SAP vs. Oracle: virtuous M&A?
Over the last 6 years, the Oracle has consistently outperformed its arch rival SAP (see chart below: SAP’s in red)
Could M&A be more virtuous than organic growth after all? This is a real, tricky question: Oracle mostly grows through a well-thought acquisition strategy whilst SAP has always preached organic growth. Most people, including my humble self, would tend to answer “no” intuitively: organic growth has to be better than external growth. But isn’t the Oracle example proving us wrong?
Large high tech corporations are famous for acquiring technologies, engineers, and intellectual property rather than market share. In other words, disruptive startup acquisitions (CISCO is probably the best example of a company with a real acquisition integration know-how) rather than larger company mergers. With its bullish-at-utmost approach, Oracle has truly turned the tables: Oracle has kept acquiring large enterprise software publishers like JD Edwards, Temposoft, PeopleSoft, Siebel, Hyperion, Agile. Since 2004, Oracle has acquired 35 companies for a total amount of 25 billion US dollars (average price: US$ 700m). Integrating these companies has been and remains a challenge for Oracle: internal wars between people from different acquisitions are still going on here and there. These could be qualified as counter-productive for Oracle. However, why does its stock do so well? How come Oracle provides such a track record of supposedly ‘worse practices’ while at the same time, it has never performed so well in its history 2007 (revenues: close to US$ 20bn; net profit: close to US$ 5bn; current revenue growth: +20%, largely due to acquisitions; earning per share increase: 25% +)
ex-Oracle entrepreneurs: born or made?
The culture of Oracle is said to be extremely tough, result-oriented – which produces highly aggressive and effective executives, but is no pick for people looking for a mild atmosphere at the workplace. As a result, Oracle as a workplace is one of the most controversial places in the high tech world. I believe it shouldn’t: Oracle has produced some of the best entrepreneurs in the software industry. For instance, Bernard Liautaud and Denis Payre, founders of Business Objects, were Sales executives at Oracle before starting up BO; Charles Ferguson, founder of Vermeer Technologies (which produced Frontpage and was later acquired by Microsoft) had worked 6 months at Oracle before returning to his Ph. D. research; Marc Benioff had spent 13 years at Oracle Corporation between 1986 and 1999 upon founding Salesforce; mBED and NetLedger, later renamed NetSuite, were founded by Evan Goldberg who had priorly worked with Larry Ellison for 8 years at Oracle; and I’m not even mentioning the hundreds of Oracle spin offs or startups ran by former Oracle execs…By the way, I may have forgotten some of these. Which other large high tech corporations are famous for producing (or not producing) executives keen on founding great startups?
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Paypal, and i was just about to write an article called “the paypal diaspora”.
Great. Can’t wait to read your Paypal diaspora post (YouTube guys I guess, etc.). Might write myself another post on the…P&G Software diaspora (yeah, I know it’s kind of surprising).
[...] are no horizon 2 products and the horizon 3 “labs” still need time: as Jeremy oulined in his last post, this clearly works for Oracle. By doing this, you again ensure a culture of dedicating resources [...]
[...] like making the case for acquisitions rather than building companies to grow and last – but figures don’t lie. I see this acquisition, looking beyond price, as a smart pre-emptive move by SAP against Oracle, [...]