Ray Lane and the integration of software and consulting at Oracle
Oracle pretty much doubled revenue every year until it got around the $1 billion level. Then things got tougher, industry-standard revenue recognition scandals not excepted. At one point there were only three buildings on the Oracle campus, with large portions of them eerily empty. But the ship righted itself, best exemplified by three transitions:
- Mature financial management arrived in the person of Jeff Henley.
- A serious commitment to product quality emerged, often credited to the late Bob Koii.
- Mike Fields* brought enterprise-class adult supervision to Oracle’s US field operations.
Political battles still raged at Oracle — Mike Fields vs. Craig Conway, Terry Garnett vs. Jerry Baker, and later on Mark Benioff vs. pretty much everybody. But the company was ready to move to next level. I personally bought Oracle stock around that time, and it grew into a rather significant fraction of my total IRA.
*For a guy who
- Made his name kicking Cullinet’s butt as New England regional sales manager for Applied Data Research,
- May never have hit another sales target again, and
- Greatly improved his most famous employer by being fired from it,
Mike Fields has a lot of fans — including me. Some people actually do deserve to fail upwards, and I think he was one of them.
The person who made Oracle into a truly major enterprise technology company, however, was nobody I mentioned above. Rather, it was Ray Lane. Some of the reason, as I’ve already noted on DBMS 2, was general good management. Ray was also a tireless salesman, for example once telling me of a very large deal he won by being the only executive of his seniority to show up and give a pitch. But the most interesting part of his success was the strategy he fostered, namely the integration of packaged software and high-margin professional services.
In theory, that integration is blindingly obvious.
- If your professional services are rich enough, you never have to say “No” to a product feature query. You only have to state a price.
- You’re selling two high-priced things in one sales cycle.
- Since your professional services people are* the world’s greatest experts on your products, the services can be inherently high-price/high-margin.
*or at least can be represented as
In practice, despite many attempts, it had rarely worked well before. Reasons included:
- Packaged application software products weren’t actually very easy to customize and extend.
- Application software companies and application-oriented professional services companies had different cultures.
Some of the few successes were:
- American Management Systems, which did a great job selling semi-custom software, especially to governments and other not-for-profit customers.
- To some extent, vertical market providers in highly regulated industries (not-for-profit, banking, insurance, health care).
Apparently, highly regulated customers felt they had to have what they had to have, and paid whatever price was necessary to get it.
I haven’t identified a silver-bullet insight that Ray Lane’s Oracle had that other companies didn’t, allowing them to succeed where others had failed. They just executed and got it in large part right. Indeed, their technology for semi-custom applications went just as awry as most other vendors’, most notably in an effort to provide industry-specific I-CASE (Integrated Computer-Aided Software Engineering) models as project starter kits. Even so, the business model just seemed to work.
In large part, the industry followed suit. To this day, professional services are a bigger part of software vendors’ business mixes than they were before Ray Lane.
One might ask, “What about all those system integration partners who recommend software, and don’t want to be competed with?” Those came to the fore in the 1990s as well, after Rob Kelley and Brian Sommer paved the way at Andersen Consulting (now Accenture) in the previous decade. SAP owed a large part of its success to them, as did Siebel Systems, whose early success had a lot to do with a super-close Andersen relationship. Indeed, by all signs they are a major reason Oracle retreated — partially — from Ray’s strategy. Services (mainly consulting), which hit 58% of revenue in FY 1999, were down to 21% a decade later.
Other possible reasons for abandoning its successful strategy include:
- Oracle soon embarked on a strategy growing by acquisition.
- Geographic outsourcing would have made things harder to manage.
- It’s hard to scale a professional services business too big while maintaining premium quality.
But those are subjects for another time.
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[…] I’ve added more about Ray Lane and Oracle in the 1990s over on Software Memories. Categories: HP and Neoview, Oracle, Vertica Systems Subscribe […]
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It would be interesting if you could muster up the energy to compile a book on Software Memories.
I wish.
I’m not even mustering the energy to post what would be small sections or sidebars.
Lane has interesting challenges on his hands in other contexts:
http://www.CarnegieMellonFraud.com/Memo-to-Ray-Lane.htm
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[…] That last point is key. The primary SaaS offering can be standard, in the usual way. But the secondary business — on-premises software — is inherently services-heavy. Fortunately, packaged software and professional services can be successfully combined. […]
[…] That last point is key. The primary SaaS offering can be standard, in the usual way. But the secondary business — on-premises software — is inherently services-heavy. Fortunately, packaged software and professional services can be successfully combined. […]