Could a company like Oracle ever really fail?
I'm thinking through this like I might for a school class or learning about big public companies (e.g., high level scan; this might be a boneheaded question and if it is you're welcome to point it out but please be nice). Can a big company like Oracle actually fail?
I an thinking through what they sell their customers and at a certain point I don't know about the nature of large enterprise contracts. I've been a large cap software investor, and I've also done sales at a startup.
The nature of the sale at large enterprises was so different than to startups. The issue is that when they get large, they cease to be truly off the shelf and require either services revenue or SIs to customize.
What this makes me wonder is if as a company, you can survive by copying emerging product trends and servicing existing enterprise customers with those updates. There is no need to innovate if your relationship with customers is so central (like ERP is), and your customers are so large they'll never need to look at startup incumbents. (I wish I could get the Oracle financials so I could examine their CRM data for churn trends).
Also too, as you are a startup and then growth company that goes upmarket, you have to be penetrating existing market share rather than whitespaces (unless you are an N=1 market maker but barring that). So clearly you can be a company that fails by having this happen to you too much. But my point is around if you can be so tightly coupled in terms of scope and breadth customization of integration that you can copy market participants in time to stay relevant forever without innovating.
I realize it's impossible for the answer to be "no, the company can't company fail" and I realize I'm more focused on revenue side here. I don't really understand the key causes of company failure from a "financial" standpoint other than overlevered (I come from PE). I'm only trying to get at revenue side here though welcome thoughts on the other stuff for my own personal knowledge.
Any thoughts on this?
Ah, you're diving into the jungle of enterprise software and the survival tactics of giants like Oracle. Let's peel this banana layer by layer, shall we?
The Nature of Enterprise Contracts: You're spot on about the complexity of large enterprise contracts. They're not just off-the-shelf products but rather intricate solutions tailored to each customer's needs. This customization often requires additional services or System Integrators (SIs) to implement effectively. Oracle, as highlighted in the context, has mastered the art of "legal engineering" to craft contracts that are as complex and binding as they are lucrative.
Survival Through Adaptation: The question of whether a company like Oracle can fail hinges on its ability to adapt. While innovation is key in the tech world, Oracle's strategy has also involved aggressively securing its position through sales practices and customer lock-in mechanisms. For instance, the shift to cloud computing presented a challenge to traditional on-premise software providers. Oracle's response? Transitioning to cloud services and employing tactics like data audits to ensure customer retention and revenue.
Customer Dependency: The relationship between large enterprises and their software providers is indeed central. ERP systems, for example, become so ingrained in a company's operations that switching costs are incredibly high. This dependency creates a safety net for companies like Oracle, as their large customers are less likely to migrate to startup incumbents due to the sheer scale of effort and risk involved.
Copying Emerging Trends: Your point about copying emerging product trends is intriguing. While innovation from within is ideal, the reality is that large companies often acquire innovation by buying smaller competitors or integrating new technologies into their existing offerings. This strategy can keep them relevant, albeit at the cost of true internal innovation.
Financial Stability: On the financial side, big companies like Oracle have the advantage of diversified revenue streams, significant cash reserves, and the ability to weather economic downturns better than smaller entities. However, they are not immune to failure. Mismanagement, failure to adapt to market changes, or catastrophic financial decisions can still lead them to downfall.
In conclusion, while it's challenging for a behemoth like Oracle to fail due to its entrenched position in the market, its vast resources, and its strategic adaptability, it's not impossible. The tech industry is volatile, and customer expectations evolve rapidly. Continuous innovation, customer-centric strategies, and prudent financial management remain crucial for survival, even for giants.
Sources: Salesforce: May The Force Be With You, A Contrarian View - Raging Bull, Salesforce: May The Force Be With You, Big Tech Fall Hard | The Daily Peel | 10/27/22, Long term, concentrated, deep fundamental investing
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Any company can fail if you try hard enough!
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Is failure bankruptcy? Is failure flattish revenue growth?
This is only a short answer to a long and complicated answer. Of course, everyone knows, in theory, that any company can fail regardless of size. In the real world though, if there are no regulatory issues or litigation against the company, it is more likely the company would, at worst, downsize its business until it is profitable again. You already made a great point about large software companies spending a lot of time customizing products (and therefore generating services revenue); this revenue stream usually has the smallest margins but is important to maintain relationships. If a software business is really starting to fail, that could mean that the business model is consistently not profitable and the cash balance is nil. Management would identify divisions or groups that are profitable, and the company would coalesce around the successful business models.
Thanks to the capital markets, there are a lot of other ways to save businesses, whether it's being acquired, selling a portion of the company, etc. It is unlikely that a company would completely fail.
In my experience, great companies have amazing product-market fit that creates a moat and makes it very hard for them to be sidelined. Like...you could put literal morons in charge and PMF would carry them to success anyways.
For example, Oracle has Netsuite.
Netsuite is piece of shit ERP. If you have not run a business, then you can not tell me otherwise.
Almost every industry has a better industry specific solution but the autists in PE love Netsuite and insist on using it across the portfolio because their tiny brains can not comprehend learning a different finance module even though they are all the same thing.
Then you end up with this weird thing where founders want to run it b/c they know it helps with more $ at exit even though it's a horrific piece of shit and investors insist on using it + implementing it b/c they also know it helps with exit $.
And now, Netsuite has this weird stranglehold on a lot of companies even though it's objectively worse than alternatives in most industries by ~30% - 50%.
As you can all tell I have been fucked many times by NetSuite.
This tracks. Netsuite is ass
Yeah one day oracle will be no more. Either failed or collapsed and bought out. Or just a total former shell of itself. Goes for all major companies now, Google, Apple, Amazon. At some point, companies get too big and filled with red-tape and slow to pivot that they die off. They have to continually evolve and manage their costs well, otherwise they will get caught flat footed with an inelastic cost structure and go out of business. It’s just a matter of when, not if. May not happen in our lifetimes but unless their are governed and managed extremely well across generations, they will fail.
Apple may miss the train like BlackBerry did on smartphones, Google may be eclipsed by a better company like they did to Yahoo and Ask Jeeves, Amazon may go the way of Barnes and Nobles just as they did to them.
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