How Larry Ellison Made $113 Billion With Only 430,000 Customers

Summary

Oracle, founded by Larry Ellison in 1977, is a tech giant valued at $240 billion with a unique business model serving just 430,000 global customers, each contributing significantly to its market cap. Despite early struggles, Oracle's aggressive marketing and strategic acquisitions, including Sun Microsystems, have secured its position in the tech industry. Ellison's personal investments, particularly in Tesla, have further bolstered his $113 billion fortune, showcasing his visionary leadership in the enterprise software sector.

Takeaways

• 😀 Oracle is a well-established tech company founded in 1977, yet it remains unfamiliar to the average person.
• 🌐 Oracle has a relatively small customer base of 430,000 worldwide but is valued at a staggering $240 billion, indicating a high market cap per customer.
• 💰 The company's valuation contrasts sharply with Facebook's, where each user represents significantly less market value.
• 🏆 Larry Ellison, Oracle's founder, has amassed a $113 billion fortune with a focus on enterprise customers.
• 👶 Larry Ellison's early life was marked by hardship, being raised by his aunt and uncle after his biological mother gave him up at nine months old.
• 🎓 Ellison had a bright academic start but never completed his university education, experiencing personal loss and dropping out of multiple institutions.
• 🔧 Before Oracle, Ellison held various jobs, including at Wells Fargo, and picked up valuable programming skills along the way.
• 🔑 Ellison's breakthrough came when he recognized the commercial potential of relational databases after reading a paper by Edgar F. Codd.
• 🚀 Oracle's first product, named Oracle V2 to imply an advanced version, was the first commercial SQL-based relational database, despite initial lack of market interest.
• 🔄 The company underwent a name change to Oracle Systems Corporation and continued to release new versions, each named one off from the actual version number.
• 📈 Despite early struggles and a scandal involving overstated earnings, Oracle went public in 1986 and eventually became the world's largest database management company.
• 🛒 Oracle's growth strategy includes aggressive marketing, strategic acquisitions like Sun Microsystems, and expansion into cloud services.
• 💼 The company's success is attributed to its enterprise clientele, who pay substantial annual fees for Oracle's database solutions and services.
• 🏆 Larry Ellison stepped down as CEO in 2014 but retains a significant stake and influence in the company, with a diverse investment portfolio including real estate and Tesla.
• 🌐 Oracle's low PE ratio and the breadth of its enterprise clientele, from tech giants to governments, underscore its stability and market dominance.

Q & A

What is the significance of the year 1977 in Oracle's history?

1977 is the year when Oracle was founded, marking the beginning of its journey in the technology industry.

Why is Oracle not well-known among the general public despite its high market value?

Oracle is primarily a B2B company, focusing on enterprise customers rather than individual consumers, which explains its lower public recognition despite its significant market value.

How does Oracle's market cap per customer compare to Facebook's?

Oracle's market cap per customer is over $550,000, which is nearly 1600 times more than Facebook's $346 per customer, highlighting the high value of Oracle's enterprise clientele.

What was Larry Ellison's background before founding Oracle?

Larry Ellison was born in New York City to a single mother and was raised by his aunt and uncle after his biological mother passed away. He attended the University of Illinois as a premed student but dropped out after his second year.

How did Larry Ellison's early career shape his path to founding Oracle?

Ellison held several jobs, including at Wells Fargo and Ampex, where he developed computer programming skills. He also read a research paper by Edgar F. Codd on relational databases, which inspired him to start Oracle.

What was the original name of Oracle when it was first launched to the public?

The original name of Oracle when it was first launched was Oracle V2, despite it being the first version, as Ellison believed it would seem more appealing to customers as a second-generation product.

Why did Oracle change its name from Relational Software Inc. to Oracle Systems Corporation?

Oracle changed its name to Oracle Systems Corporation in 1982 to align the company's name with its flagship product, Oracle V2, after the product gained some traction and the CIA became its first major customer.

