Mark Hurd: The Oracle Of The Channel

Oracle President Mark Hurd in March faced what was by all accounts an emotionally distraught group of partners complaining bitterly about their relationship with the company. It was the kind of gathering that must have brought a sense of channel deja vu for Hurd, who had grappled with the same kind of partner angst when he took over as CEO of Hewlett-Packard in 2005.

The partner complaints were, in fact, eerily similar to the kind of margin-squeezed hardware direct/indirect sales channel dynamics that Hurd fixed at HP in relatively short order. This time, the majority of the frustrated partners were, once again, hardware-focused resellers. They had come on board when Oracle completed its $7.4 billion acquisition of Sun Microsystems in January 2010.

Hurd promised the Oracle partners at the meeting that he would return in 90 days with a compelling customer and partner value proposition, a go-to-market strategy to match, the right economics and, finally, operational support. But the meeting also came with some tough love. The days of Sun creating the hardware demand and allowing the channel to pick up the fulfillment at a rich margin were not coming back, Hurd told them.

Nine months later on a sun-drenched October morning on the 30th floor of Oracle’s Madison Avenue office, Hurd met with the CRN Editorial Board and explained that his philosophical approach to the channel is an economic one that benefits both sides. He was in New York preparing for a full day of meetings with some of the company’s most prized customers and partners. He would not talk about the controversial March meeting in the hour-long conversation with CRN. And although he is being hailed by Oracle partners for driving a high-margin channel makeover, Hurd refused to call himself a channel zealot.

’I got that same sort of feeling at HP,’ he said in a no-nonsense rebuttal of the channel-friendly accolades that have come his way. ’It wasn’t the way it worked at HP either. It is just the right way to run the business. And I think that, for channel partners, this view that it is sort of like some affection [is not right]. It is not. It is just good business. I actually believe strategically what I told you is right. So, therefore, you are not a channel zealot. You are just a zealot to get the model right. To get the strategy right.’

Getting the strategy right is what drove Hurd at HP, where he spent five years transforming a company that had lost its way into what many believe was one of the most respected direct and indirect hardware sales operations in the industry when he left. Hurd was ousted by HP’s board of directors last September for what the company called ’violations of HP’s Standards of Business Conduct.’

At the time, Oracle founder and CEO Larry Ellison wrote in an e-mail to The New York Times that it was ’the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago.’ One month after that e-mail, Ellison hired Hurd and asked him to put his sales and operations skills to work in a massive Oracle makeover that is, at its core, designed to capture the hardware franchise Hurd built at HP.

That meant putting in place at Oracle what Hurd refers to as his four-point plan:

• The right product value proposition and distribution strategy to go with it.

• Clear target markets for direct and indirect sales.

• Compelling economics for channel partners.

• Operational support for partners.

’If you get those four things right, my view is generally good things happen with channel partners,’ Hurd said matter-of-factly. ’Screw any of those four up and it doesn’t work so well.’

NEXT: Charting A New Course

’Working well’ is just how partners describe the Oracle channel zeitgeist right now. But that isn’t enough for Hurd, who is now moving to simultaneously expand both Oracle’s channel sales and direct sales coverage by 25 percent. He also is driving the direct and indirect sales teams to ’attach, attach, attach’ to get them to sell an end-to-end Oracle stack of hardware, software, maintenance and services. All of the changes have pushed Oracle’s sales intensity higher as the company aims to double its size in the years ahead from $40 billion to $80 billion, according to partners.

Oracle is, indeed, looking less and less like an old-school, direct-sales-dominated enterprise software company and more like a partner-friendly maker of finely tuned integrated hardware/software appliances such as the Oracle Exadata Database Machine and Exalytics Business Intelligence Machine. Those hardware/software-engineered systems are aimed at delivering in the enterprise the same kind of breakthrough user experience that Apple brought to the consumer market with the iPad and the iPhone. Oracle even refers to its Exadata product as the ’iPad of the enterprise.’

’It is the same concept,’ said Hurd. ’That if you can engineer these things together you are going to get a better answer. You are going to get a better experience.’

