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"We Don't Want to Be No. 2"

Database giant Oracle Corp. (ORCL) has long been a player in the $47 billion market for corporate-applications software. But with its $10.3 billion acquisition of PeopleSoft, which closed in January, Oracle emerged as the only serious rival to category-leader SAP (SAP). Over the next couple of years, CEO Lawrence J. Ellison plans a series of acquisitions aimed at expanding his position in applications (see BW Online, 04/04/05, "Larry, You Picked a Nasty Fight").

At the same time, he's melding families of applications from Oracle and PeopleSoft into a next-generation package of products he calls Project Fusion. Ellison recently spoke briefly with BusinessWeek Senior Writer Steve Hamm. Here's an edited version of their conversation:

Q: Why is the applications business so important to you?

A: It's for the same reason that Microsoft Office is strategically important to Microsoft (MSFT). Their foundation product is Windows, and ours is the Oracle database. You encourage others to build on your foundation, and you build on it yourself. With Microsoft, that's with Office. For us, it's the applications.

We think the applications business is extremely important to our database business. It helps us sell databases and application servers, and it's a very big business and anmportant contributor to profits. It has helped get our operating margins above 40%. It also helps us get a closer relationship with all the C-level executives in companies -- not just the CIO but the CEO and others.

Q: What's your goal?

A: Jack Welch said unless you're No. 1 or No. 2 in a business, you should get out. We're No. 2 now, but we don't want to be No. 2. We want to be No. 1. Culturally, it's difficult for people at Oracle who are accustomed to being the leader in databases to play catch-up behind SAP. They're a formidable company, but we have a shot at catching them.

We don't have to knock them off to be successful, though. We're No. 1 in a bunch of industries including health care and retail banking. There will be industries that they dominate, and [those] we dominate. And we're strong in America. It doesn't make sense to look at it as single global space.

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