Oracle announced partnerships last week with competitors Microsoft, Netsuite and, most surprising, Salesforce.com. These announcements serve the same purpose as the Argentine junta's invasion of the Falklands -- they're a riveting diversion from what's going wrong at home.
Oracle is missing its numbers, and I don't know when Oracle last missed three out of seven quarters. One drain on Oracle is its decline in the CRM market. Earlier this month, Gartner declared Salesforce.com, approaching a $4 billion run rate by the end of 2013, the market leader for the first time. Among other things, the new Oracle/Salesforce partnership signals that the CRM battle is over and Oracle has lost it. The next threat is the growing presence of Workday, which has conquered human resources and is seeking to become the Salesforce of online financial applications. And behind Workday is Intacct, ServiceNow, SugarCRM and 100 online software startups, all marching on Fortress Oracle.
Oracle wants to do something, anything, to slow the growth of Workday, which threatens to eat into two more of its revenue streams. Heretofore, Workday's biggest ally has been Salesforce, which has put on stage the large figure of Marc Benioff, brandishing his "No Software" sign while defending the effectiveness of online applications and providing thought leadership about how packaged software is being disrupted. Salesforce itself uses Workday financials and human capital management, or rather it did, until the Oracle partnership was announced June 25. Salesforce will start using Oracle products instead. Count one punch landed on Workday; don't worry, the effect will quickly wear off.
In a press and analyst teleconference Thursday, Ellison and Benioff combined to explain the new partnership. Benioff said the Salesforce cloud infrastructure was built in 1999 on the Oracle database and that will continue be so for next 12 years. Combined with Benioff's exultant tweet that Salesforce is buying 50 Exadata machines ("I'm super excited our new 12 year @oracle partnership includes 50 @Exadata to make our DB for our 1B customer transactions run faster!"), this pact looks more and more like a really big Salesforce purchase order, with a few "partnership" flourishes thrown in.
[ Want to learn more about how Larry Ellison reversed his opposition to cloud computing? See Ellison Threatens Cloud More As Friend Than Foe. ]
There had been rumors that Salesforce was experimenting with open source PostgreSQL, the database system that can match Oracle front-end features, run Oracle applications and take in wholesale transfers of Oracle data. Unlike MySQL, PostgreSQL is fully ANSI SQL compliant and is an open source competitor to a commercial relational system. It would have been an intolerable blow, on the eve of the Oracle 12C launch, if Salesforce converted to PostgreSQL.
If Salesforce wasn't testing PostgreSQL, it should have been. Three years ago, Oracle gave Salesforce an incentive to do so when Ellison went from database supplier to an attacker of Salesforce's ability to maintain its customers' data integrity.
At Oracle OpenWorld in 2010, Ellison warned that Salesforce's multi-tenant approach "co-mingled" its customers' data in one application system. It sounded like Salesforce mixed its customers' data in a shared memory pool; good luck on getting your transactions out. This, of course, is not how multi-tenant applications work. But with customers worried about data privacy, Ellison fastened onto the shared resources of multi-tenancy as the cloud's Achilles heel. Anything could happen with such a "weak security model," he said. In his address the following year, he carried the analogy a step further and said a Salesforce multi-tenant application may be co-mingling your data with that of your competitors on the same server, and you'd be lucky to escape them seeing it.
Salesforce had been a major Oracle customer for 11-12 years at the time these statements were made. At an all-Oracle event, there was little chance of rebuttal. Instead, Ellison used the CEO's keynote to attack the data integrity of one of Oracle's largest customers. As Salesforce's sole database supplier, he was in a position to know about its data architecture. Ellison didn't know -- or chose to ignore -- how multi-tenant applications actually work. They build virtual machine boundaries to wall off each customer's data. The walls can't be breached by application logic, and there's no case history of failure. Perhaps wisely, there was no outcry from Salesforce over these false charges. Nevertheless, it was still unusual to see a major technology vendor attack a major customer's operations.
Under other circumstances, Benioff (or someone) should have stood up for Salesforce CTO Parker Harris and his team. They had built the first multi-tenant, software-as-a-service product successfully used on a mass scale. Was it wise to shrug off an attack from such a prominent industry leader? Salesforce was probably spared the need to respond by Ellison's previous statements that the cloud was "complete gibberish" and an approach for "nitwits." That is, he had already established his reputation as a subjective and reckless critic.
Still, Benioff's previous relationship with Ellison, when Benioff was a young executive at Oracle, came into play as well. In his 2009 book Behind the Cloud, Benioff relayed how Ellison had been his mentor and how he had to be talked into resigning from Oracle -- he didn't want to leave -- to lead Salesforce full time. He named Ellison to the Salesforce board, then was furious and wanted to fire him when Ellison financed online applications supplier Netsuite. That, too, was an unusual move to have a board member launch a potential competitor.
