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Heard the Word from Hurd: Oracle’s Strategy for Banking Markets

I happen to be at an Oracle banking bash in Asia this week where Mark Hurd, President of Oracle Corporation, delivered the keynote.

A few highlights from his presentation include a comment that worldwide GDP is running at around $53 trillion and that $1.3 trillion of that is spent on technology.  Of this, $1.3 trillion, around $800 billion is spent on Enterprise IT and $500 billion on consumer technologies.

Obviously, it depends how you cut and dice things, as Gartner reckon $2.1 trillion is spent by consumers on digital products and services, increasing to $2.8 trillion by 2015.

Thing is that these figures include all the iTunes downloads and Amazon media services.  When you strip it out, the figures are $1.2 trillion for subscription based services, such as mobile data services, $600 billion on devices and $200 billion on content and software.

Regardless, Mark then said that banks spend $130 billion on Enterprise IT and telecommunications firms spend $90 billion.

Maybe more interestingly, Oracle spend $4.5 billion a year on R&D of which around $700 billion goes into industry-specific solutions.  Of that figure, $200 million is spent on financial market solutions.

He then put up some slides about exabytes, as that sells Exadata and Exalogic, Oracle’s storage and cloud services.

An exabyte is 1,000,000,000,000,000,000,000,000,000 bytes.   That’s a lot of bytes.

In 2010, the amount of new digital data being produced each year is around 1,200 exabytes or 1.2 zettabytes, a year.

This year, that figures will be more like 1,800 exabytes and the figures are doubling every three or four years such that, by 2020, we will be creating 35,000 exabytes of new digital data a year.

That’s all down to smartphones, social networks and the immediate sharing and capturing of everything on sound, video, picture, text, data …

A lot of this new digital data will be generated by mobile workers in the emerging economies – the so-called E7 – which are growing faster than the G7, particularly as a result of urbanisation.

For example, looking at the projections for urban area, a new Beijing is being created every other month in the emerging world with a 92.47% increase in urbanisation in Asia between 2010-2050 according to the UN World Urbanisation report, compared to a rise of 18.27% in developed nations and 80.3% average for the world.

And with five billion mobile and 1.3 billion smartphone users moving across cities and continents, this explosion of data, mobility and operation will be a key challenge for all industries over the next decade.

Hurd made some other interesting comments about predictions … and how wrong they can be.

For example, back in the 1990s when he worked in NCR with yours truly, everyone said that cash would be killed by the debit card and branches by the internet.

Two decades later, cash is still increasing in usage and American banks now have more branches than ever before, and the number of branches have increased in the last few years.

So instead of getting rid of stuff, we just add more stuff onto the system.

I agreed with this point.

Banks end up adding rather than replacing anything, so consumers just go: “oh a debit card.  How nice.  I’ll have that and some cash”, and “oh internet banking.  How nice.  I’ll have that but want to have a branch too.”

Rather than replacing, we just add and this is the issue.

But I don’t agree that we’ll see this continue in ten years’ time.

In ten years, branches and cash will decline in usage as the technology tools are now reaching the inflection point where this has become viable.

It just wasn’t viable two decades ago, but it was inevitable.

Anyways, if you want to know what Mark Hurd is saying about the industry, here’s a pretty accurate and full transcript of his speech.

Mark Hurd, President, Oracle Corporation on the company’s future strategy and banking market focus

The world is changing a lot and a lot more change is coming.  This means that, if you are in IT and in banking, you’ll have an awful lot coming at you in the future.  In other words, however complicated you think it is today, it’s about to get a lot more complicated.

For example, the amount of data on the planet is doubling every three or four years, with more data created in the next three years than ever before. 

80% of this data goes through us and our systems aren’t built to handle this scale. Our systems are not built to handle the number of people running around with all these computers. 

For example, there are five billion mobile phones out there now and eleven billion downloads of apps per year.  There’s 1.2 billon mobile workers, accessing zettabytes of information in brand new urban markets as economies shift. For example, a new Beijing is being created every other month as the emerging markets see 92% growth  in urbanisation, compared with just 18% in developed economies.  In fact, emerging economies – the E7 – will be 64% larger than the G7 by 2050, and their Purchasing Power Parity (PPP) will be twice that of the G7[1].

And all this data being generated by these new generations of workers and consumers is being sent through these old creaky IT systems … or at least 80% of it. 

This is the problem I want you to have in your head.  Lots of data, lots of system, the user is changing . 

Meantime, when I try to get service from your company, banks, you have trained me to get crummy service.  Sometimes people take a long time to answer, shift me around.  Same as airlines. 

My daughter has no idea why I expect that service, but she expects instant gratification. 

For example, my daughter and I are in the car going to the airport, and I am trained for crummy service so I call the call center. 

My daughter says, what are  you doing?  Doesn’t that airline have Google?

I try to explain that this is much more complicated due to legacy applications and complicated IT. 

She could care less.  “I’ll get you the gate on my iPhone”, she says. 

She expects to get immediate answer to any question she’s got when she wants it.  That demographic that’s changing won’t tolerate what I tolerate. 

So the future world of banking will be more complicated with more data, more urbanization and an expectation for immediate service as people sort through zettabytes of information trying to get an answer to a simple question.

Which brings me around to the specific challenges in banking.

Banks have all these channels: ATM, Branch, Telephone, Internet. 

Now I remember when I worked for NCR in 1995, and an analyst said: “you know debit cards are going to rule the world and there will be no more cash by 2000.  We will be a cashless society.  I remember hearing that internet banking would eliminate bank branches.   At NCR, where I worked at that time, if people don’t use cash or branches, it is bad for our business.  Now, years later, I have a lot of cash in my pocket and I still use it. 

