We were as surprised as every other industry observer when Oracle inserted itself into the increasingly bizarre TikTok saga. While Oracle has made no secret of the fact that it has been currying favor with the current administration since the 2016 election, it takes some digging to understand why Oracle chose to cash in its new political capital in order to obtain quasi-control over a social media site with an overwhelmingly teenage base.
Oracle’s current behavior is especially peculiar when one considers the fact that Oracle spent the last several years loudly attacking tech titans for their utilization of the ‘free service/data collection’ model that fuels TikTok’s enormous popularity. Further, we have long theorized that much of the reason that Oracle is able to evade the same public scrutiny as its rivals (Amazon, Google, Facebook) is because it doesn’t stray from its (relatively) low profile portfolio of business-facing enterprise software. Considering its uncanny success with flying beneath the radar, why would Oracle become intimately involved with a consumer-facing app that targets children and, to put it gently, is packaged with serious data security issues?
Please join us as we attempt to make sense of the surprising twists and turns of this peculiar saga in a three-part blog post. Part I traces Oracle’s path from unpopular-but-low-profile-software-vendor to its belated attempt to compete in the cloud space through licensee coercion to its public attacks on its adversaries and its accompanying support of right-wing tech coalitions. Part II will address how Larry Ellison personally courted a relationship with President Trump. Part III will identify the President’s public embarrassment that was, in part, credited to the TikTok platform, and then combines those two threads with the President publicly announcing an arrangement which, in his words, would give Oracle “total control” over TikTok.
And, finally, the saga ends in close proximity to where it began – as another attempt by Oracle to obtain leverage in the fiercely competitive cloud wars.
Let’s begin.
Prior to October 2015, when Mars v. Oracle was filed, there was very little public awareness of Oracle’s strong-arm licensing and auditing script. This is in large part due to the fact that despite Oracle’s industry reputation, NDAs and confidentiality restrictions prevented licensees from sharing their experiences regarding Oracle’s deeply unpopular tactics. Though the matter was resolved before any material rulings by the court, the complaint and motion for preliminary injunction began drawing broader attention to the pervasiveness of Oracle’s troubling audit script and provided a lifeline to scores of beleaguered licensees who also found themselves in Mars’ position.
No longer a well-guarded secret, Mars v. Oracle drew back the curtain and revealed Oracle’s underground economy of attacking its licensees to upsell certain fledgling product offerings and otherwise materialize new revenue streams. This thread was picked up by Forbes in a 2017 article by Jason Bloomberg titled “Oracle's Cloud Strategy: Ruthless Or 'Byzantine'?”:
“Many Oracle customers have caught on to this strategy. “What I truly dislike about Oracle is their ‘Business is war’ mentality,” opined Sebastiaan Peters, Engineer at Orderbird. “Oracle tries to dominate the market with aggressive sales practices, massive lock-in mechanisms and above all litigations. Oracle depends on lock-in and their legal department. A modern company lives on quality and cooperation.
For many of its existing customers, however, sticking with Oracle in spite of its anti-customer policies is preferable to switching to another vendor – not because Oracle’s products are necessarily any better, but because Oracle has done such a good job putting up roadblocks for any company considering such a move.
In the final analysis, however, the customer is the king here. Anti-customer strategies can only take a company so far before people simply won’t put up with them anymore. Oracle may be winning business today, but it’s clear why Palihapitiya believes it won’t be winning in the future.”
Something changed after Mars v. Oracle as demonstrated by the fact that, as far as we know, Oracle has not allowed another audit dispute to proceed to litigation in a public forum. Bearing in mind that even a single adverse ruling could unravel Oracle’s licensing strategy, it doesn’t take a legal scholar to speculate that Oracle does not wish to test the viability of certain tenants of audit script in court. As we have noted before, the savvy licensee should appreciate and exploit this negotiating advantage where appropriate.
That is not to say that Oracle’s audit script has not ended up in court. We recently wrote about important securities litigation styled as City of Sunrise Firefighters’ Pension Fund, et al. v. Oracle Corporation, et al. (In re Oracle Corporation Securities Litigation), Case No. 18-cv-04844 (N.D. Cal. 2018) that is currently pending in the Northern District of California before the Hon. Beth Larson Freeman in the Northern District of California.
As we discussed previously, this securities matter is predicated largely on internal whistleblower allegations regarding Oracle’s licensing and auditing script and how it uses that script to coerce licensees into unwanted cloud sales. Yet, to the best of our understanding and despite the incendiary nature of the whistleblower allegations, this matter has maintained a relatively low-profile outside of legal circles. Oracle continues to evade close scrutiny and, if it wins its currently-pending motion to dismiss, the public will lose its chance to fully understand just how systemic Oracle’s audit script really is.
