Business or Pleasure? - why not both: Larry's magic numbers

At Oracle Open World, aka #oow10 on Twitter, a lot happened. Fair to say that, whatever you think of it, at least it stirred up things. "Cloud in a box" (bringing back to me fond memories of my first AS400, and later my first ICL mainframe), putting down Salesforce.com as not-Cloud, Larry sure got things going this week

A tweet on Oracle R&D from Michael Fauscette, however, was too bold:

#oow10 R&D budget over 6 yrs grew: IBM 6% total, SAP 60%, Oracle 192%

It was his tweet, but it's fair to assume those figures were copied from the Oracle-stage or -screen. By the way you might want to read this related post by Vinnie Mirchandani on the special treatment of analysts by Oracle
Frank Scavo contested the absolute truth of that saying that might be true in real dollars, but certainly not as relative part of revenue - being the figure fetisjist I am I couldn't resist scavenging through another few sets of annual reports and get the real stats. And the result is more than stunning actually, with Larry Ellison overplaying his hand here - by far

Update 24th September 17:50 CET:
In a previous blog post I pointed out the different make-up of these companies, let me repeat it here:
SAP: 23% services, 77% software
Oracle: 20% services, 80% software
IBM: 40% services, 40% software, 10% hardware, 10% financing

Oracle and SAP can be compared perfectly in this way, can't they?

First, as it turns out, these figures are indeed absolute dollars. Statistically, a comparison like this would only make sense if the companies can be compared. For that, it would mean that the relative growth of Oracle, SAP and IBM over the last 6 years was similar. Surprise, it's not - not even close

IBM revenue grew 2.3% from 2004 to 2009
SAP revenue grew 42.7% from 2004 to 2009
Oracle revenue grew 128.4% from 2004 to 2009

So, absolutely incomparable: IBM hardly moved, SAP stayed above inflation level, and Oracle more than doubled its revenue. It is absolutely useless for Larry to compare Oracle to SAP or IBM given these figures, or any other company for that matter because there are few companies that have such growth in such a small time. Sure, it's not organic growth but delivered by take-overs, but still - it's growth in capital letters

Second, it's highly usual to take R&D as a percentage of revenue, for comparison purposes. After all, over the years that's easy to compare within a company, and across companies. So, let's take the relative R&D percentage of each company over those 6 years, and to make matters simple, the average of that. Doing so, here are the figures, showing the percentage of total revenue that is spent on R&D:

IBM has an average R&D% of 6.3% over 2004 to 2009
SAP has an average R&D% of 13.9% over 2004 to 2009
Oracle has an average R&D% of 12.5% over 2004 to 2009

Interestingly, Oracle doesn't have the highest R&D% of all three companies! SAP wins here. That's a surprise (again). Let's take a closer look and see how that yearly percentage evolves over the years:

IBM has an R&D% increase of 0.0% over 2004 to 2009
SAP has an R&D% increase of 12.1% over 2004 to 2009
Oracle has an R&D% decrease of 5.7% over 2004 to 2009

Oracle has a relative decrease in R&D spending? IBM breaks even, and SAP increases it even? That's an entirely different view than pictured by Larry...

One final try here to give Larry the benefit of the doubt, which is getting increasingly harder, but hey: it might just be that R&D increased as a percentage of operating profit! That would justify these figures that so sharply contrast with Ellisons's message - wouldn't it? So, let's first look at the profit as a percentage of revenue:

IBM has an average profit% of 15.0% over 2004 to 2009
SAP has an average profit% of 25.7% over 2004 to 2009
Oracle has an average profit% of 34.8% over 2004 to 2009

Wow. That's impressive right there, Oracle makes way more money out of revenue than IBM or SAP. The bad news is, SAP and Oracle have a profit% decrease of 8.9% resp. 6.8% over 2004 to 2009, where IBM has an increase of 65.3%. Still, Oracle has a huge amount of money to spend on R&D, compared to IBM and SAP, so that would then explain that 192% mentioned above, wouldn't it?

No, once again. It's all one huge suggestimation

For the final blow: I will compare profit % to R&D %: after all it says a lot whether you're making 10% profit and spending 20% in R&D, or vice versa! In the figures below, the R&D percentage (of total revenue) is compared to the profit percentage (of total revenue)

IBM has an average R&D-to-profit ratio of 43% over 2004 to 2009
SAP has an average R&D-to-profit ratio of 54% over 2004 to 2009
Oracle has an average R&D-to-profit ratio of 36% over 2004 to 2009

Say what?! Oracle has the lowest relative investment in Research and Development of these three companies? 20% less than IBM, and 50% less than SAP?!
Now compare all that knowledge with the initial info: "R&D budget over 6 yrs grew: IBM 6% total, SAP 60%, Oracle 192%"

Here's the entire overview of all figures for the real cracks out there: