This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 24, 2017).
Chief Executive Officer Mark Hurd says the move is in the
customers' best interest
Business software giant Oracle Corp. is in the midst of a
massive transition, taking on Amazon.com Inc. and others in selling
cloud-computing services. Helping lead the shift is Mark Hurd, the
company's chief executive officer.
In an interview with Wall Street Journal Financial Editor Dennis
K. Berman, Mr. Hurd discussed Oracle's strategy and why shifting
software operations to the cloud is in companies' best
interest.
Edited excerpts follow.
Generational change
MR. BERMAN: Let's talk about year-end compensation, about how
you are being incentivized. That has changed at Oracle, and I think
that says a lot about the company.
MR. HURD: The compensation has always been about stock options,
and people would only make money if the company was performing.
The problem with that methodology -- low salaries, low bonuses,
lots of stock options -- has always been that when you do a
Black-Scholes model against that, it gets you to crazy numbers, but
you don't get anything unless the stock performs. What we have done
is tried to evolve that. We're sticking with the mentality of
options-related comp, but aligning it to performance incentives,
some of which are around our transition to the cloud. It's a big
deal.
MR. BERMAN: So the way you are paid is changing simply because
you need to push the company to the cloud?
MR. HURD: Yeah. Our industry is going through a secular change
that's generational. This will be a 10- to 15-year run to get
there. And what's happened over the last 20 to 25 years in tech is
all being challenged now. So for us, we're cannibalizing
ourselves.
MR. BERMAN: Was there a moment inside when you were like, "We've
just got to do this differently? We have to make a change?"
MR. HURD: No. Nothing like that. It took us a bit to figure out
where the market is headed. So we started with, "Here's where this
thing is going to land." And if we are right, there's a possibility
that there isn't a data center that a company owns in 2025. There
is a possibility that all of development testing, which is a third
of the IT market, will be done in the cloud. These numbers are
gargantuan.
If you don't prepare for that now, you won't get there. You have
to internalize that and say, "I can kick this can down the road for
a couple of years or I can go do what we decided to do."
MR. BERMAN: Right now, you're doing a blend of cloud services,
on-premise systems, all kinds of custom brew for customers. What
will that look like in 2020?
MR. HURD: Right now, Silicon Valley does a good job of providing
a bunch of individual parts -- servers, operating systems,
databases -- all of this stuff. You send it all to the customer
basically a la carte. The customer creates a huge IT staff and then
tries to put it together like a Lego set. The stuff that they put
together like a Lego set is really hard to upgrade, it's really
hard to maintain, and frankly, it's really hard to secure. All of
this is going to move toward a simpler, more flexible, more
variable market.
MR. BERMAN: Is the future really a fully vertically integrated
IBM of the 21st century?
MR. HURD: That's a great question. If you went back into the
'80s, there was a rebellion against exactly that model, which was,
"We want to procure our way to more leverage with all of these
vendors." I think what has happened is you've gotten a lot of that,
and what you've gotten in return is a very complicated, very
difficult environment out there. I think you'll see a rotation to a
degree back to more optimization, more integration. The cloud is a
lot of that.
MR. BERMAN: Isn't there sort of a great kind of Greek
mythological irony that the IBM destroyer becomes IBM in the
end?
MR. HURD: I'm going to stay out of mythology. But the
environment in IT today isn't sustainable. Forget anything to do
with IT's performance. The simple risk from a security perspective
has to change. It isn't sustainable.
MR. BERMAN: What do you mean by that?
MR. HURD: Let's pretend we got attacked. Oracle would see
something today in the marketplace that would try to penetrate
something. We would create a piece of software to fix that. That's
called a patch. You'll hear this term "patch" used a lot. A patch
is simply a new piece of code that fixes another piece of code. We
would fix it immediately in our cloud. But by the time it rippled
its way through our on-premise customers, it would be one year.
This is now becoming an issue for CEOs, for boards.
'Really flipping hard'
MR. BERMAN: Have we sort of gotten over that psychological
barrier where a CEO says, "I'm not willing to risk myself and my
reputation and my company by doing all this work in the cloud"? Is
that game over?
MR. HURD: Do you want to be in front of the U.S. Congress and
say, "Listen, I put all this software and my IT staff missed a
patch"? Or do you want to say, "I did exactly what Oracle
said."
If I'm a CEO, not Oracle's CEO, I like the second talk track.
I'd much rather say, "Listen, I got the best guys in the world
doing this for me" as opposed to, "I tried to do it myself."
This patching thing, while it may sound trivial, when you have
tons of configurations, tons of operating systems and tons of
databases, this is really, really flipping hard.
AUDIENCE MEMBER: Aren't there a lot of serious security issues
with everything in the cloud, having all of that valuable data in
one place?
MR. HURD: I don't think so. Equifax to me was an absolutely
perfect target. I don't mean this to be derogatory toward them, but
they're a relatively small company, their resources are aligned to
the size of company, and they have an incredible treasure trove of
information.
To be able to fight every day, you need the best to fight for
you. We do things that other people can't do. Simple things, like
all of your data, if it was in our cloud, would be encrypted. We
wouldn't even have your data. So if anyone got through, what they
would get would be a set of encrypted files.
Write to reports@wsj.com
(END) Dow Jones Newswires
October 24, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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