Ellison to Microsoft: You’re No IBM

Ellison to Microsoft: You’re No IBM

Oracle’s CEO talks about why IBM used to be the great innovator, and why no other company has been able to fill those shoes, with the possible exception of…Apple Computer? (Part Three of six.)

Larry Ellison [Oracle] | POSTED: 12.28.04 @21:30

Innovation was a hot topic at the D Conference this past summer (hosted by theWall Street Journal). Walt Mossberg and Kara Swisher asked several CEOs for their take on the current state of innovation in tech, including Oracle chief Larry Ellison. Ellison’s answer is another example of why the executive is looked on as a maverick in the tech world.

Question: Innovation and where it comes from…in general, across the United States—where are you seeing that happen?

Ellison: Well, I got into an argument with Marc Andreessen about this. Marc’s view is that innovation comes from small startup companies. It’s Silicon Valley lore. Just look at Netscape and Google…if you look at all these kids directly out of school, they’ve done great work. However, their work pales compared to the innovation that came from IBM. I’m talking about the IBM that T. J. Watson Jr. used to run. IBM began its decline when Watson left the company. If you look at the things they developed…little things like the disk drive. [laughter]. Core memory, etc. I mean, that company is chock full of Nobel prize winners. A lot of people think it’s very bureaucratic, but IBM has delivered more innovation during my generation in computing than any company I can think of.

It’s a myth to think that innovation can only come from small groups of people.

Question: We recently had a couple of different models presented here. We had Steve Jobs, who of course is very high on innovating and commercializing innovations to bring them to market first. On the other end of the spectrum we had Kevin Rollins, CEO of Dell, who came within a hair of saying that all our R&D spending is crap, and that if you spend a lot on it you’re probably going to go out of business—

Ellison: Just because you’re good at R&D doesn’t mean you’ve commercialized R&D. The tragedy of Xerox PARC was that they had brilliant R&D but terrible execution in terms of turning that R&D into really wonderful products. Contrast that to IBM. During its glory days, IBM was fabulous at translating their innovation into products, into market domination. IBM is clearly the greatest company in the history of tech, if not the history of the world.

Question: That was the old IBM. The current IBM doesn’t match up to that. So do we have a company—today—with the kind of innovation that IBM had in its glory days?

Ellison: No. One of the great disappointments in Microsoft is that they have all this money, and they’ve had this tremendous success selling Windows, selling Office…but just try to list the innovations from Microsoft.

I’ll take IBM over Microsoft. Although I think Microsoft does some things brilliantly. The way they destroyed Netscape was illegal but brilliant.

Microsoft’s policy has been the destruction of innovation. Netscape was the most innovative software company around, certainly during the 1990s. These were the people who really popularized the internet, through the outgrowth of the Mosaic browser. And Microsoft said the reward for innovation should be oblivion.

Question: I once heard Sam Walton say: the bodies that cover the plains are the pioneers. In a lot of ways, didn’t Netscape do itself in?

Ellison: To quote Bill Gates: I give away all my internet software and Netscape gives away all its internet software. You know, it’s a little bit as if I rode into town and killed everyone—

Question: What’s the benefit from that? Is that innovation or just sucking innovation out?

Ellison: I call it the death of innovation. It’s actually the theft  of innovation. But that’s too strong a word; it’s too strong a word. It’s more like “Well, we’ll just copy that.” [laughter]

Question: Isn’t there a lesson here, in the fate of some of these companies which were viewed by most people as the bigger, bolder innovators? Netscape is gone—

Ellison: Microsoft gave away everything it [Netscape] had.

Question: Wait a minute. Apple: it’s not gone and it makes a profit. Though it has a much bigger mind share than its market share, and it’s not a giant market share force in the industry. So, don’t you have to execute as well as innovate and bring new products to market? I can think of a number of things that Netscape might have done to stay alive.

Ellison: Years ago, I gave a speech that earned me the eternal enmity of the Netscape board. I said that the biggest problem with Netscape was that Microsoft could copy what they had very quickly. It was a clever product, but there was no technical barrier to entry. It’s much harder to copy a database like Oracle. There are millions of lines of code. It’s an incredibly difficult program to duplicate.

But a browser is not a difficult program to duplicate and I said, at the time, that my cat could write the browser. The board members were very offended by all this, but in fact Microsoft later did do exactly what I had predicted.

Question: Microsoft made a better browser. In the third version of IE their browser was actually better [than Netscape’s]. Part of the reason was that Netscape stopped working on their product in any fundamental way.

Ellison: Microsoft took the price to zero, and it was Netscape’s only product. That was a problem. Netscape had no choice but to move away and stop developing their browser.

Question: Microsoft is moving into two new areas. One is a new store, obviously directed at Apple, and the other is search. Could your cat do these things?

Ellison: My cat certainly cannot do the industrial design. Steve Jobs is the most brilliant person in our industry, and what is most remarkable about Steve, I think, is his incredible aesthetic sense. He has the mind of an engineer and the heart of an artist—that’s a very unusual combination, an enormous advantage when you do consumer products. Look at the iPod…I think the iPod is a beautiful design and I think the iMac is a brilliant design. He’s done a tremendous amount of innovation on the integration of hardware design and software design.

Question: The company is much healthier since he came back, but he hasn’t been able to increase the Macintosh market share. In fact, it’s declined. Is there a lesson here?

Ellison: After a certain threshold it’s harder and harder for him, with a smaller R&D budget than Intel and Microsoft. When you look at what he’s able to invest versus what they’re able to invest…and he relies on IBM for chip technology, he relies on retail stores for distribution. He has to compete with lots and lots of different companies. Look at how far down the road the PC is in becoming the standard, digital device in everyone’s house and on everybody’s desk in the office. It’s an almost insurmountable task. No one other than Steve Jobs could have stayed at Apple.

Question: 70%? Is that defendable?

Ellison: It’s going to be interesting to see if he can actually take the Macintosh and make it the heart of the digital phone. I think there are lots of other products that are going to come out—around music, around entertainment, around the home—that might end up with a Macintosh at the center. But again, it’s virtually impossible for him to make only Macintosh the same at 70%. So clearly, he’s going to have to fully embrace the PC.

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