What does Oracle have to do – or not – with easyJet?
Last week, I flew my first easyJet flight, Tel Aviv (TLV) to London Luton (LTN). Overall, the experience was positive. Purchasing online was easy, no games with return flights or Saturday night stays, the flight crew was pleasant and simple and no complaints about what is included (nothing). I have always loved transparent pricing.
The boarding process in Tel Aviv was a nightmare, but that was mainly because the main terminal has no more check-in space, which meant checking in at the old terminal and then a bus to the new one, which itself turned a half hour check in process to more than two hours. If not for that, I would fly them again.
The afternoon before my flight, my son asked me about ElAl’s new low-cost carrier, Up, and if it will compete successfully with easyJet, RyanAir, SmartWings and the rest. While I am all in favour of competition – the more the merrier – I told him I do not expect Up to succeed. ElAl, like most legacy carriers, has a cost structure and, more importantly, a mindset that are built around higher gross margins covering more fixed costs. Nothing ElAl does is built around surviving on lower gross margins, lower fixed costs and higher volume.
Back when Southwest Airlines started, they were famous for using only Boeing 737s. With identical planes, the boarding process was the same for every flight at every gate at every airport; every pilot was certified on every airplane in the fleet; luggage handling could be done in exactly the same way. Similarly, when JetBlue started, they pioneered self-checkin, because machines cost a lot less than people. Both of these airlines started with a mindset of doing everything as efficiently and low-cost as possible, and encouraging their staff to find ways to make it more so.
Legacy carriers, on the other hand, are used to full-service (as much as it gets nowadays), different plane types for different routes, special needs, different crews, and the prices to cover it. Simply selling tickets at a lower price might make you low-cost, but won’t make you successful. Anyone remember Delta’s Song?
In a great article on Oracle and the cloud business, Matt Asay identifies the exact same dynamics at play in their attempts to compete with Amazon Web Services. Oracle is a company built around enterprise software’s high margins; Amazon Web Services Infrastructure-as-a-Service (IaaS) is built around value-conscious efficient consumption of resources – buy exactly what you need at the lowest cost possible.
Oracle’s problem with AWS is the same as ElAl’s is with easyJet or Delta’s was with Southwest: the business model.
Amazon’s IaaS is built around getting you in at a low price so you can use as much or as little as you need, while Amazon still makes a profit on it. Most AWS users never pay fixed contracts or put down any significant cash upfront, and certainly do not pay large sums to “Amazon consulting” (which doesn’t really exist). Amazon’s control panel and APIs are built to allow you to manage your services as simply (and therefore cost-effectively) as possible.
Oracle, by contrast, lives to sell expensive software for large margins, then add annual maintenance fees of 15-20%, as well as lots of upfront consulting (and some ongoing consulting as well). From that perspective, their 2010 purchase of Sun Microsystems was not as bad a fit as one might think. After all, hardware is usually a large upfront capex investment with lots of labour involved, maintenance fees, and a lifetime of 3 or so years. Software may be different than hardware, but the business models have a lot in common.
For Oracle to compete successfully with AWS would require a completely different mindset than that which has pervaded the company since its inception. That sort of shift is usually impossible, unless an independent subsidiary is spun off and managed by either outside executives or the internal mavericks who always ran up against the entrenched culture; every company has a few of those.
While most companies and consultants look at new products or services in the context of the offerings or the customer base, even more importantly, new offerings must match the business model and the culture/mindset/DNA.
Good luck to ElAl and Oracle; they will need it.