Jul 28, 2016 · 7 minutes

A disclosure up front: Netsuite CEO Zach Nelson is a Pando investor. Now, if you need proof of how hands-off we are with our investors, here’s how I first saw the news of the company’s nearly $10 billion acquisition this morning…

There’s always one reporter who seems to make this joke when a significant enterprise company born out of an inflection point in the industry sells for a shitload of money. Last time it was Alexia Tsotsis, then of TechCrunch:

I think this means that it provides enterprise software for human resources, but you can never be too sure with these incredibly dull companies. I am too bored to Google it. In fact, I am literally bored to tears writing this, like I am seriously crying here in my local coffee shop and everyone is looking at me weird and I just want to show them this press release so they’ll understand or something.

Let’s ignore for a moment how wildly disrespectful the “boring!” stance is to the thousands of people who worked hard for years building these companies. Let's also set aside that when Tsotsis made her comments, everyone lost their shit, prompting her to embark on essentially an apology tour of enterprise companies. For some reason I can't possibly imagine it's a scandal when Alexia at TechCrunch doesn't understand Enterprise, but fine when a Mike at the Times does the same thing years later.

Finally let’s set aside for a minute that your job as a tech reporter isn’t to be entertained, it’s do tell readers why massive industry moves are significant.

I get not everyone covers enterprise software or gets the nuances of a deal like this. But if you’re one of those reporters then maybe just stick to Tweeting about Facebook earnings today. Because, while you won’t see it written about breathlessly in every publication the way you would a consumer deal worth $10 billion, it’s not boring.

Om Malik pointed to one reason why also on Twitter today:

Netsuite was started by Evan Goldberg and later run by Nelson, who like Marc Benioff and Tom Siebel, were part of one of the largest and most powerful and most enduring Silicon Valley “mafias” of all time: The Oracle Mafia. While the PayPal mafia and their spawn have dominated the last eight years of consumer tech obsession-- from the cult around Elon Musk, to the caricature Peter Thiel has become in recent months, to YouTube’s enduring power even under Google-- the Oracle Mafia spawned the founders of several generation of enterprise software’s inflection points.

Even Workday to a degree: It was the frustration and the cash from Larry Ellison’s epic hostile software takeover of PeopleSoft that encouraged Dave Duffield and Aneel Bhusri to go for round two. That was, by the way, the last time the acquisitive Oracle spent this much on a deal.

More to the point: Oracle almost always wound up trouncing or eventually gobbling up a lot of these spawns. Siebel-- famously -- from a position of tremendous weakness. This is why the SAP SuccessFactors acquisition was interesting as many an enterprise reporter explained to Tsotsis at the time. When a company is so gargantuan that its software systems already “touch” some 63% of the world’s transaction revenue, those companies gobbling up the giants that could disrupt them matter.

As Om points out, that Oracle finally bought Netsuite isn’t a shock. And Jay Greene at the Journal actually did address it and asked Oracle about it. They said the deal would only close if a majority of non-Ellison owned shares voted for it and that it was independently negotiated. Still... Ellison long had a close relationship with Netsuite, closer than with Salesforce. He owns a whopping 40% of the company, so yeah, he just made himself a shit load more money. There’s a clear analogy there.

Ellison has long been able to block others ability to buy Netsuite, so you could argue there was a thumb on the scale of how this would end up from a company that should have in theory been a competitor to Netsuite on the fringes.

But it’s not exactly like the Tesla/SolarCity analogy. For one thing, there’s more of an intuitive fit between the two companies. They both sell business software, Netsuite’s is complementary to Oracle’s. But also the concern with SolarCity was that a company in a position of weakness was getting bailed out. Netsuite is in a position of strength.

The New York Times positioned this deal as one Oracle needed more than Netsuite. From the write up:

The NetSuite deal is Oracle’s largest acquisition since it bought PeopleSoft for $10.3 billion in 2004, according to data from Standard & Poor’s Global Market Intelligence. That deal, a hostile takeover fought out over 18 months, extended Oracle’s customer base and product offerings.

It made Oracle bigger, but it did not change its business model. About 5,000 PeopleSoft employees, close to half the company, were laid off in the following months.

The NetSuite purchase, on the other hand, is at the heart of Oracle’s fight to remake itself for the modern world of cloud computing, or providing accessing to vast computational resources over the internet. This transition has shaken up the software business for the last several years, as companies like Google, Microsoft and Amazon have created markets worth billions, and older companies like IBM, Hewlett-Packard and Oracle have struggled to change the way they make and sell their products.

Put another way: The last time Oracle spent this much, it was mopping up a series of best-of-breed enterprise companies that were flailing, killing their products mostly and letting all that on going maintenance revenue fall to the bottom line. That $20 billion or so spending spree was kicked off by pessimistic arguments Ellison made about the maturity of tech and the lack of innovation in the space.

If this is the beginning of another spending spree, it’s a very different narrative of the cloud changing everything, new entrants like Salesforce and Workday becoming giants, and other deep pocketed tech companies getting into the space.

To wit: Oracle is paying a 19% premium for the company, even on top of a stock that had already risen on chatter of the deal. And in that sense, this deal deviates from Oracle’s traditional playbook when it comes to mega-deals and acquisitions of companies that spun out of the Oracle Mafia. He didn’t take Netsuite out early on or didn’t buy it on the cheap from a position of distress. The deal is so distinct that some investors worried it could signal a shift in Oracle’s acquisition strategy. From Barrons:

Concludes [John] DiFucci, this bears watching: “This is not of concern if this transaction is an anomaly, but if it marks an inflection point to a new trend in Oracle’s approach to M&A, we question the strategy.” 

Most company watchers do not expect this to be a trend, because these two companies had such a historically cozy relationship. But that gets us back to what makes this story interesting: The inflection point that enterprise software is in. We could be embarking on an era where the largest companies are not gobbled up by Oracle, SAP, IBM, and Microsoft. Or if they are, those companies have to pay a premium for it.

We could also see other just as deep pocketed bidders. I’ve already speculated why Facebook should take a good long look at Slack. If Nelson stays at Oracle in a senior position he could lead a charge to buy more smaller companies. He’s long mentored and invested in some of the new guard of cloud companies.

People who have been in this industry for decades have waited for a time when the same handful of legacy giants didn’t continue to rule everything. A dramatic change in Oracle’s acquisition strategy, the ascendency of a $55 billion Salesforce, Google having a heavyweight like Diane Greene running its enterprise business, and Facebook’s growing interest in how you work may be the first real signals a major shift is actually here.