Long before it was sued for securities fraud, we had noted that Oracle’s stated drive to ‘win’ the cloud wars was coupled with a strategy of coercing its captive base of licensees to its cloud. In August of 2019, we published an article entitled “What Oracle’s Disappointing Cloud Performance Means for its Licensees”. In this article, we discussed Oracle’s articulated plan for cloud dominance but also noted the precipitous market slip that Oracle experienced in 2018 (and that gave rise to the aforementioned securities litigation).
In this article, we discussed how Oracle’s initial stance on the Cloud was quite out of touch and, ultimately, led to Oracle trying to play a desperate game of ‘catching up’. In 2006, when cloud technology was just gaining momentum, Oracle’s then-CEO Larry Ellison was quoted as saying, “Maybe I’m an idiot, but I have no idea what anyone is talking about.” As recently as 2009, Ellison continued objecting to the “absurdity” and “nonsense” of cloud innovation. “What are you talking about?” he said. “It’s not water vapor. It’s a computer attached to a network!” And while Ellison acted befuddled, the cloud industry moved on without Oracle. Once he realized he had missed the boat on a crucial industry, Oracle reverted to its “business is war” mentality. At the time, Oracle’s strategy was to wield its aggressive licensing audits to thrust its cloud services onto its current licensees.
As we noted, the close of Oracle’s 2019 fiscal year saw limited improvement in the cloud space. This was likely attributable to the recently-announced cloud partnership with Microsoft and its blended reporting of licensing and cloud revenue streams, which had previously been separated.
By the close of Q3 of this year, Oracle was back to report large gains. Notably, Oracle reported that its Fusion ERP Cloud revenue was up by 38% and Autonomous Database revenue up 150%.At the time, it appeared that the latter would be a crucial carrot wielded by Oracle to pull people onto its cloud. As CloudWars reported:
Earlier in the year, Ellison reported on earnings calls that demand for Autonomous Database is enormous—so steep that the company can’t even forecast it. But to get it, you have to use Oracle’s IaaS.
So if Ellison’s early projections for Autonomous Database come true, he will have indeed made Oracle a player to be reckoned with in the infrastructure world.
Arguably, one of the major impediments to Oracle’s meaningful competition in the Cloud had previously been its lack of a viable cloud product coupled with the inroads that other companies were making with competing database. Some industry analysts believe that Oracle’s autonomous database may be Oracle’s biggest breakthrough in years. And by tying it to their cloud, for a brief period Oracle appeared to have had a better play than ever for moving their broad base of captive licensees to their cloud.
Then Covid-19 hit with Oracle closing its financial year significantly behind, reporting devastatingly modest increases in cloud revenue. As reported by MetrixData 360, when Oracle released its Q4 report on June 16, 2020, the results illuminated how the Covid-19 pandemic had negatively impacted them in four different areas of their business: cloud services and licenses support saw a paltry 1% increase in revenue over the past year (Oracle has historically seen a 4% increase in that same category); hardware saw a 9% dip; services saw an 11% dip; and cloud licenses and on-prem licenses decreased by an incredible 22%.
While Oracle never quite obtained a firm footing as a cloud competitor, there can be no doubt that whatever tentative gains it had made were quickly obviated by market fluctuations. Further, at least while the securities matter is pending, it has been our observation that Oracle has chilled on pushing the Cloud during unrelated audits. So if business is war, what are Oracle’s other theaters of conflict?
‘Techlash,’ a term first coined by The Economist in 2013, has gained widespread traction over the last few years. The OED put it on their shortlist for 2018’s Word of the Year, defining it as: “A strong and widespread negative reaction to the growing power and influence of large technology companies, particularly those based in Silicon Valley.”
Despite the increasing momentum of a purported ‘Techlash’, industry analysists have commented that Oracle has been nearly immune to its impact. For example, this past November Axios noted that:
The techlash that's causing headaches for Google, Facebook and Amazon has yet to hit Oracle. Instead, the company is helping stoke some aspects of the tech critique in D.C. itself — highlighting the distinction between its own fee-for-service model and free, ad-based businesses.
A large part of Oracle’s success in villainizing tech companies has been attributed to Ken Glueck, Oracle’s Chief Washington Lobbyist. Just this past February, The Wall Street Journal published a profile of Ken Glueck, crediting him as “a major force behind the increased government scrutiny of leading technology companies.” Improbably, Oracle was favorably portrayed as an underdog “punching above its weight” by taking on Facebook, Amazon and Google and others:
Not long ago, Washington lobbying featured pitched battles between business and labor unions or consumer groups. Now, some of the biggest fights pit company against company. Few have mastered the game like Oracle. Co-founded more than four decades ago by iconoclastic entrepreneur Larry Ellison, the corporate-database pioneer has long since been eclipsed in size by consumer-facing giants such as Google parent Alphabet Inc., Amazon and Facebook Inc. When it comes to sway in Washington, Oracle punches above its weight.