Using his sales operations know-how and management muscle, Hurd has charted a new course in the hopes of providing that better experience for Oracle partners. Part of that involves a Hurd-designed sales plan that has focused Oracle’s direct sales force on the top 2,000 global accounts and Oracle’s partners on the hard-to-reach midmarket and even SMB accounts. (Oracle stresses that the demarcation does not prevent Oracle partners from playing in those top 2,000 accounts, so channel conflict is something the company may have to manage as the partner base grows.) Hurd’s channel philosophy is simple: To build a long-term and sustainable channel model, it must be economically viable for both sides.

’For this to be interesting it has got to be strategically sound for Oracle,’ said Hurd of the channel march. ’Therefore, sustainable for the channel partner to invest. It has got to be structural. It has got to be strategic. It has got to be thoughtful.’

For Oracle, that means looking at the market differently than it has historically when it was strictly a database software company focused almost exclusively on the largest customers. Building things for the broader market means putting together a new sales and operations model that changes compensation metrics and targets for both Oracle’s direct and indirect sales channels. Among the changes: the first-ever Oracle solution provider hardware rebate incentives; new pay-as-you-grow software licensing flexibility (heresy in the old Oracle) for a new SMB hardware appliance called the Oracle Database Appliance; and, of course, the line in the sand that focuses Oracle’s 22,000-member-plus direct sales force on the global 2,000 top accounts and the company’s 20,000 partners on the broad SMB market.

That demarcation represents a watershed moment for Oracle, whose direct sales force -- considered by many to be the highest paid and most aggressive in the technology business -- had for years been given free rein to do whatever it took to win high-priced software license deals even if it meant pulling deals away from partners. Just as importantly, Hurd also changed the compensation for Oracle’s own channel reps, paying them only on those deals outside the top global 2000 accounts.

Hurd said all of the changes are simply a matter of expanding Oracle’s distribution by getting its direct sales reps and channel partners to stay in their lanes. He compared the immature channel models that far too often pass muster to 5-year-old kids playing soccer. ’All the kids, if you watch them, they all run to the ball,’ said Hurd. ’When you get to more mature soccer games, people stay in their position and they strategically align to go try to make a grander thing happen. It is the same way with distribution models. We need people playing their positions. Our job is to instrument how we market and distribute that model in a way that everybody is participating and covering the market.’

The channel makeover could have a big impact on industry-standard hardware makers, including Hurd’s old employer. Up until the Sun deal closed, HP and other industry-standard hardware makers never had to battle Oracle for the hardware sale on Oracle applications. Oracle estimates that it has 380,000 customers with as many as 300,000 not running its software on Oracle hardware. Now, Oracle is driving its partners and direct sales force hard to move every single one of those 300,000 customers to the Oracle Sun hardware. One of Hurd’s top priorities when he landed at the company was, indeed, fixing the Oracle hardware sales metrics.

With the sweeping changes now in place, Oracle has made no secret of its intention to aggressively recruit partners. Judson Althoff, senior vice president of worldwide alliances and channel sales, has singled out HP partners as one of the prime targets in a campaign aimed at growing Oracle’s partner ranks to 25,000 over the next year. ’It’s a huge focus for us,’ said Althoff. ’We have great products. We have a target market that is ripe. And we have got an economic proposition that is going to pay them more money. That is a trifecta winning combination.’

Oracle is certainly seeing partner interest and sales on the rise. Oracle’s OpenWorld conference this year attracted 4,500 partner registrants, up from 2,100 last year, said Althoff. ’This is the largest Oracle Partner Forum in history by a long shot,’ he said. And Oracle’s indirect channel sales growth over the past three years has charted higher than sales gains from the Oracle direct sales effort, with more than 40 percent of Oracle’s worldwide sales and 80 percent of worldwide transactions now going through partners. ’It is exciting times,’ said Althoff. His focus, he added, is squarely on growing ’that broad market where we have the channel focused at a much, much higher rate than the rest of the business.’ It’s part of a strategy that Ellison, who founded Oracle 34 years ago, refers to as ’The Sun Also Rises.’