The fact is that, with these secular trends, nothing tends to go away.  Everything tends to add.  Things get more complicated, not less. 

It is because the customer wants choice.  I still want cash and a debit card. I want internet banking and a branch and a call center. 

Retailers face the same problem.  Grocery stores were going to be no more, and were going to be replaced by internet ordering and a delivery van but there are still lots of grocery stores.  Do some people use internet to shop? They do.  Do some cross shop?  They do. 

It just means there is a lot more change, more complexity, more data, more mobility, more growth in markets yet to be developed and my pitch to you would be simplify, simplify, simplify.

Most banks have silos of data everywhere.

My pleading would be integrate, simplify, move away from as many apps as possible.  Simplify your apps.  Free up as much money to innovate. 

All of you in IT and banking have really hard jobs for all the reasons I described.  You have more change coming at you.  There is a ton of data and a world of unhappy users, who won’t be satisfied with bad service and are highly mobile, looking for answers to questions as fast as they can and getting answers from old creaky silo technology systems. 

This is a period of time to transform these environments and it’s time to move. 

Question #1:

I want to pick on your prediction that branches would decrease and cash would decrease…are you saying in 10 years’ time, there will still be more branches and more cash?


It’s not that binary of a point as secular change will still occur, but maybe the tail on that change is really long.  After all, if it was such a great idea, it would immediately get integrated.  The bottom-line however is that people want choice and, if you give them a choice, they will take it. 

This is why you have to make market segmentation work, and there is always a percentile of the market that will take different choices if such choices are offered.  That is why you don’t see a drastic change.  For example, in retail, retailers will still have stores and Wal*mart didn’t stop opening stores when walmart.com started.

It is the same with mobility.  There are 1.3 billion mobile workers so you would expect that there would no longer be offices anymore but that’s not true.  It hasn’t stopped.  There are offices still, and employees would like more, even though we have many more mobile workers.

Question #2:

But back in your NCR days, everything was pushing towards a single version of the truth via data warehouses but silo systems don’t work.  We knew that twenty years ago, so why are banks still trying to fix this today?


Because banks are the worst companies at data organisation.  You’ve seen changes in many other industries to leverage data assets, but banks are different.  They not only have the silos that most companies have, but they also have organisational structures that don’t lend themselves to sharing.

Bank mergers don’t lend themselves to integrated use either, and that does not help.  For example, Bank of America has 11,000-12,000 applications; JPMorgan has 7,000-8,000. 

With a huge growth of data volumes, US and European bank mergers have purely resulted in most of the merged operations integration projects being light integrations. 

Maybe it is also that banks aren’t as hungry to change as banks make too much money.  Banks are making anything up to 25% operating profits and that reduces the motivation to change.  You say to a bank: ‘you need to transform’ and the CEO says: ‘Why?’  The CEO thinks it all looks pretty good. 

Question #3:

How do you see Oracle’s specific strategy for banks and other institutions?


How big is the worldwide IT market? 

If the world’s GDP is running at $53 trillion per annum, $1.3 trillion is the IT Market.  Of that, around $800 billion is for Enterprise IT.  Of that, banks represent $130 billion of spend, and the telecommunications sector $90 billion.

The difference for a technology company is that banks are global.  Banks are attractive because what you do in London is what happens in Shanghai and the problems are similar.  That is very attractive to a technology company because it means you can build once and sell many times.

That’s why we are spending $4.5 billion on R&D this year, and $700 million of that will be on industry-specific solutions, of which $200 million will be spent on bank industry-specific solutions.

Our aim through our organisation is then to get that to every bank in the world as fast as we can. 

Question #4:

Oracle has had a high rate of acquisition but, as consumers, we believe in choices.  As the rate of acquisition increases, it means we run out of choices.  What is your future acquisition strategy?


We have an organic agenda to continue to build great technology. 

This is because, even though we closed the last quarter with $29 billion in cash, M&A activity has slowed because valuations have been so high and there are a lot fewer companies than there used to be. 

There is more consolidation coming in the industry however, but in a different form because the IT industry has made life complicated for customers. 

For example, if you bought a car from the IT industry, how would that work? 

Here’s how it would work.

First, you would call the muffler company, then the windshield, then the tyre company, the engine company and so on.  And all the pieces would arrive as parts in your driveway.  You would then hire a car integration company to put it together in your driveway.  Once assembled, you would then be told you can drive the car for four days a week, unless there is a lot of traffic, as a result of various auto Service Level Agreements. 

In other words we, as an industry, have fragmented so many of the parts of technology that it takes  hundreds of employees to cobble it together. 

That’s got to change and if we can provision, test, integrate and remove service and complexity, and support it remote, then that would be a sea change in the industry.  There will be a forcing together based on what you can see, in terms of lower integration and operating costs. 

So, in acquisitions, we will continue to look for things that make sense for us but we don’t feel like we have to buy anyone and feel great about our growth strategy through organic R&D.


[1] From a PwC report, the World in 2050 http://www.pwc.com/en_GX/gx/world-2050/pdf/world-in-2050-jan-2011.pdf: “The E7 economies will by 2050 be around 64% larger than the current G7 when measured in dollar terms at market exchange rates (MER), or around twice as large in PPP terms …  in contrast, the E7 is currently only around 36% of the size of the G7 at market exchange rates and around 72% of its size in PPP terms.”


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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