The Wall Street Journal went on to credit Oracle (and Mr. Glueck in particular) for its successful campaigns against Silicon Valley tech companies, including convincing Australia’s competition commission to allege that Google misled users about mobile tracking; persuading the European Union’s competition regulators for bringing cases that have amounted to $9B in fines against Google; and, mostly recently, encouraging the FTC to announce a probe into how corporate acquisitions by large tech firms have helped solidify their dominance.
With regard to the latter, on February 11, 2020, the FTC demanded that “Amazon.com Inc., Apple Inc., Facebook Inc., Microsoft Corp. and Google owner Alphabet Inc. … provide detailed information about their acquisitions of fledgling firms over the past 10 years.”
For years, Oracle has claimed that 97% of Fortune 500 companies use its products. In order to brag of this degree of market penetration while attacking other tech companies for their prominence, Oracle was forced to concoct a distinction regardless of whether it amounted to a difference. Oracle relied on its licensing model as the primary differentiator:
“We have been working hard to point out that there is no techlash. There is a substantial backlash against the business model where purportedly ‘free services’ are offered in exchange for massive and unconstrained collection of consumer data untethered to the underlying service,” said Ken Glueck, Oracle's executive vice president and top Washington lobbyist. “Winter is here for that business model.”
The irony and bluster in Oracle’s position are notable. As we have written about and seen for years, much of Oracle’s business model relies on the manipulation of Byzantine licensing agreements and strong-arm auditing tactics in order to coerce payments from reluctant and at times furious licensees. This is hardly a stable platform from which to throw stones. As we will discuss in Part II, though, isn’t “that business model” which Ken Glueck derides the precise business model it assumed through TikTok?
Opening up yet another front in its “business is war” model, the past several years has shown Oracle increasing its public support of various coalitions that are best described as right-wing advocacy groups in disguise. The following are three of the groups that Oracle has publicly admitted to supporting – there could be many more.
The Internet Accountability Project (“IAP”) isthe brainchild of Mike Davis, the activist who helped lead the fight to confirm Supreme Court nominee Brett Kavanaugh. IAP’s mission is to “lend a conservative voice to the calls for federal and state governments to reign in Big Tech.” Rachel Bovard, senior advisor to IAP and an experienced GOP Senate staffer, says that the group will fight Google, Amazon, Facebook and Twitter in privacy, antitrust, and Section 230 (the section of the Communications Decency Act that protects online publishing platforms for liability for what users post).
Though IAP did not disclose its funders, it was revealed in February that Oracle is one of its benefactors. As industry commentators have pointed out, Oracle’s support for the group cannot and should not be distanced from IAP’s strident and partisan position: Mike Davis [of the IAP] wrote on Townhall.com that Google’s battle with Oracle is “the poster child for what we at IAP call ‘the Great 21st Century Internet Heist.’” He said [Google] “is anathema to conservatives and everything we stand for,” without disclosing that his group is funded by Oracle.
Free and Fair Markets Initiative (FFMI) claims to be a grassroots coalition of business and advocacy groups that fight for a better economy. FFMI is funded by Oracle, Wal-Mart (who shows up later in the TikTok saga) and the Simon Property Group. The FFMI is mostly focused on Amazon with regard to the Pentagon Joint Enterprise Defense Infrastructure (“JEDI”) cloud contract, while Google is often hit by the initiative’s broad attacks. (See, e.g., September 18, 2019, Poll: Two-thirds of Americans want to break up companies like Amazon and Google).
Campaign for Accountability is a 501(c)(3) that states that it “uses research, litigation and aggressive communications to expose misconduct and malfeasance in public life.” In April 2016, the CFA launched the Google Transparency Project, a website that purports to challenge Google’s “influence on Government, public policies, and our lives.” In August 2016, Ken Glueck confirmed that Oracle was one of the funders of the project.
Commentators have noted that it is “clear that the Google Transparency Project and Campaign for Accountability are activist groups – not the impartial watchdogs they pretend to be.”
* * * * *
In the nearly five years since we filed the complaint in California State Court on behalf of Mars, Inc. in the Mars v. Oracle matter, we have represented scores of licensees in contentious tussles with Oracle while consistently researching, publishing and speaking on Oracle’s evolving auditing, licensing and cloud strategy. Most recently, we have joined forces with LicenseFortress in order to help our clients proactively manage their Oracle software deployment and otherwise protect themselves in the event of the inevitable Oracle audit.
Please stay tuned for Part II, in which we attempt to set the stage with regards to Oracle’s involvement in the TikTok saga by first discussing the details surrounding Oracle’s association with the current administration.
Published on 9/30/2020
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