Have you ever heard about a company called Oracle?
Within tech circles, Oracle is an industry classic having been in the business since
1977.
Yet, for the average person, Oracle is a completely unfamiliar name.
That’s not too surprising though given that Oracle only has a total 430,000 customers
worldwide.
What’s insane though is that Oracle is valued at $240 billion, meaning that each Oracle
customer translates to over $550,000 worth of market cap.
To put that into perspective, Facebook has a total of 2.89 billion active users, and
they’re valued right at $1 trillion.
This means that each Facebook customer only translates to $346 worth of market cap or
nearly 1600 times less.
So, here’s how Larry Ellison built his $113 billion fortune with less than half a million
users worldwide.
Taking a look back, Larry Ellison was born on August 17, 1944 in New York City to a single
mother.
His biological father was a US Army Air Corps pilot, but it doesn’t really seem like Larry
had much of a relationship with him.
In fact, he didn’t have much of a relationship with his biological mother either.
When Larry was 9 months old, he caught pneumonia, and his mother would give Larry to her aunt
and uncle to raise.
These two would basically become Larry’s parents as Larry wouldn’t even see his biological
mother again until he was 48 years old.
The uncle would give Larry the last name Ellison as he thought this was a great way to honor
his entry into the US through Ellis island.
As a kid Larry was a pretty bright kid, but it wasn’t like he was programming at the
age of 12 or anything.
He would end up attending the University of Illinois as a premed student.
After the first year, he was actually named the science student of the year, but he would
never end up finishing his studies.
You see, at the end of his second year at college, his adoptive mother would pass away
and Larry would miss his final exams.
I’m sure he could have arranged to take the exams at a different time given his circumstances,
but he would decide to just drop out altogether.
Soon after, he would enroll in the University of Chicago, but Larry would drop out of here
as well after the first semester.
Unlike other tech billionaires, he didn’t instantly set out on building a tech empire.
In fact, he was pretty lost throughout his 20s.
He did hold several respectable jobs throughout this time period like a job at Wells Fargo;
however, he was constantly switching around and didn’t really have any purpose.
He was able to pick up some computer programming skills throughout this time period though,
and this would prove extremely valuable in the 1970s.
In 1973, Larry was working at an electronics company called Ampex, and this is where he
would meet two men named Ed Oates and Bob Miner.
By 1976 though, Larry would leave Ampex as well and join Precision Instruments as vice
president.
But this is when Larry would come across a research paper written by a British computer
scientist named Edgar F. Codd.
In the paper, Codd described how large amounts of data could be efficiently stored using
a relational database model.
Larry very quickly realized the commercial potential of such a product and would reach
out to his former colleagues Ed Oates and Bob Miner about the idea.
The three would get together and start developing a database solution based on Codd’s research
paper.
It seems like Larry was the most convinced about the idea though as he fronted $1200
of the total $2000 they started with.
Originally, they named the company Software Development Laboratories, but by the time
they finished development in 1979, they would change the name to Relational Software Inc.
In 1979, the trio would launch their database product which they called Oracle to the public.
Oracle was the first commercial SQL based relational database program on the market.
But, 1979 was simply way too early for such a product, and no one really cared.
So, the team had to be extremely aggressive with their marketing effort and even be a
little sleazy.
One example of this was the naming of the product itself.
You see, the product wasn’t just called Oracle, it was actually called Oracle V2 despite
it being the first version.
Larry Ellison figured that people would be much more likely to buy a second generation
product, so he just went ahead and called the product V2.
Despite this though, it was still extremely difficult to make sales because once again,
no one cared at the time.
Fortunately for the team though, the CIA would give them a shot and become the company’s
first major customer.
Given that the company was only known for Oracle V2, in 1982, the team would decide
to change the name of the company to Oracle Systems Corporation.
Over the next couple of years, they would launch newer versions of Oracle, and as you
would guess each version was 1 off.
Version 2 was called Oracle V3, version 3 was cooled Oracle V4, and so on.
By 1986, Oracle started to gain some serious traction and they would decide to go public.
At IPO, each share of Oracle was worth $15 which gave the company a valuation of $194
million.
So, not quite a billion dollar company, but still massive nonetheless.
In 1987, Oracle would become the largest database management company in the world, but this
would unfortunately be the company’s last highlight for quite some time.
In 1990, an internal audit would reveal that Oracle had been overstating their earnings.
It seems like the sales team was counting orders as sales and this inflated Oracle’s
top line for a few quarters.
