Oracle Exec Talks Grid Computing

By Matthew Hicks  |  Posted 2003-09-04

Oracle Exec Talks Grid Computing

Charles Phillips knows the software market. Before moving to Oracle Corp. in May 2003 and working directly for Chairman and CEO Larry Ellison, Phillips analyzed enterprise software with Morgan Stanleys Institutional Securities Division. Phillips, an Oracle executive vice president, talked with Reporter Matt Hicks about Oracles next big push—grid computing—and the companys future plans. Oracle during its Oracle World conference in San Francisco next week plans to unveil a new grid-based release, called 10G, covering its database, application server and enterprise management tool. How does (the grid approach in the infrastructure products) affect whats happening on the applications side of the business?

Phillips: The applications naturally benefit, and the key reason is because you dont have to change applications to take advantage of it. Certainly ... the fact (that) as an applications vendor we can explain how to make the applications more reliable and more robust by running them on top of a grid gives us an added dimension just because we understand it well. Its something, actually, that other application companies can take advantage of. Its not exclusive to us, but its our knowledge of it and confidence in it and enthusiasm to use it. …Well be explaining right away how it relates to our applications business. …

An example that we like to give is that order entry is an application that is somewhat seasonal depending on the end of the quarter … So that application may become stressed and need more capacity. Something like HR, which is also seasonal but on a different time period when youre paying people once or twice a month, those servers may be idle, [and] we can load-balance and adjust for that so you dont have to roll in another server just for order entry because its the end of the quarter. ... [That] is a way that we can explain the benefits of the grid through our applications because were in both businesses. A business person may not understand all the underlying issues underneath the grid, but when you start talking in terms of an application, they know that problem, and this will solve that problem. Is the whole 10G push leading to any significant changes to the applications as well, or are they really two different development tracks?

Phillips: We do have separate development organizations, but we always synchronize, (since), of course, our apps will be taking advantage of the grid. Obviously, theyre separate products. Looking at customer side of this, what kind of response to the grid approach are you expecting from them? How are you going to convince them to upgrade at this point, given the economic situation were in?

Phillips: Save money. We have the problem I just described; [is] the answer now to go out and buy another server for order entry when you have idle capacity on the HR server? If I can tell you that theres no need to roll in a big new box, that you can redirect that application and take advantage of that excess capacity thats elsewhere in your blade farm, (then) you want to do that. We offer them the ability to grow incrementally and pay as they go. Instead of buying on demand, which is kind of the IBM approach, we allocate on demand. Thats been a focus for Oracle for some time now. Little more than a year ago, there was the introduction of greater support for Linux. Is this part of a larger strategy?

Phillips: Id say its certainly a continuation of our embrace of commodity computing. We like low-cost components … Intel servers (and) Linux. We have the advantage now of having the semiconductor curve working in our favor as opposed to being on higher cost hardware where Microsoft was (the one) on the low-cost platform. So the tables having really turned where we are emphasizing the low-cost components and we tie together with software and a virtually free operating system... We scale with the low cost components and build what looks like a big server on our grid, not trying to do big SMP boxes to get the scaling. So our messages have basically flipped. They used to say to buy low cost components and PCs and tie them together, and now they dont. And now were saying it because we have this breakthrough in grid. What drove the original look toward grid computing?

Phillips: This is basically 15 years of engineering history. To get to grid, you have to dial back the clock. First we had Parallel Server and learned how to build parallelism into applications, but back then it was manual and you had to change the application to take advantage of it. Then we said it would be nice if we could make that so you didnt have to change the application. And that took a couple more years and came out in the form of RAC.

Again, we said, "If we can make it so you can parallelize an application automatically without changing the application, what if we made that automatic when you continued on other nodes in a blade farm?" Call that the grid, where (you) discover those new processors and (its) automatic…You needed the 15 years of engineering history to get there. Its not something you do overnight. It was a progression of the natural thing to do: Make the application run unchanged and then make it automated to call it a grid. But has there been recognition in the past few years that Oracle needed to expand who could really operate the underlying database and applications beyond large implementations and large machines? Was there a conscious effort to see how the technology and business direction could mesh?

Phillips: Thats been going on forever. We always want everybody to run on an Oracle database. At one point, we had over 100 platforms we were supporting trying to get to that very goal. Now there are fewer platforms relevant today, but theres not an important platform we dont run on. That pervasiveness of the Oracle database continues, and we think more people run Oracle than anything else so it seems to be working.

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Next page: Can Oracle do it all for customers?


