. This effectively reduced the Solaris 10 installation numbers that SUN worked so hard to create by giving the product away for free.

SUN was very community oriented as a company. They worked closely with various groups of developers in a structured manner where information sharing thrived. Oracle takes the exact opposite approach to development and marketing. They do not want any pesky users trying to tell them what they should or should not do and everyone needs to pay Oracle. This philosophy change at the top of the corporate structure resulted in the systematic elimination of groups like the Open Solaris Governing Board. The OpenOffice project was forked into LibreOffice by the developers who hoped to avoid being controlled by Oracle. A dispute over the name OpenOffice began between Oracle and the new LibreOffice team. Oracle refused to give up the OpenOffice name rights to the new group which is why they renamed the project to LibreOffice.

The business decision by Oracle was to starve out all of these user communities until they ceased to exist. This tactic proved to be quite effective and allowed them to remove any outside influence that might try to oppose the future direction that Oracle was proposing. The Java Community Process was abused and manipulated in such a way that long term members such as the Apache software foundation quit being participants. They were bullied into quitting the JCP through manipulative behavior and request refusals by the Oracle corporation. These decisions were very strategic and put Oracle in the drivers seat of projects that were previously driven by community input along with corporate cooperation.

Prior to the SUN purchase Oracle had been partners with Hewlett Packard. The two companies teamed up to create a world class database setup known as exadata. The exadata system was being touted as the best in the world and contained HP servers running Oracle software. When the SUN deal was announced Oracle took the stance that it's business as usual and even though SUN sells hardware, they would still be just as invested in HP. After the SUN deal was completed however, Oracle proceeded to poach an HP executive along with announcing that exadata would no longer be an HP product. They have continued the bully tactics by announcing the discontinuation of Oracle database products on the HP Itanium platform. This decision forces people running HP hardware with Oracle software to change platforms. Oracle is most likely looking to pick up those margins in the server market by forcing people off a competitors platform. Every business decision made by the Oracle corporation is designed to gain money or increase their control.

The SUN deal took a long time to finally get approved. During this time of uncertainty a lot of customers were jumping off SUN hardware and switching over to IBM or HP based on the deeply discounted offerings when trading in SUN hardware. The response from Oracle has now turned in to "Applications to Disk" and focusing on engineering complete solutions. They have changed their focus to go after very large customers where profit margins will be the highest. They trimmed back the low end server offerings and started chasing the big bucks. Another business decision that maximizes profits while minimizing effort. It's easier to support one large customer site opposed to 20 small customer locations considering the money would be the same for both scenarios.

The situations described above sound like great business right? Well, some people might say yes those choices were very business savvy and put the company in a position to dominate for years to come. Others such as myself would like to bring reality back.

The bundling of hardware, operating system, and database software allow customers to deal with a single source for all their support needs. However, you are now locked in for a long ride. People who are running the database software on platforms besides Oracle will most likely be picked off a few at a time. The first was HP Itanium users which is most likely one of the largest Oracle database installation platforms. Going forward watch for Oracle to make similar decisions that directly impact competitors negatively in an effort to gain a few customers here or there. Although it is possible, don't expect to see any financial incentives for using Oracle hardware instead of other competitors. Once you switch to their complete solution you are then locked in and will have to pay whatever they decide you need to pay.

In the mean time, companies who have developed systems which rely upon SUN hardware and Oracle software are feeling the pain. The increased support costs for compliance when running Solaris are being passed along to their customers through rate increases. The third party companies have to charge customers more just to cover the additional revenue that Oracle has to be paid. The rate increases will force customers to look for alternatives because times are hard everywhere and each dollar counts. This pattern continues until the 3rd party company is forced to change platforms, sell themselves to another larger company, or simply go out of business. The decisions made by Oracle will trickle down to the 3rd party companies who will feel the financial impact. End users will receive the inflated costs until they terminate the services of the 3rd party company. This results in a revenue loss for not only the 3rd party company but also Oracle in the long run.

The cost of Oracle database licenses is almost laughable. The extremely high cost has gotten to the point of forcing customers to choose an alternative database engine because they simply cannot afford to keep paying the rising premiums. While the continuous raising in price might result in annual revenue increases to the bottom line, long term they will start to shed customers. As a result the remaining customers will have to make up the difference until they too decide to choose an alternative platform. The single company large installations will be the main customers of the Oracle corporation. They provide the highest margins with the smallest amount of effort. Some customers will have no choice but to accept the terms Oracle dictates to them.

The people who might have considered using Solaris 10 instead of Linux seem to be long gone. The customers who enjoyed the freedom of choosing their hardware platform to run Oracle software should be extremely concerned because their days are numbered most likely. Open source projects that have fallen under the control of Oracle will be forked or boycotted. Oracle has earned a reputation of being cut throat and should not be trusted. This reputation will create resentment which will in turn make people more actively seek out alternatives. The resentment will only continue to grow as Oracle systematically blasts everyone with sales calls and emails attempting to upsell you products for needs which you don't currently have.

Although Oracle will most likely not disappear from the market any time soon, they might disappear at your company. Do not be surprised when they begin to be phased out. Oracle's outrageous pricing and reputation will cause them to start losing customers as they move forward. Eventually they might be forced to stop focusing on the complete stack solution and go back to chasing database customers everywhere. Otherwise Oracle will find themselves like the 5 star hotel that nobody wants to stay at. Why pay so much for a place to sleep when I can find another place to sleep for much cheaper, and although it's not as nice as the 5 star hotel, it fits my needs just fine.

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