Not only I am one of that growing number of believers who expects Oracle (NASDAQ:ORCL) to make a bid for a major computer hardware manufacturer, I also think it will be a good thing. Whatever the virtues of the present structure of the enterprise I.T. industry, the average company has so many things to buy (and so many people to buy it from) that setting up, upgrading, or rebuilding a corporate IT system has become more complex than buying a jetliner.
Give Larry a Chance
Even in the biggest of companies, this means that iT managers spend a disproportionate percentage of their time dealing with procurement, a costly distraction that takes away from what IT managers should be doing, which is figuring out ways to put IT at the better service of the company and its people.
(Mind you, there are probably more than a few IT managers who prefer things to be this way. The sheer headache of buying and integrating these systems not only provides gainful employment, it has helped turn an MCSE qualification into keys to the executive washroom. The computer guy has become a Wizard, a Guardian of Data, The Gatekeeper, the Cee-Tee-Oh.)
Yet I would wager that there are a few companies – and CTOs – who would love to have their purchasing choices greatly simplified, allowing them to stop worrying so much about the plumbing and focus on how to better use the water, if you will. I am no fan of Larry Ellison, but if he believes he can eliminate that complexity with the help of Mark Hurd and a checkbook, doing for enterprise information systems what Steve Jobs did for personal computing, I say the sooner he gets started, the better. And let him start by buying HP (NYSE:HPQ) or Dell (NASDAQ:DELL).
When I talk to people in the industry about this, their eyes get big, their lips purse, and they say in low tones “Whoa – what would Microsoft (NASDAQ:MSFT) do in that case?” After having a delightfully speculative discussion about how much Ellison would enjoy becoming Steve Ballmer’s worst nightmare, though, the question comes to China.
The China Response
China probably needs more enterprise IT than any other country in the world, by virtue not only of the sheer number of tech-handicapped companies in the PRC, but also how many still do everything on abacuses and paper or Excel spreadsheets. Experience suggests that a company able to offer simplified, integrated solutions delivered ready to configure for the specifics of each firm would have a massive market in China. And the first one to do it would have the market to itself for some time.
That would first depend on how Oracle would price the offering. There are circumstances when Chinese enterprises have proven themselves willing to pay a premium for a product or service, but the tendency is to look first at price.
The automatic cachet of going with the big global company no longer exists: major foreign IT suppliers are assumed to be overpriced, and have the burden to prove otherwise, especially in the face of local companies offering “almost-as-good” solutions for a fraction of the cost.
Oracle would need to price aggressively to succeed with an integrated offering in China. That sort of thing tends to mean lower overall margins, which I would suggest is the direction things are headed in enterprise IT in China anyway.
Cultivating the Competition
Second would be how China saw this changing the overall competitive landscape in the global IT industry. You can expect China’s regulators would demand the opportunity to review and approve a merger of this size, alongside their European and American counterparts.
What would be harder to gauge is the industrial response, and this is where I think it gets interesting. Many key policymakers in Beijing understand, at least intellectually, that really good corporate information technology infrastructure is going to be essential to China creating globally competitive multinational firms of its own.
At the same time, the idea of exporting boatloads of cash to foreign IT vendors does not sit well with local leaders. If China sees the consolidation of the global IT business as a threat to China’s own fledgeling enterprise IT industry, expect Beijing to raise shields.
Such barriers could take many forms. But if history is a guide, China would want to have their own national champion to serve as a foil to a global enterprise IT giant.
The way I think it would play out would be that China would play for time while looking for ways to build a domestic response to Oracle. An extended merger review would buy some time, and it would allow Chinese regulators a privileged look under the hood of what a New Oracle would look like. Regulators could also modify the procurement law to require SOE and government purchases of IT systems from multiple vendors so as to slow a merged Oracle from taking too much market share.
The end goal, though, would be to create one or two unified Chinese IT firms capable of offering one-stop shops for local enterprises looking to “informatize” (think a merger of Lenovo and local software vendor Kingdee.) Could such a firm hope to match what Oracle offers? Certainly not, at least right away.
But think “Innovator’s Dilemma” here: all the Chinese firm or firms would have to do is offer a “good enough” solution for the middle-tier of companies in China (and then India, Africa, Southeast Asia, and Eastern Europe). Not only would that give the Chinese players ample room to grow, it would let them stake a claim in what look to be the most promising growth markets for enterprise IT.
All of this is build on a deep foundation of speculation: there is no guarantee that Larry Ellison could effectively achieve the dream of a profoundly simplified enterprise IT industry, no matter how compelling the economics. The takeaway, however, is this: China could either be the cradle of Oracle’s next major competitor, or of the company that disrupts the enterprise IT industry.
Scaling up through acquisitions will not change that: it will only raise the stakes enough to invite Beijing in to midwife the birth of a company that can challenge Oracle in some of its most promising markets.