How did the 1990s dotcom boom impact Oracle's growth?

The dotcom boom allowed Oracle to offer its database and network products through the internet, which helped the company to grow exponentially and solidify its position in the market.

What major acquisition did Oracle make that gave it control over the Java programming platform?

Oracle acquired Sun Microsystems for $7.4 billion, which gave it control over the Java programming platform.

How has Oracle's business model evolved over the years?

Oracle has evolved from being a database company to also providing cloud services, which has proven to be lucrative. It has also expanded through numerous acquisitions, including 55 between 2000 and 2010 alone.

What is the source of Oracle's high revenue despite having a relatively small customer base?

Oracle's revenue comes primarily from enterprise customers who pay significant amounts annually for its services, with many customers making millions per year.

What is Larry Ellison's current role in Oracle and what is his estimated net worth?

Larry Ellison stepped down as Oracle's CEO in 2014 but still owns 35% of the company, which translates to about $85 billion. His total net worth is estimated to be $113 billion due to various investments.

Outlines

00:00

🤖 The Oracle Phenomenon: A Tech Titan with Few Customers

Oracle, founded in 1977, is a tech giant valued at $240 billion, yet it's relatively unknown to the average person, with only 430,000 customers worldwide. This contrasts sharply with Facebook, which has a market cap of $1 trillion for its 2.89 billion users. Larry Ellison, born in 1944, had a challenging upbringing and didn't complete his university education. However, he found his path in the tech industry, learning computer programming and eventually co-founding Oracle. The company's first product, Oracle V2, was a pioneering SQL-based relational database, and despite initial struggles, it secured the CIA as a major customer, leading to Oracle's growth and IPO in 1986.

05:02

📉 Overcoming Challenges: Oracle's Journey Through Scandals and Market Shifts

In 1990, Oracle faced an earnings overstating scandal, which led to a 75% drop in its stock price. The company also encountered increased competition in the database market. Larry Ellison's attempt to enter the personal computer market with the network computer (NC) concept was ahead of its time and failed to materialize. However, Oracle capitalized on the dotcom boom, offering its products over the internet, and benefited from the decline of its main competitor, Informix. Despite a stock price crash in 2002, Oracle emerged stronger, with little competition and a new growth avenue in internet services. The company went on an acquisition spree, including the notable purchase of Sun Microsystems, and expanded into cloud services, which proved to be very profitable.

10:04

🚀 Larry Ellison's Legacy: From Humble Beginnings to Tech Tycoon

Larry Ellison, with a net worth of $113 billion, has a significant stake in Oracle and other investments, including real estate and a substantial position in Tesla, which is now worth over $10 billion. Despite stepping down as Oracle's CEO in 2014, he retains a 35% ownership and continues to be a major influence. Oracle's success is attributed to its enterprise customers, who pay substantial annual fees for its database solutions. The company's valuation is impressive, considering its relatively small customer base, and it has a low PE ratio of 19.31 in the tech industry. Ellison's story is one of resilience and strategic business acumen, transforming a company with few customers into a global tech powerhouse.

Keywords

💡Oracle

Oracle is a multinational computer technology corporation headquartered in the United States. Founded in 1977, it specializes in developing and marketing database software, technology, cloud systems, and enterprise software products. The company's name is significant in the video as it discusses its history, market value, and the story of its founder, Larry Ellison. The script highlights Oracle's unique position in the tech industry with a high market cap relative to its customer base.

💡Larry Ellison

Larry Ellison is the co-founder of Oracle Corporation and was its CEO for 37 years until 2014. The video script outlines his personal background, rise in the tech industry, and his role in building Oracle's fortune. Ellison's journey from a challenging upbringing to becoming one of the wealthiest individuals globally is central to the video's narrative.

💡Market Cap

Market capitalization, or market cap, is the total market value of a company's outstanding shares of stock. It is calculated by multiplying a company's shares outstanding by the current market price of one share. In the video, Oracle's market cap of $240 billion is contrasted with Facebook's, illustrating the difference in valuation per customer.

