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    Home Development
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    Ellisons Views Bankrupt

    Written by

    John Taschek
    Published April 14, 2003
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      Just when we thought the economic climate for IT couldnt get worse, it did. Larry Ellison drove another stake through the heart of tech-sector optimism when he told The Wall Street Journal recently that at least 1,000 Silicon Valley companies should go bankrupt. The comments were vintage Ellison: utterly self-serving—and wrong.

      There are an estimated 10,000 high-tech companies in Silicon Valley, so Ellison was calling for a 10 percent lobotomy. But Silicon Valley, of course, has been hammered already. Three years ago, venture capitalists poured $32 billion into the economy. A year later, it was $16 billion. Chances are that venture capital is hovering in the very low billions this year, and whatever VC money remains is probably not going to high tech. While hundreds of thousands of jobs have been lost across the nation, the Bay area fared worse. Its now the valley of dearth.

      Ill admit that some high-tech companies are dead weight. There is little differentiation between some product lines—CRM and SFA applications have so little to distinguish among them that the companies have had to bring out the dreaded feature checklists. The fact that competitors are cannibalizing one another doesnt help their long-term economic prospects as much as it leads to feature bloat, which is another pox on IT buying decisions.

      However, the fate of the CRM sector will simply be consolidation. This has happened in other segments, where vendors have faced off in cutthroat battles that have led to entire product categories collapsing of their own weight. For example, development companies consolidated when Pure and Atria merged, and then both were bought by Rational, which was bought by IBM. The middleware and application server market compressed when Sun bought NetDynamics, Netscape bought Kiva, AOL bought Netscape, BEA bought WebLogic and IBM bought CrossWorlds.

      Page Two

      The database industry had been consolidating for years, culminating in IBMs purchase of Informix. Now there are only three or four legitimate database players.

      But Ellison is still wrong. Getting rid of companies doesnt solve the problem. First of all, Ellison doesnt see mergers as an efficient method of vendor consolidation. He says companies should simply disappear—and go bankrupt—just get completely out of the business and get the heck out of Oracles way. I fail to see how mass bankruptcies can help an industry. When companies disappear, products disappear. That means less competition on features and price. Why would that be good?

      IT pros may lament the sheer number of product choices, but even with one vendor, called for example, Oracle, youd still have a lot of products. And these products would be subject to internal corporate politics rather than outside competitive pressures. Why would that be better? Either that or the remaining companies could roll all their technologies into a few different products and come out with something like Power Units pricing. Oops—Oracle did that, and it didnt work.

      Another plausible alternative is what is happening at IBM—which has so many WebSphere-branded products that even product managers within IBM cant figure out whats going on. The only difference that consolidation makes is that its easier for the CFO to cut checks to a single company. Thats not a good-enough reason to give up choice.

      Whats more, there are plenty of product markets that are growing, which means there is a need for them. There are dozens of niche companies that have specialties in areas like geocoding, security and application integration, a market in which Oracle participates only because of its relationship with a small Silicon Valley company. If that small company disappeared, Oracle wouldnt play in the enterprise integration space. Can you spell “IBM bait”?

      Its been almost two years since Cisco CEO John Chambers said the IT downturn is like a 100-year flood, catching everyone off guard and laying waste to an industry. Since then, the deluge has only gotten worse. Maybe a good old-fashioned 500-year flood would make us all better people. Thats basically what Ellison is saying. If he really believes that, Oracle must be in worse shape than hes letting on because the only beneficiary of fewer vendors would be Oracle. Would it be better for anyone else? I dont buy it.

      Most Recent Stories by John Taschek:

      John Taschek
      John Taschek
      As the director of eWEEK Labs, John manages a staff that tests and analyzes a wide range of corporate technology products. He has been instrumental in expanding eWEEK Labs' analyses into actual user environments, and has continually engineered the Labs for accurate portrayal of true enterprise infrastructures. John also writes eWEEK's 'Wide Angle' column, which challenges readers interested in enterprise products and strategies to reconsider old assumptions and think about existing IT problems in new ways. Prior to his tenure at eWEEK, which started in 1994, Taschek headed up the performance testing lab at PC/Computing magazine (now called Smart Business). Taschek got his start in IT in Washington D.C., holding various technical positions at the National Alliance of Business and the Department of Housing and Urban Development. There, he and his colleagues assisted the government office with integrating the Windows desktop operating system with HUD's legacy mainframe and mid-range servers.

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