Oracle and SAP are changing CEOs as they do a ‘delicate dance to the cloud’ — and it could be the right time for Larry Ellison to step back up as CEO (SAP, ORCL)

Larry Ellison

Oracle and SAP, longtime rivals, are going through major leadership changes at the same time.
Safra Catz is now the sole CEO of Oracle, following the death of co-CEO Mark Hurd — though founder Larry Ellison has made it clear that he likes the dual-CEO concept for the company.
SAP's longtime CEO Bill McDermott has stepped down to take over cloud software giant ServiceNow. He's been replaced by two exec team members, Jennifer Morgan and Christian Klein, as co-CEOs.
Analysts say the changes could define the way the two tech giants adapt to the cloud, which has disrupted the enterprise software market which they have long dominated.
The leaders of Oracle and SAP have increasingly had to send a message to the business world that they are also key players in the cloud, where they are facing newer and more nimble competitors like Salesforce and Workday.
One analyst thinks Larry Ellison, given his star power, could return as CEO to be the much-needed public face for Oracle at a time when the company is battling it out with stronger cloud rivals.
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Oracle and SAP are each going through major changes to their leadership. That can be tough for any business, but it's certainly trickier for tech giants facing a shifting market.

Safra Catz is now the sole CEO of Oracle, following the death last week of co-CEO Mark Hurd after going on medical leave. That said, Oracle founder Larry Ellison had previously indicated that the company is looking to maintain its dual-CEO structure – meaning the company has a decision to make.

At SAP, longtime CEO Bill McDermott just stepped down, and will be the new CEO of ServiceNow. He's been replaced by two exec team members, Jennifer Morgan and Christian Klein, as the German behemoth pivots back to a dual-CEO leadership structure of its own.

'A delicate dance to the cloud'

These changes are taking place at a time when Oracle and SAP, the world's biggest enterprise software vendors, are doing what an analyst called "a delicate dance to the cloud" as they adapt to the new ways businesses, including major corporations, buy and consume applications.

Over the past few years, the leaders of Oracle and SAP have had to focus on a key goal: to send a message to the business world that they, too, are major players in a trend that is disrupting a market they have dominated for more than three decades.

It's not easy for two tech behemoths, born in the earliest days of the IT industry — one analyst compared the two companies to dancing elephants.

"You're asking which of the two elephants are dancing better," Ian Campbell, CEO of Nucleus Research, a tech market research firm, told Business Insider, when asked which company has done a better job adapting to the cloud.

"You have two large companies with a lot of history," he said. "It is a much more delicate dance moving to the cloud, when you've been around for 20, 30 years in the market."

The cloud disrupted a market SAP and Oracle had dominated

For more than 30 years, SAP and Oracle have dominated the market for software that businesses used to manage important tasks, including payroll, finances, human resources and customer relations. Businesses typically paid hefty licensing and maintenance fees to have these applications installed in their in-house data centers.

Then came the cloud.

Businesses can now access applications through the web, often allowing them to scale down or abandon private data centers And they can now pay for software on a pay-as-you-go, subscription-based plan, usually based on the number of users, avoiding expensive multi-year contracts.

"The cloud world is very different from a world when projects took years to implement and you can count on loyalty for decades," Morgan, SAP's new co-CEO, told Business Insider in a recent interview. "Now, it's a game of days and weeks and months. And customers choose you every single day."

Oracle and SAP found themselves facing new rivals, such as Salesforce and Workday. These so-called cloud native players have been winning over not just new companies, but also big corporations — including Oracle and SAP's customers.

Mark Hurd as a great sales leader

It's a complicated dance where having a skilled, experienced and high-profile salesman as CEO is important. Hurd has been widely praised for playing that role for Oracle.

Jean Bozman, vice president of tech research rim Hurwitz and Associates, said that Hurd's "absence was felt" soon after he first went on medical leave, when he didn't attend the annual Oracle OpenWorld conference in San Francisco. Now that the worst has occurred, it will take a while to understand the void he left behind.

"The news about the passing of Mark Hurd is sudden, and the impact of this loss will need to be understood by Wall Street, Oracle's employees, and by Oracle's customers, who met often with Mark Hurd in customer councils and conferences," Bozman told Business Insider.

Gartner analyst Ted Friedman echoed this view, saying "Mark's big value to the organization was that he was a great sales leader," and that he'll be difficult for Ellison and Oracle to replace.

