When Ray Lane talks about software, people naturally listen -- closely. Lane, formerly Oracle's president and chief operating officer, is widely credited as the architect who saved the database maker when it was coming apart at the seams in the early 1990s. After a public falling-out with Ellison triggered his resignation three years ago, Lane joined venture capitalist firm Kleiner Perkins Caufield & Byers. It is a different vantage point these days, but one that allows Lane more perspective than when he was in the trenches. Beyond the merger-and-acquisition-related news du jour, Lane believes that changes in the software industry are redrawing the relationship between customers and their suppliers. However, he wonders whether most applications makers really understand what that's going to mean to their future. The strategy pursued by his former boss also has him scratching his head. Watching his old company from the sidelines as the software business undergoes another merger-related realignment, Lane spoke with ZDNet UK's sister site CNET News.com about the trends affecting Oracle, PeopleSoft and the wider IT world. Q: Is there a common thread to what's going on recently in terms of structural change in the software industry -- or is it all coincidence?
A:I think it's a little bit of both. You have to look at the individual acquisitions and understand that each was made for their own independent competitive reasons. If you do look for common threads, you will find one or two being that each of those industries has a dominant company where others are trying to compete with them. SAP is the dominant ERP company with more than twice the share of its other competitors. So it makes sense that you can put a couple of them together and improve their position against the leader... In the case of Yahoo, they've seen Google come from nowhere in five years to take the dominant position in search, and that's Yahoo's primary business. So I think Yahoo felt it needed to acquire Overture. Do the institutions know something that the rest of us don't? Or is this a case of institutional herding, where fund managers are just jumping on and out of hot stocks or sectors? It's almost as if the clock got turned back to 1999.
I don't think you can generalise. Certainly, if you looked at all the companies losing money that only had "eyeballs" and only that, anybody can make a case that it was a ridiculous investing scenario. But even back then, there was an eBay or a Yahoo, which were good ideas. A company that's growing at, say 30 percent, and is profitable and increasing earnings, deserves a high multiple. Now, whether that should be 30, 50 or 100 is a temporal issue. In time all those multiples will come down and will find their place. Larry Ellison has talked a lot about how the software industry is destined to undergo changes -- slowing growth, increasing consolidation, etc. Is the software business being fated to undergo consolidation? How do you see things evolving?
Ellison has an ability to say things and cause the press to react. That's what he's best at, not at developing products. It's like he's going to say everybody is going to die. Well, of course we're going to die. Guess what? The software industry is going to slow down and consolidate. The fact that he's said it after the greatest wealth creation and bust makes it more dramatic. So, yes, he's right. But does that mean innovation is dead? That Silicon Valley is dead? That's ridiculous. Absolutely ridiculous. But will we ever see a period like 1998 again? No. But will it go back to the investing dynamics that we've seen in the last 30 years? Sure.