Oracle Is Buying NetSuite: How Chairman Ellison Changed His Tune
Oracle (ORCL) - Get Report Chairman Larry Ellison probably should have kept his mouth shut back in 2008.
When asked his views on cloud computing, he expressed contempt for the concept and the very term.
"What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?" Ellison asked. "I'm not going to fight this thing. But I don't understand what we would do differently in the light of cloud computing other than change the wording of some of our ads."
Ellison's argument was that cloud computing was no different from using the Internet.
"All it is a computer attached to a network," he later said.
Well, now Oracle has said that it will indeed do something differently in the light of cloud computing: purchase one of the cloud sector's pioneers, NetSuite, for $9.3 billion, and investors are applauding the news.
In the years since Ellison first criticized cloud computing companies, we have come closer to understanding how revolutionary and different the technology really is.
Cloud computing has made traditional software models obsolete. Data are stored online, rather than on old-fashioned discs, and subscription-based models have taken over where one-time purchases were the norm.
Of course, this has led many formerly software-based companies such as Adobe and Microsoft to retool their businesses, and that is paying off for investors.
Although Ellison disparaged the buzz circling around cloud computing, behind the scenes he understood the changes being made to the field.
He has been a backer of NetSuite since 2007, holding about 45% of the company through personal and family interests. This makes sense, given that NetSuite was founded by Oracle's former marketing chief.
By last year, Ellison said that Oracle's mission was to become "the biggest company in the cloud," and with this purchase, the company is making strides to get there.
Although cloud computing is already makes millions for Oracle, it is just a fraction of the company's overall business. In the fiscal fourth quarter, cloud services accounted for just 8% of revenue.
The acquisition of NetSuite will ramp this up significantly, allowing it to better compete with rivals such as Salesforce.com.
NetSuite, which has a market capitalization of $8.71 billion, sells software subscriptions for e-commerce and managing customer relations, as well as a brand-new accounting system. The majority of NetSuite's more than 30,000 clients are small- and mid-size companies.
"Oracle and NetSuite cloud applications are complementary and will co-exist in the marketplace forever," Oracle's co-Chief Executive Mark Hurd said. "We intend to invest heavily in both products: engineering and distribution."
The proposed deal values NetSuite at $109 a share, about a 19% premium.
Despite Ellison's early remarks about cloud computing, this acquisition has been inevitable. By increasing its focus on the cloud, Oracle stands to profit from the new model for software and data, and investors will greatly benefit as well.
Watch out for any dips as buying opportunities.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.