NEXT: Sun Hardware Partners Invest In Oracle

Sun Hardware Partners Invest In Oracle

When Hurd arrived at Oracle, a good portion of the already weakened hardware partner base left from the Sun acquisition was disheartened and disenfranchised. A number of those Sun partners had, in fact, made a decision to migrate to IBM or HP systems. Avnet Vice President Mike Hurst, who oversees the global Oracle partnership for the $26 billion distributor and witnessed the aggressive recruiting of Sun partners by competitors, credits Hurd’s channel leadership with reinvigorating the onetime Sun hardware partners. ’Mark stepped in when there was a lot of confusion, a lot of uncertainty and, frankly, a lot of trepidation about what was going to happen specifically with the Sun hardware business and the Sun partner community.’

Hurd’s channel leadership has made all the difference in the world, said Hurst. ’He had a very substantial impact in a very short period of time,’ Hurst said. ’It has been dramatic focus and change in very short order, which was needed, by the way. As a community of partners we were scrambling to understand how to engage with Oracle.’

Hurd brought ’clarity’ and ’trust’ to the Oracle channel partner model, said Hurst. ’Mark, coming from some of his previous roles, is a big advocate and very astute in understanding how to use and leverage the channel,’ he said.

Mardi Norman, president and CEO of Dynamic Systems Inc., an El Segundo, Calif., government integrator, is one of those hardware-focused partners that came from Sun and found a renewed relationship under Hurd’s steady channel hand. Dynamic Systems’ business took a hit in the wake of the Oracle acquisition, but Norman's management team evaluated the alternatives -- including the possibility of lining up with another vendor -- and decided to make a big software bet with Oracle. That meant obtaining a number of Oracle database software specializations, including the highly prized Oracle Exadata specialization.

As a result, she said, Dynamic Systems is a stronger company with a higher services quotient and is poised for dramatic sales growth in 2012. ’We are going to take off like a rocket,’ said Norman. ’There is better potential for us now than if we would have been back with the old Sun model. That had limitations with how far we could grow.’

Norman said she doesn’t like to think about the sizable investment she made to make the transition, but she is confident there will be a significant return. As an 18-year Sun partner, Norman said, professional services accounted for less than 2 percent of her company’s sales, with maintenance support accounting for about 30 percent of sales and the remainder made up primarily of hardware sales.

Now making the move to Oracle’s integrated systems, Dynamic Systems is looking at a business model comprised of about 25 percent professional services, 25 percent support services, and the remaining 50 percent hardware and software sales.

NEXT: The Payback For Partners

Exadata is just one example of the blinding pace of hardware/software innovation that has taken place under the direction of the Ellison-led Oracle-Sun engineering team, Norman said.

’We all hoped and were looking for something great and revolutionary,’ she said of the new Sun product lineup, which now totals 60 different hardware models. ’But to be sitting here 18 months later and see the breadth of product is amazing. It certainly gives you something to go out and talk to customers about.’

Norman, who has been part of a number of Hurd’s open partner sessions, credits him for bringing the solid grasp on hardware sales and logistics that was missing at Oracle. ’Everyone [at Oracle] was coming at it from selling software,’ she said. ’You can’t sell hardware in the same way. Just the mere fact that there are logistics and shipping and pieces and parts. He brought all that knowledge to Oracle.’ Hurd’s commitment to ’reward the partner community for all the investments’ made to sell the Oracle product line is key to the company’s success, she said.

The payback for partners investing in what Oracle calls its best-of-breed stack also is showing up in the bottom line of Maplesoft Group, a longtime Sun hardware partner in Ottawa, Ontario. Jack Gulas, a former Sun executive who is now CTO of Maplesoft Group, said the company’s business model is much stronger with its Oracle database and middleware specializations.

Two years ago, Maplesoft Group’s annual sales were made up of about 80 percent Sun hardware sales, 15 percent software sales and 5 percent professional services. Today, its professional services quotient is up to 15 percent of sales, software has more than doubled to 35 percent of sales and the remaining 50 percent is hardware sales. Professional services margins of 30 percent to 40 percent and dramatic increases in services attach rates are key to significant profit gains that have come with the shift to the Oracle hardware/software-engineered systems business model, said Gulas.

