Oracle, IBM detente forged by dollars, distribution, HP

Listening to Oracle's fiscal first quarter earnings call was like being transported to an alternative enterprise IT universe where Larry Ellison, Mark Hurd and IBM CEO Sam Palmisano were long lost frat brothers.

Funny what dollars, distribution and a mutual enemy---Hewlett-Packard---can do.

Oracle reported strong fiscal first quarter results, but the conference call was the real kicker. First, Hurd made his debut at Oracle. And then came kind words for IBM from Ellison. The first hint that Oracle and IBM were making up---at least for a bit---came in a Wall Street Journal interview with Big Blue Sam Palmisano. Palmisano ripped HP, but gave Oracle props. Oracle invests and has done well, said Palmisano.

I had to chuckle at the Art of War corporate strategy here.  Oracle needs distribution so Ellison notes that IBM is a big services partner. Ellison even gave Dell props as a good partner. “We have to be prepared to partner with other services related companies,” said Ellison. Ellison also noted that IBM was a great services partner, especially in banking. “Our partnership with these services companies is absolutely critical.” Ellison even said that IBM's mainframes add value because they aren't commodity boxes and serve a real need.

Flashback a few months and you'll find Ellison blasting IBM. The gist: Oracle's Exadata machine will crush the mainframe.

Three months ago, Ellison said Oracle's Exadata machines were poaching IBM customers. IBM was the object of every Exadata presentation. Ellison said Oracle was going to be a complete systems player like T.J. Watson's IBM. Meanwhile, IBM worked on crushing Sun for the last year. IBM last week launched a financing/trade-in plan to poach Sun and HP customers.

On Thursday, that recent history was put aside. Sure, Hurd talked about automating IT to the point where systems integrators and fancy consultants---IBM's bread and butter---weren't needed, but the Big Blue chatter was almost lovey dovey.

Why the Oracle-IBM relative lovefest? HP could be vulnerable and both IBM and Oracle smell blood. Hurd leaves HP, goes to Oracle and then confesses how he was always jealous of Ellison's crew and their execution. HP, with its scale and services, is the biggest threat to IBM here and now. Oracle is probably the biggest threat later, but not today. Why not co-operate and split the spoils? Both Ellison and Palmisano see HP as a wounded duck that's overpaying for acquisitions like 3Par and searching for a leader. The enemy of your enemy is your friend and Oracle and IBM both want to kick HP around. What's truly comical is that HP wasn't even mentioned on Oracle's conference call Thursday, but if you read between the lines the entire call was about HP (with the prerequisite jabs at SAP and Teradata excluded of course).

To wit:

Ellison's take on Sun vs. IBM is much more measured. Ellison said:

We want to make (Sun) more profitable. Going to get better throughout the year. Once profitable, and we are profitable, we've got to grow the size of that business. And we think we can double it. It's going to take some time, but again, we think we can double the size of that hardware business and we think we have to. We have to go out and aggressively take share from IBM and our other hardware competitors. All right.

Ellison also talked about a few wins vs. IBM, but then the olive branches appeared. For starters, Ellison said Oracle isn't in some big rush to buy a services unit---not that I believe it.

IBM's a great Company and I appreciate the kind words from Sam about our business being their number one competitor now. I mean that sincerely. I think Oracle's flattered. We worked very hard. We look at IBM as our number one competitor. We know we have to work very hard to be successful in the competition. But IBM's services business seems to be the dominant part of their business and their product business is important but secondary to the services business, if you will. We look at it just reverse. We look at our products being the dominant part of our business and one of the things we're trying to do with our products is obviate the need for services, so if we do a very good job of integrating our applications together and making them easier to install and easier to upgrade, you don't need as much service. So our goal, again, if we engineer these hardware, software systems together like Exadata, where the storage and the network and the servers and the operating system, the database and all this stuff is in one box, you don't need as much integration services.

So we're trying to reduce the amount of services required to take advantage of these systems. Having said that, our customers especially in the big verticals which Mark mentioned, in banking, we've got big banks going through transformations. We can't eliminate all the services. That's a fantasy. We can eliminate some of the stuff. I think you'll see us engaging with our customers and providing services because they want us to. But we also have to be prepared to partner with other service oriented companies and one of which is IBM. We've actually got a very good relationship with IBM in services, which we're trying to expand let's say in banking. IBM's got terrific presence in banking. We've got some great banking products. IBM doesn't sell banking software and we would love for IBM to become expert in using our software to transform banks. And so again, our partnership with these service companies is absolutely critical.

Hurd then talked more about automating services, but not in a way that'll hit IBM's business process outsourcing expertise.

When you automate a process, you not only reduce the labor, you actually eliminate the labor and you actually raise the service level simultaneously. So the R&D that we have in fact isn't really -- it's a supplement, if you will, to the services capability and as we get to more of these engineered systems where we can build something once and sell it many, many times and do that work remote and do it in an automated way, it is frankly a replacement for what you today think of. As a product Company, we want to be supporting those labor based service companies, though and partner with them when it makes sense.

In other words, Oracle needs IBM services. And the two will be key partners.

The IBM lovefest really went overboard when Ellison talked up mainframes. Ellison said:

I think the big thing is these engineered system, Exadata being one example. We'll be announcing some more systems in Oracle OpenWorld, the storage appliance. We have to have products that offer unique value in the marketplace, like IBM mainframes. I mean, IBM offers unique value with those products. Those mainframes run software that doesn't run on other computers, kind of a unique value proposition.

In recent quarters, Ellison said Exadata was steamrolling IBM's high-end servers and threatening mainframes.

Ellison even gave Dell some love.

We think we can improve our margins and grow our share dramatically, rather than mucking around kind of trying to sell a low end server on price against Dell. We're partnering with Dell. We think Dell is a great Company. We love partnering with them. We don't want to compete in that space. They're very good at that.

The omission throughout Oracle's conference call was HP. Executives didn't mention HP once. Hurd probably wasn't able to talk HP due to his lawsuit with the company. But Ellison could have mentioned HP as a distribution partner on services. After all, HP honcho Ann Livermore is on tap for an opening keynote at OpenWorld next week. We'll see if this silence becomes deadly for HP.