Last week, Salesforce CEO Marc Benioff promised he had received expert advice in tackling the company’s problems – ones that have seen it resort to cutting around 10 percent of its workforce – by committing to following the Oracle playbook.
In a move designed to reassure investors, he told analysts he had been in conversation with Larry Ellison, the tech industry legend who founded Oracle, where Benioff cut his teeth during the early part of his career. But the question for Benioff in his effort to court investors remains: what should Salesforce expect to experience from its adoption of the Oracle playbook?
Those with long memories and tight budgets might be concerned the strategy will adopt Oracle’s propensity for practices around software licensing that – although legal – have attracted a great deal of criticism. In July last year, the plaintiff in a case alleging aggressive cloud sales tactics to artificially inflate its share price requested a $17.5 million settlement to the four-year row, although discussions are still ongoing. More recently, Gartner has warned that Oracle “actively targets organizations” on Java compliance after introducing new contractual terms for the code.
Benioff gave away little in terms of detail on a recent call with analysts, aside from platitudes to his former boss.
“Huge call-out to my mentor, Larry Ellison, who has spent a lot of time with me, giving me the Oracle playbook. And I’m very grateful to him. He was the first person who texted me after the earnings came out today… He’s been a great friend, and we’re executing that playbook to increase our margins. They obviously have best-of-class margins. So it’s great to have someone on your side like that… so thank you so much for everything,” Benioff said.
And Salesforce’s financial results were reasonably good – the CRM giant scored Q4 revenue of $8.4 billion, up 14 percent year-on-year. Full-year revenue for 2023 was $31.4 billion – up 18 percent over the same period. All this, as the US CEO likes to point out, against currency headwinds.
However, circling activist investors want to see the company up its game, and specifically push margins close to the software industry’s gold standard of just over 40 percent, as set by Microsoft and Oracle. Salesforce’s margins stand at around 22 percent. Quite why the software industry has such high margins – General Motors has around 7 percent while pharma company GSK has around 19 percent operating margin – is perhaps discussion for another time.
Nonetheless, Oracle has long employed techniques for maintaining high margins that Salesforce customers might be keen to hear about.
Craig Guarente, a former Oracle executive responsible for contracts and license management, told The Register that Big Red was forensically focused on margins because they were different depending on the business unit.
“In Oracle’s transition to becoming more cloud focused than on prem, it really looked at the margins carefully. The margins on support are much higher than the margins on cloud. So Oracle can’t just turn all their support customers into cloud customers because they would lose margin,” said Guarente, founder and CEO of software licensing advisor Palisade Compliance.
Instead, Oracle employs a range of techniques that more or less ensure customer spending with Oracle never goes down, and margins remain optimal. For example, vendors can redefine the number of users who count under the licensing agreement, as Oracle has with Java, licensing the language and development environment on a per-employee rather than a per-user or per-processor basis as the old model allowed.
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