’It’s exciting because as we are going up the stack, we are talking with the customer at a much higher level,’ said Gulas. ’And it’s a much stickier business. My [sales] reps aren’t having to fight for every deal because of the high impact of the ’winning with architecture’ [sales model].’

Gulas also considered alternatives in the wake of Oracle’s acquisition of Sun, but a big factor was Oracle’s pledge not to build out a huge multibillion-dollar independent services organization like IBM or HP that competes with his services business, he said. ’IBM is always after me. But they can’t give me any guarantees that [IBM] Global Services won’t compete with me. That is why I want to partner with Oracle, because they are not competing with us on services and they have the best portfolio of intellectual property from applications to disk. Based on the economics of the business, as one of the owners, it is my fiduciary responsibility to get into services and systems integration. And that is what we are doing.’

NEXT: The New Software And Services Scenario

The New Software And Services Scenario

What is happening with the product portfolio at Oracle also has its longtime services and software partners changing up their model and doing what once would have been unthinkable: adding hardware to their business. Keste, a Plano, Texas-based Oracle partner, is doing just that. In fact, Keste has invested $1 million in a Center of Excellence that features both Oracle Exadata and Exalogic appliances. That kind of all-in investment is one of the secrets to succeeding as an Oracle partner, said Howard Moore, president and CEO of Keste. ’You never go to Oracle with an open hand,’ he said. ’It’s a bad move.’

Two years ago, Moore said, he never would have believed that Keste would be selling hardware systems. ’But there have been some big changes in the industry,’ he said. ’Who would have ever believed Oracle would have purchased Sun?’

Keste sees Exalogic and Exadata as key to taking the guesswork out of fine-tuning complex enterprise database and business analytics applications. ’It was a no-brainer to add Exalogic and Exadata,’ said Sri Ayyeppen, vice president and CTO of Keste. ’Now we walk into a customer with a known quantity in terms of the hardware implementation so we can meet the performance and [systems] management expectations of customers. That is a huge change in our world.’

Hurd’s clear line between where the direct sales team and partners play has given Keste confidence to make the big hardware investment, said Moore. ’Mark Hurd has cleared a lot of the haziness out of the [Oracle] channel [model],’ he said. ’The story is very consistent. They are going to focus on the global 2000 and the channel is going to focus on the broad market and Oracle is going to protect you [from channel conflict].’

Hurd’s sales leadership even has Oracle’s direct sales force looking to leverage the channel, said Moore. In fact, he said, the Keste sales team is working cooperatively with the Oracle direct sales force on a number of deals. ’We needed someone at the very top to come in and get the reps to understand they should plug into the channel,’ he said. ’You need somebody at the top to be sort of a benevolent dictator.’

Moore sees the new Exadata and Exalogic systems powering dramatic services sales growth. Keste’s services business alone -- even without Exadata and Exalogic appliance sales -- is expected to soar from $24 million this year to $32 million in 2012.

The time is right for the new Oracle hardware/software-engineered systems, said Moore. ’I am very confident walking into a customer that is a longtime Oracle customer that they are very open to looking at hardware from Oracle,’ he said. ’This doesn’t sound very sophisticated, but Oracle customers continue to buy more Oracle products. Nobody is perfect, but they know Oracle is going in the right direction. If you are going to bet your future on any software company I don’t know how you would bet on anyone other than Oracle because the foundation is there: It starts with the database.’