For Benioff, the younger of the two, there appears to be an unrequited, cherished big brother aspect to his relationship with Ellison. For Ellison, there's the always difficult choice, where a young competitor is concerned, between big brother and Big Brother.
As Salesforce CRM caught on, the company became a supplier of a modern, online platform of application services that often ate into traditional areas of packaged software. Benioff was defiant as this transition took place, often staging guerrilla marketing amidst larger SAP and Oracle events and countering the control impulses of his former mentor. When his own speech at Oracle OpenWorld was cancelled at the last minute in 2011, he staged an outsider's address at the nearby W Hotel in San Francisco, using the drama to pump up his remarks.
So how is the partnership faring after the June 25 announcement? Two days later, Ellison and Benioff held a joint teleconference to talk about it, and the nice big brother must have been the one present. Ellison was repeatedly deferential, almost comically so: "Marc, I'll turn this over to you to start off."
Instead of calling out Ellison's past false statements, Benioff said, "I couldn't be more thrilled to make this announcement today with you, Larry. The Oracle database has been a big part of this company's infrastructure since it started 14 years ago. It was absolutely the best decision we've ever made to go with Oracle."
Ellison returned the compliments, calling Salesforce "the largest cloud company in the world," and saying how much the customers of both companies would benefit as the two worked more closely together. He said the two companies would work together to integrate their applications, since customers demanded it, although getting the applications to exchange data is a relatively simple thing to accomplish. Application integration, in that sense, warrants a date night but not a perpetual partnership announcement.
When Wells Fargo's Jason Maynard asked about the new spirit of co-opetition, Benioff asked Ellison if he wanted to go first, and his response, "No, Marc, it's only good when you go first," drew stifled chortles from the listening crowd, which was used to the previous episodic friction.
Benioff should have been wary, but instead Ellison's deference set him off on another enthusiastic round. "I want to thank Larry, because Oracle has always been there for us whenever we needed them, and they are a true partner."
And, "After so many decades of leading Oracle, Larry's leadership has really ensured that Oracle is the best database product in the world ... There's no company I'd rather partner with than Oracle," Benioff said.
To use the language of soul mates with someone who once attempted to sabotage your company takes a special kind of character. For better or worse, Benioff is that kind of character.
There was a widespread appreciation in 2009-2010 that both companies were posturing and maneuvering. It's unlikely any Oracle customers cut their ties to Salesforce based solely on Ellison's say-so. But Ellison's criticism was aimed squarely at the integrity of what Salesforce was doing in online applications. It seemed at the time an attempt not only to hold back Salesforce but to hold back the changes that were coming with the cloud.
If Salesforce thrived, it meant that a lot of enterprise software was going to move into the cloud and be accessed there, with each application serving tens of thousands of users. Oracle at the time was amassing the world's largest collection of previous-generation software, geared to serve hundreds or maybe a few thousand users at a time. In a depressed economy, those companies' stock prices were cheap and Oracle had the money to spend. But if the customers' notion of a desirable, long-range architecture was shifting, then any price paid might prove to be high.
In the cloud, applications scale out on commodity hardware; at Oracle, they scale up, at best, on hardware appliances labeled "cloud." In the cloud they keep running if the hardware fails; at Oracle, they fail if very much of the hardware fails. In the cloud, the initial per-hour cost is low, building up only as the cloud user's hours build, hopefully on a successful business. With Oracle, the cloud comes in highly engineered boxes crammed with CPUs, disks and software license fees.
The tension between Oracle's preferred path and the way the cloud is going won't be played out in one or two Oracle OpenWorlds or one or two new partnerships. The cloud still threatens to undercut Oracle's business. I can see how standing alongside Salesforce, Microsoft, Netsuite and other cloud vendors is favorable to Oracle. It moves Oracle a little closer to where the customers are.
But I don't see what Salesforce gained. It's been the thought leader; now it's taking on more of a retro look. It's turned away from the ServiceNows and Workdays and SugarCRMs, which are showing the value of multi-tenant applications in new forms, and embracing the partner who most wished to slow Salesforce's advance.
Benioff was at his best when he was thumbing his nose at the establishment and daring business to embrace a brave new world of software-as-a-service. At the time he took his no-software stand, it was a gutsy call. If it was just an act, it was an act that he succeeded in pulling off. Instead of prosecuting that position to its logical conclusion, Benioff, with this partnership, has turned in the opposite direction.
This relationship holds much promise for Oracle, not so much for Salesforce. It reminds me of Captain Ahab's relationship with the great whale. He chased and chased it, until he got close enough to act on his longing to subdue it. At that moment, it turned on him and stove in his boats. Warning to pursuers of whales everywhere: If you're rushing into a leviathan's embrace, make sure it's not going to sink you.