Oracle's coziness with government goes back to its founding / Firm's growth sustained as niche established with federal, state agencies

Long before Oracle became embroiled in a controversy over selling its software in Sacramento, the Redwood City software giant was building its reputation and its business on government contracts.

From a Central Intelligence Agency deal that launched the firm 25 years ago,

to recent software contracts in Sacramento and Los Angeles, Oracle is no stranger to the halls of political power.

The CIA was not just Oracle's first customer. Founded in May 1977, the firm's name came from a CIA project code-named "Oracle." Company co-founders Larry Ellison, Robert Miner and Ed Oates worked on Project Oracle at a consulting firm, before striking out on their own.

A quarter century later, close to a quarter of the company's revenue -- $2. 5 billion a year -- still comes from selling software to federal, state and local agencies.

"Oracle wouldn't exist if it weren't for government contracts," said Mike Wilson, author of the book "The Difference Between God and Larry Ellison."

Oracle has 1,000 sales and consulting workers focused exclusively on government work. And in the wake of Sept. 11, Oracle is counting on the heightened interest in staving off terrorism to boost its government ties even more.

Oracle has been actively pitching software to local governments to create detailed digital maps that could be used to respond to attacks. In March, the company formed a partnership to focus on airport security. Ellison even offered to give the federal government software to help create a national ID to thwart terrorists.

In a background paper, Oracle boasts that it is "very active in homeland security."

INFORMATION TRACKING NICHE

Banc of America Securities analyst Bob Austrian believes the entire high- tech industry could profit from the increased security spending. But he suspects Oracle could do better than most because it already has an unusually large share of government contracts and is in a particularly relevant niche.

"The majority of interest surrounds tracking individuals and information, which by its nature is a database-intensive application," he said.

So, perhaps it's fitting that Oracle is making headlines because of concerns over the recent $95 million government contract.

Among the allegations are that Oracle persuaded California officials to buy more software than needed, misrepresent the costs savings and rush through a no-bid award without considering alternatives. It didn't help that Oracle handed a $25,000 check to Gov. Gray Davis' technology adviser just two weeks after the deal was signed.

Oracle retorts that California received an "exceptionally good price" and says it was just one of 30 tech companies to pledge money to Davis at a fund- raiser. Davis has since decided to return the money.

CONTRACTS AND DONATIONS

Regardless, the timing of the contribution raises questions about whether Oracle has tried to help win some of its government contracts by making donations.

Campaign disclosure forms, for instance, show that the company gave $1,000 apiece to four Los Angeles school board members from March through June of last year: Valerie Fields, Jose Huizar, David Tokofsky and Julie Korenstein. Fields was defeated in the June election.

A few months later, the Los Angeles Unified School District started buying Oracle software to "warehouse" vast amounts of records. The district said that it had bought $2.3 million in software from August 2001 through March of this year, but that the school board members not not voted on those purchases.

Though Korenstein said she vaguely recalled someone from Oracle calling to make a contribution, she said she immediately had the person transferred to her treasurer. She said she didn't even know the amount.

"There was no discussion that if you do this, I'll do this. There was nothing," said Korenstein, whose campaign cost half a million dollars.

State records show that Oracle also gave $500 to Los Angeles County Sheriff Lee Baca in August. The sheriff's office has used Oracle software since 1999 to track criminal records and Oracle touts it as one of its "success stories." Oracle says the system is designed to support 10,000 terminals, including 2, 000 logged on at once, and keep track of 500,000 arrests a year.

LOBBYING EFFORTS INCREASE

Like many tech firms, Oracle also has tried to boost its political clout at the national level in recent years.

Last year, Oracle spent $2.3 million on lobbying, up from $900,000 in 1997, and was the computer industry's fifth biggest lobbyist, according to the Center for Responsive Politics in Washington, a nonpartisan research center. Microsoft ranked first.

In the past couple of years, Oracle also has hired key Beltway insiders, including a former top CIA official, David Carey, and former White House spokesman Joe Lockhart, who later quit after complaining about the hassles of shuttling between Washington, D.C., and Silicon Valley. For a while, the valley was abuzz with rumors that Ellison was courting former President Bill Clinton for a board seat.

During the 2000 election cycle, Oracle gave $821,107 in campaign contributions, up from $129,600 in the 1996 cycle, according to the center.

But Oracle doesn't have a strong allegiance to either party. In 2000, three- quarters of the money went to Republicans. In 1996, three-quarters of the donations went to Democrats. San Francisco voting records show that Ellison is not registered with either party, though he is said to lean Democratic.