💡Relational Database

A relational database is a type of database that stores data tables in a way that allows for relationships between the tables, enabling complex queries and operations. The video script explains how Larry Ellison recognized the commercial potential of relational databases after reading a research paper by Edgar F. Codd, leading to the creation of Oracle's first product.

💡SQL

SQL, or Structured Query Language, is a domain-specific language used in programming and designed for managing data held in a relational database management system. The script mentions that Oracle was the first commercial SQL-based relational database program, emphasizing its innovation in the database industry.

💡IPO

An Initial Public Offering (IPO) is the process by which a private company goes public by offering its shares to be traded on a stock exchange for the first time. The video discusses Oracle's IPO in 1986, which was a significant milestone in the company's growth and public perception.

💡Enterprise Customers

Enterprise customers refer to large businesses or organizations that purchase products or services in significant quantities. The script explains that Oracle's customer base consists mainly of enterprises, which pay substantial amounts for Oracle's services annually, contributing to its high market valuation.

💡Acquisitions

In the context of business, an acquisition refers to the purchase of one company or entity by another. The video script details Oracle's strategy of acquiring other companies, such as Sun Microsystems, to expand its offerings and market presence.

💡Cloud Services

Cloud services involve the delivery of various types of computing services over the internet. The video mentions Oracle's expansion into cloud services, which has become a significant part of its business model and revenue stream.

💡NC (Network Computer)

The Network Computer, or NC, was a concept for a low-cost, minimalist computing device that relied on network resources for most of its computing needs. The script describes Larry Ellison's attempt to enter the personal computer market with the NC, which was ahead of its time and ultimately did not succeed.

💡PE Ratio

The Price-to-Earnings (PE) ratio is a valuation ratio calculated by dividing a company's market value per share by its earnings per share. It is used to determine if a company's stock is overvalued or undervalued. The video notes Oracle's PE ratio of 19.31, suggesting it might be undervalued compared to other tech companies.

Highlights

Oracle, founded in 1977, is an industry classic within tech circles but relatively unknown to the general public.

Despite having only 430,000 customers worldwide, Oracle is valued at $240 billion, with each customer equating to over $550,000 in market cap.

Larry Ellison, born in 1944, had a challenging upbringing and was raised by his aunt and uncle after his biological mother gave him up at nine months old.

Ellison's early life included being named the science student of the year at the University of Illinois, but he never completed his studies due to personal circumstances.

Larry Ellison's career started with several jobs, including at Wells Fargo, before finding his niche in the tech industry.

Oracle's inception was influenced by a research paper by Edgar F. Codd on the relational database model, which Ellison saw commercial potential in.

Oracle was the first commercial SQL-based relational database program, launched in 1979 with Ellison investing $1200 of the initial $2000.

The company initially named Software Development Laboratories changed to Relational Software Inc. and later Oracle Systems Corporation.

Oracle's aggressive marketing included naming their first product Oracle V2 to imply it was a second-generation product, despite being the first version.

The CIA became Oracle's first major customer, providing a significant boost for the company.

Oracle went public in 1986 with a valuation of $194 million, marking a significant milestone in its growth.

An internal audit in 1990 revealed that Oracle had been overstating their earnings, leading to a 75% decline in stock price.

Larry Ellison's vision for a network computer (NC) aimed to leverage cloud computing to reduce personal computer costs but was ahead of its time.

Oracle's acquisition of Sun Microsystems for $7.4 billion gave them control over the Java programming platform, expanding their tech offerings.

Oracle's customer base consists primarily of enterprises paying substantial annual fees, contributing to their high market valuation.

Larry Ellison's net worth of $113 billion comes from his 35% ownership in Oracle and various other investments, including real estate and Tesla.

Oracle's PE ratio of 19.31 is notably low for the tech industry, indicating undervaluation compared to other tech giants.

Transcripts

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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