: One Size Fits All?"> One of Oracles big messages has been that customers can really get their entire infrastructure and their applications from one vendor, namely Oracle, and youve kind of shied away from the best-of-breed approach that some other large vendors have talked about. Is Oracle really continuing on that push with customers?

Phillips: We have a broad product line and a very comprehensive solution for a reason. That is what underlies our strategy of design for simplicity—remove some of the layers of technology (and) all the integration complexity thats bogging down CIOs … And one way to do that is to simplify your architecture with products that were designed to work together, that are cohesive and dont need all the glue guns to stitch them back together again.

That interaction between our products adds value to the customer so they dont have to do the integration. We do it for them here at Oracle and then ship it out already integrated. Were not saying our products arent extensible; they are. Thats why we support XML, thats why we have an integration server built into our applications server, thats why our products are written in standard languages like Java. You can do lots of things and extend them. But its in our interest and the customers interest for us to be as comprehensive as possible, and were going to continue to do that. If you want to extend them, great; go ahead and do that. But the market is voting that they like broad, integrated suites of products. If you look at the companies that are doing well—SAP, Oracle, Microsoft—they tend to have broad product lines. How important does the online-services component remain for Oracle?

Phillips: Thats huge for us. Its still a big push and one of our most successful businesses right now. It grew faster than just about any other product line last quarter. We are happy with that business. During the fourth quarter, it was up 69 percent year over year.

The outsourcing business is a major push. It also represents several strategies. Theres software as a service but it also gets lots of technology in front of customers at a low entry price. They can enjoy pretty much all of our product line in an outsourcing mode. It lowers the startup costs, and we can get you there quickly.

Our philosophy is, "Who better to manage Oracle than Oracle?" Were going to know it better than anybody else. We think its a big differentiator for us. Our competitors really cant offer integrated outsourcing, where you own the entire stack. Its cost-effective for customers because the problem with the outsourcing business is that every vendor whos involved in every layer of the stack wants to get margin on their product, so you have four or five companies and … the outsourcer needs his money and before you know it, it just doesnt make sense.

If thats all integrated from one vendor, we only need margin on the entire solution. And were going to do all the bug fixes and bug patches and upgrades. Were going to see that stuff first and get you the most immediate patches and upgrades as you need them and know how to modify those systems better than anybody else. Our outsourcing customers are some of our happiest. They like that we take responsibility for virtually everything. Well do just the tech stack; well do the tech stack and the applications. Most customers are increasingly going toward the whole stack. Will 10G play a role in online services? Will it allow you to do something there you havent done before in allocation of resources and so forth?

Phillips: That was actually one of our major test beds for grid technology. Were already using it in our outsourcing business ... Thats basically what outsourcing is about, being able to get economies of scale and to grow incrementally and not have to add huge servers each time theres a spike in demand. We already do that in our outsourcing business. When did the grid-computing aspect enter the picture?

Phillips: [The outsourcing group] has been involved all along as this was evolving over the last couple years. Now [it is] one of the showcase customers for grid. So actual, real versions of 10G are running with them?

Phillips: …Theyve been testing it. Theyre not live with customers, but theyve been running some areas of their internal operations on it. Its contingent on the customer being ready to upgrade, but weve done enough testing with them to know it works.

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Next page: How important is the PeopleSoft bid?


s PeopleSoft Bid: A Distraction?"> A lot of the focus on Oracle lately has been with your push to purchase PeopleSoft. I wanted to talk a bit about why that is so important, particularly on the applications side of the business, and to get a sense of just how critical that effort is to the direction youre going on the applications side.

Phillips: Well, we think the applications business is going to do well with or without PeopleSoft. Do we want more customers, and does that continue to move the ball forward if we acquire additional customers? Yes. Would it be a good thing for our shareholders, for PeopleSoft shareholders and for customers? Yes. If it doesnt happen, will we continue to move forward? Of course. So I think you have to put it in context. Mergers and acquisitions happen to be a part of our strategy in the past and probably will be in the future as well, but I cant point to any one thats going to be make or break for us. So there was not a make-or-break strategy in the bid? It was more of a "like to have"?

Phillips: It was another business opportunity that we evaluated that made sense to do. And thats the way we evaluate all these acquisitions. Its time, opportunity, cost and whether its additive to our strategy. It doesnt replace our strategy. It certainly can add if we buy the right company. And thats kind of one more thing in your bag in terms of generating growth and gaining market share. In the week were just ending here, Oracle extended its offer again for PeopleSoft. How long is Oracle really prepared to continue these kinds of extensions? At what point do you decide to move beyond it?