"I don't believe Ellison has any political convictions of his own," said Wilson, the Ellison biographer. "His only convention is to win business . . . if that means giving money to Republicans, Democrats or the Whigs."

POLITICAL AWARENESS GROWS

Oracle spokeswoman Jennifer Glass said the contributions merely reflected high tech's growing political interest in general.

While traditionally remaining aloof from Washington, tech lobbyists have successfully fought in recent years for everything from legislation extending bans on Internet taxes to an increase in visas for skilled foreign workers. And Oracle rival Microsoft is the largest high-tech lobbyist in Washington.

"I don't think it's exceptional," Glass said.

Rob Atkinson, vice president of the Progressive Policy Institute, agrees.

"High tech as a whole has become more politically aware in the last few years," he said. But he also believes Oracle is making a concerted effort to capture more government contracts, particularly with a growing interest in security and governments putting more information online.

"Companies want to be players in this, and stepping up lobbying and other efforts is a way to do this," he said.

CAPTURING MARKET

And though it's impossible to show a cause-and-effect relationship, Oracle's federal contracts have skyrocketed in recent years.

According to Washington Technology, an industry publication, Oracle's annual federal contracts have quadrupled to $210 million over the past four years. (This does not include Oracle software sold to the federal government through other companies.)

This year, the publication ranked Oracle 32nd on its list of 100 biggest high-tech prime contractors.

By comparison, Oracle ranked 68th in 1998. And in 1997, it didn't make the list at all.

But Oracle has also captured many major contracts at the local level where no contributions were involved. And many tech executives swear by the software,

saying it is the Rolls-Royce of database products.

For most of the past decade, Oracle has been the largest database vendor, swamping its competitors in the business market, particularly for high-end databases that can handle millions of records.

Oracle captured nearly a third of the $8.8 billion database market last year -- just slightly behind IBM, according to Gartner Group, a Connecticut technology research firm.

To stay near the top, Oracle is expected to continue mining the halls of government for lucrative deals. Government entities tend to be among the biggest consumers of database software, relying on the programs to keep track of vast amounts of data -- ranging from tax records to welfare checks.

"Governments keep a lot of records," said Carl Olofson, an analyst with International Data Corp., a Framingham, Mass., research firm.

Locally, Oracle has signed up an impressive array of government customers, including deals with the cities of San Francisco, San Jose, Fresno, Palo Alto and Milpitas and five Bay Area counties.

AN ORACLE CHRONOLOGY

-- 1977: Computer programmers Larry Ellison and Robert Miner team up to start a new software firm and persuade the CIA to let them pick up a lapsed, $50,000 contract to build a special database program. Oracle Systems Corp. is founded in Belmont with Ellison as president and CEO and Miner supervising software development. Venture capitalist Donald Lucas is recruited to become chairman.

-- 1978: Miner develops the world's first relational database using IBM's Structured Query Language.

-- 1979: Oracle becomes the first company to commercially offer a relational database management system.

-- March 1986: Oracle sells 1 million shares in its first public offering of stock.

-- 1986: Company sales reach a record $55.4 million.

-- 1989: Standard & Poor adds Oracle to its 500-stock index and the company relocates its headquarters from Belmont to a new and larger complex in Redwood Shores.

-- 1990: In autumn, Oracle posts its first-ever quarterly loss (nearly $36 million).

-- September 2001: Larry Ellison advocates the creation of a national identification card system and says Oracle has the software to make such a system work.

-- April 2, 2002: Oracle begins offering hosting and remote management service for its database and application server products.

TECHNOLOGY AND POLITICS -- Five largest computer/Internet lobbyists Lobbying expenses, 2000 Microsoft Corp. $6,360,000 EDS Corp. $5,564,933 IBM Corp. $4,680,000 Texas Instruments $2,200,000 Oracle Corp. $2,180,000 . -- Largest campaign contributors Computer/Internet lobbyists, 2000 data Microsoft Corp. $4,581,626 America Online $1,887,781 Cisco Systems $1,219,743 Siebel Systems $876,850 Dell Computer $856,244 Kinetics Group $833,000 Oracle Corp. $821,107 Propel $655,000 Learning Co. $651,150 Gateway Inc. $583,852 . -- Contributions by year Oracle Computer/Internet industry 2000 $821,107 $40,020,654 1998 $311,663 $9,481,946 1996 $129,600 $9,267,708 1994 $33,750 $4,258,511 . Source: Center for Responsive Politics Chronicle Graphic

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