NEXT: The Database Appliance Game-Changer The Database Appliance Game-Changer

If there is one product that represents just how dramatically Oracle has changed its sales march it is the Oracle Database Appliance. The product represents everything channel partners wished for when Oracle acquired Sun -- a system that Oracle hopes will redefine database price/performance in the broad SMB market. Database projects that used to take three weeks to design and implement on industry-standard servers now can be rolled out in three hours with the Oracle Database Appliance, according to partners. It includes pay-as-you-grow licensing flexibility and one-button support from Oracle that does away with the finger-pointing that had become far too frequent in database application rollouts. And that’s all with a starting price for the hardware at $50,000. Rhos Dyke, executive vice president of sales at Cloud Creek Systems, a Westlake Village, Calif., Oracle partner that up until now eschewed hardware sales, expects to double his company’s sales to $20 million in 2012 based largely on the strength of the Oracle Database Appliance. ’I haven’t sold hardware since 1985 with Prime Computer, which doesn’t exist anymore,’ said Dyke. ’I don’t know anything about selling hardware. But this is not about hardware. What Larry [Ellison] has done is change the conversation. It’s not about bits, bytes, CPU speed and IO. It’s a case of one plus one equals three.’

The price/performance gains from the Oracle Database Appliance are going to ’smoke’ industry-standard server vendors, said Dyke. The first Oracle Database Appliance sold by Cloud Creek was purchased for $50,000 by a call tracking services company that determined it would have needed to spend $260,000 on an industry-standard server solution. And even at $260,000 there was no guarantee the company’s database solution would run as efficiently as on the Oracle Database Appliance.

Wade Nicolas, president of Enkitec, an 18-year Oracle services partner in Irving, Texas, that has added hardware to its mix with the Oracle Database Appliance and Exadata, expects to triple his Exadata business and sell as many as 250 Oracle Database Appliances this year. ’The Oracle sales folks are all over us to help drive the Database Appliance business,’ he said. ’They are putting a big channel focus around it with actions that back up the words. We are very optimistic.’

The Database Appliance puts industry-standard server vendors into a hole that will be difficult for them to dig out of, Nicolas said. ’They are going to have to come up with some kind of answer to this [product],’ he added. ’I don’t know what it is because they don’t own the stack. Customers are not going to pay them anymore to put this stuff together. They are going to expect it to come out of the box.’

NEXT: The Hurd Difference The Hurd Difference

If Ellison has changed the industry-standard hardware conversation, then Hurd has changed the Oracle channel conversation. Althoff said Ellison’s extreme technology innovation and Hurd’s sales and operations savvy give Oracle an unbeatable one-two punch. ’You really get the best of both worlds,’ said Althoff. ’You get Larry Ellison’s innovation and engineering emphasis. And then you get Mark’s desire to execute and sell.’

Althoff added that Hurd brought significant channel DNA to Oracle, particularly given its database software sales heritage. Hurd went so far as to ask for weekly channel sales updates and is getting into the sales trenches to meet with partners, he said. ’In the last five quarters since Mark has been here we have made more presidential-level house calls to channel partners than probably in my 12-year history at Oracle,’ he said. ’The [channel] support and awareness he brings to the executive team is phenomenal.’

One of the keys is the high margins partners can make when they commit to the sales plan. The new Oracle rebate incentives bring the margin for an Oracle Database Appliance sale into the mid- to high teens. It’s the same kind of sales incentives that worked wonders for many of HP’s Elite partners, who credit Hurd for helping them drive record sales and profits during one of the most treacherous periods in IT history.

At the heart of the new Oracle is a Hurd philosophy that the indirect sales force should be given the same kind of compensation metrics that drive the company’s own direct sales force.

’My view of the channel is that the channel should be treated just like a sales organization,’ Hurd said. ’We are going to compensate them based on performance. The better they perform, the more they make. What we wanted to have was a model where the more you did and the way you did it was important to us. So if you sell a box, that may or may not be interesting to us. But if you sold the box to that target market, to that hospital that we can’t cover, that is more interesting to us. If you sold that box with our storage, that is even more interesting to us. If you sold it with our support, that is even more interesting. By the way, if you did it two, three, four or five times, then it gets even more interesting to us. So we want our [indirect channel sales] remuneration to work in alignment with what motivates us. That allows it to be sustainable and strategic for us.’

As for his message to partners regarding the commitment they can expect, Hurd said: ’It is the same thing I would tell our [direct] sales people: Just do what I tell you to do and things will be fine.’ Given Hurd’s channel track record, that’s a pretty good bet.