Phillips: A lot of these extensions are customary. Its kind of the way these things are designed. So I wouldnt read too much into any single extension. We are continuing our effort to acquire PeopleSoft. There are some regulatory hurdles that we are going to deal with. … And well see what the regulators say. I know youve said in the past you expect the Department of Justice to be done in November?

Phillips: We cant be sure on a time frame, but thats our best guess at this point. Probably late November. How much importance is that in your guidance of what to do?

Phillips: We dont control the schedule. Based on what we know now, thats when we get an answer. Its not really a secret that a lot of the PeopleSoft customers have been leery of the takeover, but I know some Oracle customers as well have been telling me that while theyre happy with the product direction at Oracle, theyre concerned that the focus on acquisitions could consume time and maybe distract from development. Has this caused any distraction in your development?

Phillips: Zero. Theres nothing development needed to be doing for this. There are a small number of people involved in the acquisition. Even today theres not a lot we can do in the near term other than to let the regulators do their analysis. So, in the meantime, we have a business to run, so thats what were doing. Are there any specific ways you try to ensure its not a distraction? I know you mentioned there are only a few people dedicated to it, but are there other efforts youve made within the company?

Phillips: Weve done 30 acquisitions before. Its not like this is total stage fright for us. There (are) procedures in place. People have done this a long time, and the people who should be paying attention to it are and everybody else is doing what they get paid to do.

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Next page: How can Oracle build sales?

Building Sales License revenues were somewhat flat with most increases seeming to be not in new sales but in upgrades or maintenance. How is Oracle really trying to increase the new sales in the near term? What is the strategy for doing that and is that where these latest (product) releases play a big role?

Phillips: All of (the) strategy weve just been talking about, thats our strategy for generating growth; that includes license revenue but not only license revenue. Certainly our support revenue is something thats very important to us and indicates that customers are happy with the product they are receiving. The more were going to the outsourcing business (and) the more we sell software as a service, youll see more recurring types of revenue show up. I think its important to look at that support line and recurring revenue and product updates as the real indicator of the business. But what about the new-license area? How does Oracle push to get new customers?

Phillips: Thats kind of what were doing every day. … Weve been doing that for 25 years and have 250,000 of them. So you come out with good products and services and the market responds to it. Its not a new thing that happened this month or the last three months. But clearly its a hard time. In the database business, for instance, other vendors in recent years have taken more share than you have. So how do you try to reclaim some of that and convince customers of other products to move back over or to adopt Oracle for the first time?

Phillips: Your presumption is based on Gartner numbers that claim were losing share, where theres no objective evidence that thats happening. If you look at [surveys of] real customers, or if you look at IDC numbers or a number of other sources, (they) contradict [Gartners results]. I guess the onus is on you to prove. Its one thing to use numbers from Gartner that represent the allocated numbers…all we get is a growth number. We dont have the real numbers, its not reported to the SEC, its not on their financial statements, and its not on their Web sites. And until we see those things to compare our numbers, which are filed publicly, theres really no discussion we can have on those numbers. Theres nothing to compare. … In the fourth quarter your new software-license revenue grew 1 percent. Thats not a huge gain, and I assume there must be a focus on trying to improve that. Whats the strategy moving forward? Is it one where you try to convince non-customers that, "Look, were ahead in this grid approach. You need to join with us"? Or is it some other strategy?

Phillips: Well, obviously, yeah, were going to be focusing on grid. …We think we have something very unique for a problem people have today. Usually thats a pretty good formula for people to focus on what you offer. So thats the plan for now. One of your new business areas has been the Collaboration Suite about a year ago, and recently there was an announcement that a few hundred customers already have signed up. There (also) was a new release of that. How much do you expect to focus on the Collaboration Suite? To what extent do you think it can really take on the huge installed base of something like Outlook?

Phillips: Its a big focus for us because management of e-mail is another pain point. People in some cases have of hundreds or even thousands of e-mail servers, all of which are potential areas for a virus attack (and) any one of which, if it goes down, theres a problem. So just like theres a consolidation of data centers and a consolidation of big servers, we think theres a consolidation of e-mail servers starting, and we have a product that does that as well and can scale on a single machine. All the e-mail is stored on a single database so you get the benefits of backup and recovery and all that stuff.

Given the fact that a lot of Exchange customers are forced to think about an upgrade to the latest version of Exchange and about this consolidation issue ... Theres kind of an opening there. We use it here internally, and it works well. Well see how the market develops, but it certainly looks like an opportunity.

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