Oracle Corp

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ORACLE CORP.

Oracle Corp. is second only to Microsoft Corp. among the world's leading software companies. Best known for its database systems, Oracle became a major e-commerce player in the late 1990s when it unveiled Oracle 8i, a version of its mainstay database program that allows all of a firm's database functions to be handled on the World Wide Web. In 2001, Oracle 9i helped more than 8,500 firms across the globe manage their data on a variety of operating systems.

EARLY HISTORY

In 1977, computer programmers Lawrence J. Ellison and Robert N. Miner co-founded a software firm, named Oracle Systems Corp., in Belmont, California. With their combined experience designing specialized database programs for governmental organizations, the men convinced the Central Intelligence Agency (CIA) to award them a $50,000 contract to develop a customized database program. Ellison and Miner also began developing and marketing database management systems (DBMS) software for business clients. Ellison, as president and CEO, headed up sales and marketing efforts while Miner oversaw software development. Well known venture capitalist Donald L. Lucas served as chairman of the board.

While working on the CIA project, Ellison became interested in IBM's efforts to develop a relational database that would allow computer users to retrieve corporate data from a variety of sources using Structured Query Language (SQL). Believing SQL would emerge as a standard language in the database industry, Ellison and Miner began working on developing a similar program for minicomputers. In 1978, the fledgling firm unveiled Oracle RDBMS, the world's first relational database using SQL. One year later, Oracle began shipping RDBMS, beating IBM to the market by nearly two years. With 24 employees and a customer base of 75, the company reported annual revenues of nearly $2.5 million in 1982. Approximately 25 percent of those revenues were earmarked for research and development. That year, international expansion efforts resulted in the founding of Oracle Denmark.

In 1983, Oracle developed the first portable RDBMS, which allowed firms to run their DBMS on various machines including mainframes, workstations, and personal computers. The product boosted annual sales to more than $5 million. By the mid-1980s, Oracle had become known for both innovative technology and competitive advertising. Ellison and Miner took their company public in 1986. By that time, sales had reached a record $55.4 million and Oracle was recognized as one of the world's fastest-growing software companies. The company's rapid growth came in large part from its ability to develop applications that worked across the previously incompatible computer systems of large corporations. New product launches included a distributed DBMS. Based on SQL-Star software, the system granted users the same kind of access to data stored on a network they would have if the data were housed in a single computer.

By 1987, the number of software companies using Oracle products as a foundation for their applications had grown five-fold. As a result, the firm created a value-added reseller (VAR) alliance program as a means of fostering cooperative selling and merchandising relationships with other software makers. At the same time, Oracle also became the relational DBMS of choice for most major computer manufacturers, and the firm continued to develop software compatible with an increasing number of hardware brands. Sales exceeded $100 million. With more than 4,500 end-users spanning 55 countries, Oracle ranked as the largest database management software company in the world.

New products in 1988 included the Oracle Transaction Process Subsystem, a software package designed to speed processing of financial transactions. This new program allowed the firm to target banks and other financial institutions. Further diversification came with the launch of a line of accounting programs, including a database designed to work with the Lotus 1-2-3 spreadsheet program. The company also unveiled a line of computer-aided systems engineering (CASE) application development tools, including CASE Dictionary and CASE Designer products, and its first version of a DBMS program for Macintosh systems. That year, Oracle established a new subsidiary called Oracle Complex Systems Corp. to offer systems integration services to its clients. Services like these eventually came to account for half of the firm's revenues.

SLOWING GROWTH

Diversification efforts continued in 1989 when Oracle established Oracle Data Publishing, a subsidiary focusing on creating and marketing reference material and other information electronically. That year, Oracle was included for the first time on Standard & Poor's 500 index. Believing its intense growth pace would continue, Oracle sought $100 million in public capital. In 1990, when the firm experienced its first quarter of poor earnings, stock prices dropped from $25.38 to $17.50 in a single day. Several shareholders filed suit against the firm, alleging that management had issued misleading earnings forecasts. In the wake of this negative publicity, Oracle made public its intent to audit operations and reshuffle management. Larry Ellison assumed the additional post of chairman, while Lucas remained a director. When the internal audit results were made public, prompting the firm to restate earnings for the first three quarters of 1990, Oracle's stock plummeted to $11.62 per share. To protect itself from hostile overtures, the firm's board implemented a poison pill, or stockholder rights plan, that would make takeover attempts much more expensive. Oracle also scaled back its annual growth rate targets from 50 percent to 25 percent and eliminated 10 percent of its employees. The milestone achievement in 1991 of reaching $1 billion in sales was marred by Oracle's first ever annual loss, which totaled $12.4 million.

FOCUSING ON THE INTERNET

Oracle and Hewlett Packard began working on an interactive TV system for Pacific Telesis in 1995. That year, Oracle established Oracle Store, a Web site that allowed the firm to electronically delivery its products to clients. The firm released Oracle Express Server 6.0 in 1996. This Web-enabled server supported the Windows NT operating system and offered complete online data analysis via both the Web and corporate intranets. Oracle also began working on its network computer, a simplified and less expensive machine that facilitated easier access to the Internet, which many analysts believe prompted industry giants like Intel and Microsoft to focus on developing desktop systems that were much simpler to manage.

In 1998, Oracle began to restructure itself around its Internet operations. According to BusinessWeek Online columnist Sam Jaffe, "Back then, some experts argued that the database software market Oracle dominates would quickly erode as companies found cheaper and simpler ways of managing their data on the Web. Instead the opposite happened—after CEO Larry Ellison ordered an 'Internetization' of his company." The firm eventually released Oracle 8i, a program allowing firms to manage all of their database functions on the Web.

Oracle also began using its e-business products to streamline its own operations. It merged its order fulfillment and shipping networks with its sales network to manage customer relations from a single source. A Web-based expense reporting system allowed the accounts payable department to cut its staff by 25 percent and deposit paychecks into employee bank accounts more quickly. Oracle's e-mail system was restructured to run on two servers and four databases, rather than 97 servers and 120 databases. As the firm began to cut its costs and improve its operating margin (from 21 percent in 1999 to 30 percent in 2000), Oracle began using improved performance as a marketing tool for its Web-based database products. However, several analysts asserted that things like layoffs had more to do with the higher margins than the technology itself.

In 2000, Oracle continued to develop new Internet-based technology. In May, the firm launched its E-Business Suite. According to Forbes writer Elizabeth Corcoran, "Instead of selling separate packages for sales force automation, accounting, employee benefits and so on, Oracle ties together 70 'modules' in a package and juices them up with Internet technologies." Also launched that year, the Oracle 9i software database management system included an application server allowing users to run e-commerce applications related to their databases. Thanks to this new technology, Oracle managed to outperform many of its competitors through the end of 2000, although the technology sector's slowdown finally seemed to catch up with the firm in March of 2001, when it announced that database software sales were sluggish and application server sales were slipping.