The Brief: Law School Institute for Law and Economics

Sound Growth Strategy Key to Oracle’s Success After Dot-Com Bust

Top Oracle executive, Safra Catz W’83, L’86The software and database giant Oracle not only survived the dot-com bust, but managed to prosper in its aftermath because the company stayed true to its strategic vision and did not buy the industry hype. So says Safra Catz, W’83, L’86, Oracle’s president and chief financial officer.

In the Law and Entrepreneurship Lecture last March, Catz recounted the heady days of the tech bubble and the lessons she learned in driving the company’s business model.

It was 1999. Dollars were pouring into Silicon Valley, and Catz had just been recruited by Oracle CEO and founder, Larry Ellison. Everyone — industry pundits, stock analysts and 22- year old CEOs of start-up companies — had caught the IT fever. Everyone, that is, except Ellison, who predicted that a downturn was imminent.

In anticipation of the bust, he decided, in Oracular fashion, that his company’s future lay in the consolidation of the software industry. Catz said Ellison believed that consolidation would lead to “very big returns.”

The decision, which earned Ellison ridicule at the time, proved visionary: Oracle is now the industry leader in most markets, with the exception of applications software, in which it is running a close second to German competitor SAP AG. When Catz joined the company, however, it was hardly ready to go on an acquisitions spree. Despite having quintupled in size since its incorporation, Oracle never managed to make more than 20 percent profit on annual earnings. It was clear that “we needed to clean up our act,” said Catz.

By 2002, the duo had integrated Oracle’s satellite offices, scattered in more than 100 countries, into a centralized, profitable and efficiently-run global operation. In the 40 plus takeovers that Oracle has accomplished since then, Catz learned a number of lessons, and became a master negotiator.

Ellison, who Catz says not only thinks outside of the box, but “doesn’t see a box at all,” showed her that it is possible to successfully challenge convention.

When Oracle announced it would engage in the hostile takeover of PeopleSoft, “every single pundit was against us” because no software company had ever been able to do that, said Catz. Once again, Oracle proved everyone wrong.

In the course of her 18-month legal battle with PeopleSoft, which turned out in Oracle’s favor, Catz learned that tuning out the media, and disregarding advice from analysts and investment bankers — those not on the inside — were key to winning.

“The press is not your friend,” she said, which explains why she rarely grants interviews.

Catz also shared a number of negotiating tips, namely, approaching each transaction from a position of strength, being aggressive in demands, and being prepared to litigate.

The lessons Catz learned have served the company well. When Catz joined in 1999, Oracle had $9 billion in revenue and 22 percent operating margins. It had 42,000 employees and approximately 100 offices. Today, Oracle has $23 billion in revenue, has 43 percent operating margins, operates in 150 countries, has 80,000 employees and a market capitalization of more than $110 billion.