Oracle would come out with revised quarterly reports, and they weren’t half bad, but
investors were not happy nonetheless.
Looking back, you can’t even see this on Oracle’s stock graph as it was so insignificant
in comparison to Oracle’s stock price today.
But at the time, this scandal led to a 75% decline in Oracle’s stock price.
Oracle also started to face increasing competition within the database market as more companies
entered the scene.
As a result, in an effort to diversify and continue growing, Larry would attempt to take
Oracle into the personal computer market.
He actually had a brilliant idea to reduce the cost of personal computers by leveraging
databases and networks.
His idea was to create something called the NC or the network computer.
This computer would basically just be a barebones screen and input device while the actual computing
and processing would be completed on Oracle’s networks.
He basically wanted to use cloud computing to reduce the cost of computers.
But as you might’ve guessed, the technology just wasn’t there to create such a product
in the 1990s.
Moreover, the cost of personal computers were plummeting as technology continued to advance,
so it made less and less sense to create the NC.
By the end of the 1990s, Oracle had made little progress.
They were still the largest database company in the world, but the NC didn’t go anywhere
and Oracle now had a major competitor called Informix.
Around this time though, internet companies were blowing up as the dotcom bubble picked
up steam.
Larry Ellison would clevely pick up on this opportunity and embrace the internet.
He would offer Oracle’s various database and network products through the internet.
In the meantime, Informix would fizzle out by themselves.
In 1997, Informix would have their own earnings scandal and the CEO, Phil White, would end
up in jail.
So, Oracle’s major problems would unexpectedly be solved overnight and this allowed Oracle
to rally exponentially along with the rest of the dotcom companies.
Between 1999 and 2000, Oracle stock would grow from just $6 to $40.
But by 2002, they would crash back down to $10 per share.
Despite their share price crashing, Oracle was in a better position than ever.
They had little major competition and they had a new growth venue which was the internet.
Given their strong position in the market, Oracle would go on a shopping spree, and they’ve
been on a shopping spree ever since.
If you look through their list of acquisitions, you’ll see that they made 55 acquisitions
between 2000 and 2010 alone.
One of their most famous acquisitions of all time was Sun Microsystems for $7.4 billion
which gave Oracle control over the Java programming platform.
Throughout the 2010s, Oracle has basically just stuck to doing the same thing.
They still provide database solutions and acquire a bunch of companies, but they have
expanded to cloud services as well which has proved to be quite lucrative.
But that still leaves the question, how did Oracle make so much money with such few customers?
Well, the answer is pretty simple, their entire customer base is enterprises who pay Oracle
massive amounts of money every single year.
And when I say massive, I don’t mean thousands or even tens of thousands per year.
I’m talking hundreds of thousands and millions per year.
When we take a look at the size of their customers, this isn’t that surprising.
For Oracle’s Enterprise Resource Planning cloud or Oracle ERP, 48% of their customers
make less than $50 million per year, 10% make between $50 million and $1 billion per year,
and 30% make over $1 billion per year.
Basically every single company and organization you can think of uses Oracle or has used them
in the past.
Everyone from Netflix, Google, Amazon, Walmart, Chase, MIT, governments, JetBlue, Dell, eBay,
you get the point.
Basically everyone.
Considering this, it’s not surprising that Oracle is worth $245 billion today.
In fact, I’m surprised that it’s not worth more given the massive valuations of other
tech companies.
Right now, Oracle only has a PE ratio of 19.31 which is the lowest I’ve seen in the tech
industry recently.
But anyway, going back to Larry Ellison, he stepped down from being Oracle’s CEO in
2014 after 37 years, but he still owns 35% of the company today.
This translates to about $85 billion.
But Larry is actually worth $113 billion today due to a variety of other investments.
He has over a billion in real estate and he used to have a multi billion dollar position
in Netsuite.
Aside from this, it’s also believed that he has a large position in SalesForce, but
this has not been confirmed.
Larry also owns Oracle team USA which is a yacht racing team who have won several America’s
cups.
However, by far his most famous investment was in December of 2018, when he bought 3
million shares of Tesla.
Adjusting for the stock split, that’s the same as 15 million shares of Tesla today.
Right after he bought it, he actually got screwed as Tesla crashed 50 percent in early
2019.
But as we all know, Tesla has since recovered and soared to unbelievable heights.
Larry’s stake in Tesla is now worth over $10 billion and he’s actually a Tesla board
member today.
And that’s the story of how Larry Ellison made $113 billion with less than half a million
customers.
Did you guys know about Larry Ellison?
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