"He was a very charismatic sales leader," he told Business Insider. "He was very good at getting alignment and driving effectiveness of the sales teams. So I think that characteristic has got to be top of mind for Larry and the board as they consider candidates."

Should Larry Ellison become CEO once again?

It is possible that Oracle would choose to have Catz, whose leadership has been widely praised, continue serving as a solo CEO. Campbell of Nucleus Research described her as a "really fantastic" leader who played an important role as "a strong back-end operations person."

But beyond Ellison's stated preference that Oracle have two CEOs, Campbell also said that "Oracle is going to need a more forward-facing evangelist," which is not known to be one of the famously attention-averse Catz's strengths.

And he thinks Oracle can have such an evangelist leading it again — if Larry Ellison himself would return as CEO.

"Larry Ellison could certainly play that role," he said of Ellison returning as CEO. "It might not be a bad role for him to come back into and to drive the market again. He's had a bit of a rest, if you will, by not doing the day to day stuff, and I'd say, of all the choices, that wouldn't be a bad one for Oracle."

Ellison, who founded Oracle in 1977 and who has long been one of the most famous Silicon Valley executives, stepped down as CEO in 2014, although he remained as executive chairman and chief technology officer.

Safra Catz

"Certainly, the charisma factor is there," Friedman of Gartner said when asked about the possibility of Ellison's return. "Obviously, he so deeply respected and admired across the company. I would imagine those would be characteristics that would serve him well."

But Friedman noted that there has been no indication that Ellison is considering returning as CEO. During last month's OpenWorld event, he actually mentioned two executives who could one day step into the role: Don Johnson, head of Oracle cloud infrastructure business, and Steve Miranda, who leads the company's applications development.

Bozman said Oracle clearly has "a deep bench. There are a lot of people who can help run this company in the future." But the big question is do they have the star power of a Larry Ellison, which is key for maintaining and expanding Oracle's relationships with the top executives of major corporations.

Bill McDermott's new gig

This ability is crucial in building and maintaining ties with businesses, including big corporations, that now have far more options than in the past. This need was underscored last week when McDermott, Ellison's longtime rival at SAP, made his first appearance as incoming ServiceNow CEO.

During ServiceNow's earnings call, an analyst asked McDermott to share his thoughts on reaching out to the CEOs and CIOs of current and potential customers. Outgoing CEO John Donahoe, who has been named to lead Nike, responded first by highlighting the important, high-level relationships McDermott has developed through the years as head of SAP.

Bill McDermott

"I have to say...Bill McDermott makes my Rolodex look paltry in terms of his relationship with CEOs all over the world," Donahoe said.

"The rolodex is really strong," McDermott added, noting that he and Donahoe "recognize the power of power."

"It's really been an honor to operate at that level," he added. "And the altitude up there is nice and clear and it helps the conversations down below to take place faster, better and bigger."

A surprise in timing

Cambell of Nucleus Research said McDermott's decision to step down at SAP "was a little bit of a surprise in timing."

"Certainly he's had a good run, and we've seen a lot of great things with SAP," he said. "Their biggest challenge going forward is integration. What they've done is buy a lot of applications through acquisitions. They've been on a buying spree."

Over the past year alone, SAP has bought such cloud companies as Qualtrics, Callidus Software and Coresystems, in pricey deals that could sometimes make its investors nervous.

Shortly before stepping down, McDermott explained the roles his successors, Morgan and Klein, will play.

Klein, who had been SAP's chief operating officer, will focus on the company's flagship product, its suite of enterprise applications. Morgan, who has served as SAP president, will continue focusing on the tech giant's cloud business, which has been growing largely through acquisitions like that of Qualtrics.

"Jennifer is focused on the cloud business which is mainly all the acquired companies of SAP," he told CNBC. "So we entrusted $30 billion or so of acquired companies in her hands."

SAP's new CEOs already making moves

Morgan plunged into her new role as co-CEO last week when he announced a key partnership with Microsoft, a competitor in the traditional enterprise software market that is now one of the three main cloud providers, which includes Amazon and Google.

It underscored another strategy that Oracle, which recently also unveiled a partnership with Microsoft, and SAP have had to embrace as they adapt to the cloud, forming alliances, including with longtime rivals,

"A lot of times with companies today, everything is about either I win or you win," she told Business Insider of the decision to work with Microsoft, a longtime rival. "It's not a zero-sum game anymore."

Got a tip about SAP, Oracle or another tech company? Contact this reporter via email at bpimentel@businessinsider.com, message him on Twitter @benpimentel. You can also contact Business Insider securely via SecureDrop.

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