Oracle founder and CEO Larry Ellison, on his first visit Israel last weekend, told TheMarker that collaborative open source software is nothing to be feared, and mocked the "Google-envy" he said Microsoft was suffering.

"I gained a very clear understanding of the tremendous challenges that the country faces every day," he said at an event hosted Saturday night by TheMarker, the American Embassy and Oracle Israel. The captains of Israeli business attended, eager to rub shoulders with the entrepreneur who started with $1,200 and built a global company with 75,000 employees.

He was visiting Israel with his family, and spoke during a weekend in which he toured the country by helicopter, from Gaza to Lebanon.

Speaking with TheMarker, Ellison insisted that the Web 2.0 phenomenon is not a passing fad, and postulated that Google isn't a direct rival. He also believes that one day, Oracle will pass Microsoft and become the world's biggest software company.

As for the locals: "What's really different about Israel compared with other places we do business is the number of partners we have in the technology area," Ellison says. "Israel has always had a wealth of intellectual talent." Certainly Oracle has invested heavily in the country: There is a company Oracle Israel, headed by Moshe Horev, and it has an R&D center based on an acquired technology company, Dmantra.

"Economic funding in Israel changed to a much more entrepreneurial plan. Taxes have come down and regulations have simplified, then the entrepreneur can flourish and release his intellectual capital. Now that intellectual capital is turning into economic capital," Ellison says.

Oracle has been investing intensively in the latest craze: Web 2.0. It is a tricky thing to pin down. Wikipedia defines it as "a perceived ongoing transition of the World Wide Web from a collection of websites to a full-fledged computing platform serving web applications to end users." The bottom line is that online services are expected to replace desktop computer applications at many levels. Opinions are mixed on whether it's a passing fad or a revolution in the making. What does Ellison think?

Asked whether Web 2.0 is a fluctuation or a technology that will change the way we do business, Ellison replied: "Do I think Web 2.0 is overrated? I think every generation thinks that their set of innovations will quickly replace everything that came before.

"I think Web 2.0 is an extremely important innovation. I think we constantly come up with new technologies. But those new technologies take a very long time to fully displace technologies that came before. Or before they 50 percent displace technologies that came before.

"Oracle has deeply invested in Web 2.0. Our future middleware, Fusion, is based on Web 2.0. Our new tool set and applications are based on Web 2.0.

"But before all our customers migrate to that next-generation technology, before half our customers migrate to that new generation, it will probably be seven years."

Does Larry Ellison foresee a day when Oracle will change its business model? For instance, might it support advertising as Google does? Or perhaps he foresees Google elbowing into Oracle's space?

"I detect Google-envy in Silicon Valley. In fact, the most interesting thing is that Microsoft has Google-envy, which is fascinating, because Microsoft makes more money than Google," Ellison says.

"Google is a consumer company that makes its money with advertising. I think that if we put advertising on our general ledger pages, so before you make a journal entry, somebody suggests that you go out and buy I don't know, a Mars bar or a Coke, I think our customers wouldn't be thrilled. They want to make a journal entry. B, we are not a consumer company.".

Oracle sells software to professional programmers, he says. It sells business applications to specialized business professionals, accountants, salespeople, service people. "While they're doing their job is probably not the best time to advertise to them," he quips.

Regarding future challenges, Ellison dismisses open source as a threat to Oracle.

"Open source is not something to be feared. Open source is something to be explained. Open source wins not because it's open and not because it's free. Open source wins only when it's better," he says.

The Apache web server is currently the most successful open source product in the world," Ellison says. "It displaced Microsoft IIS not because it was free and not because it was open source, but because it was more secure and faster, and more reliable.

"Linux, I believe, is competing very effectively with (Microsoft's) Windows. The thing that's misleading is that for free software to take over - well, the purchase price of software is only about 10 percent of the total cost of ownership of software. So even if the software is free, the most you can save is 10 percent off. Now the question is, what are your other costs of developing applications, of running applications on a daily basis, of dealing with problems when they occur? We think that Oracle is absolutely very competitive with open source," he says.

"Whenever open source gets to be better than what we do, like in the case of Apache and Linux, we will simply adopt it, distribute it and support it."

Will Oracle surpass Microsoft to become the biggest software company in the world? That depends on two questions, Ellison says: How fast Oracle grows, and how fast Microsoft shrinks.

As for growth, how do you define software? Ellison asks. Does Microsoft's Xbox count as software?

Larry Ellison is no oracle; he can't see into Oracle's future, let alone Microsoft's. No, he doesn't hate them, he clarifies, he just wants to make Oracle stronger than the Redmond giant. His job, Ellison says, is to make Oracle No. 1.