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.
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.
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