The Oracle That Couldn’t See the Future

Can Oracle compete in a new age of Enterprise Technology? Its revenue growth would say yes, but I say no.

Oracle has been amongst the most important Enterprise IT companies of the past 40 years. Its databases are running applications for nearly every large organization in the world and its business-critical applications are (along with SAP) the gold standard for any large enterprise. The company was not built on having the best technology – its relational database system is inflexible and its best-selling software such as Peoplesoft came through aggressive acquisitions – but rather Oracle was built on a large, ruthless sales organization that fostered a reliance for its customers on Oracle, while Oracle ensured every last dollar was extracted through its equally aggressive Licensing team.

The inflection point that may ultimately topple the giant, however, came way back on September 25th, 2008, when Oracle CEO Larry Ellison asked financial analysts “What the Hell is Cloud Computing?”. Ellison’s view on cloud computing flipped in 2012 when he announced Oracle’s ambitious plans for cloud, but it may have been too late. Despite being a late entrant into the biggest fundamental change in enterprise computing in a decade, Oracle’s revenues have continued to grow with huge contract renewals of larger and larger value. So, did Ellison really get it wrong?

The Information reported on January 2nd, 2018 that Amazon and Salesforce would be moving away from Oracle databases in favor of open-source alternatives, despite Larry Ellison saying the opposite on his Q3 guidance call in 2017, bragging that Oracle’s biggest competitors continue to rely upon it. Despite the obvious cost savings that would come from a switch to open-source for Amazon and Salesforce, their motivations run deeper. They are two of the largest cloud computing companies in the world, Amazon Web Services being the defacto IaaS (Infrastructure as a Service) company and Salesforce being the posterchild for SaaS (Software as a Service) with its CRM and related products.

While Oracle’s cloud growth has been impressive (fiscal Q2 ending Nov. 30, Oracle reported total cloud revenue of $1.5 billion, up 44%), it is mainly cannibalizing its own on-premises business. To exemplify Oracle’s impending loss, we can look at Microsoft as a comparable. Microsoft was also a legacy Enterprise IT company, but Microsoft identified the opportunities in cloud much earlier, and is now competitive throughout the cloud technology stack in IaaS, PaaS (Platform as a Service) and SaaS. It has helping customers deploy AI and Blockchain technologies and is now the industry leader in cloud by revenue (forward-projected $20.4 billion annualized run rate the company released on Oct. 26).

Microsoft also transcend the enterprise, having a huge consumer brand that makes it more marketable to the future workforce, who will one day start companies; digital disruption means many legacy companies, traditionally Oracle customers, will be displaced by newer, more innovative companies in their respective industries – businesses that are unlikely to have grown up with Oracle products.

Oracle may consider itself a cloud enterprise company now; but its commitment to its legacy business means that it must maintain elements of its operational architecture. Aggressive Sales people driving long-term, inflexible contracts is what Oracle do best. Its existing channels, filters and strategies will not fit a new model predicated on modularity and dynamic resource pricing. Oracle’s overhaul has been significant, but it has not been the radical innovation it required to remain relevant in the new computing age.

References

Is Oracle Losing Its Mojo? – The Motley Fool – https://www.fool.com/investing/2018/01/10/is-oracle-losing-its-mojo.aspx

Oracle And Its Cloud Business Are In Great Shape–And Here Are 10 Reasons Why – Forbes – https://www.forbes.com/sites/bobevans1/2017/12/18/the-top-10-reasons-why-oracle-and-its-cloud-business-are-in-great-shape/#7df3f7c8664d

IBM Rocks The Cloud: Purists Moan But Customers Love Big Blue’s $15.8-Billion Cloud Business – Forbes – https://www.forbes.com/sites/bobevans1/2017/10/18/ibm-rocks-the-cloud-purists-moan-but-customers-love-big-blues-15-8-billion-cloud-business/#4fd6f98b46e3

 

 

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2 thoughts on “The Oracle That Couldn’t See the Future

  1. While I agree with your analysis that Oracle has likely lost the battle in its move to the cloud, I don’t necessarily agree with your conclusion that there is no future in on-premises data centers. There are many applications in industries such as transportation, finance, and security where a trusted on-premises vendor like Oracle is able to charge a significant premium and continue to grow its business.

    The amount of data that is still stored in private data centers continues to grow, and the “death” of the private cloud has been a very drawn out one.

  2. Maximus,

    I agree and I offer you the sincerest apologies if that came across. I do not believe on-prem is dead, but I believe on-prem alone is dead. Hybrid models will continue to exist as highly regulated industries, especially in the EU, will need to store data locally; but there will be very few (if any) large enterprises that will not be cloud-first.

    The problem with Oracle is that its legacy sales culture does not work; a hybrid model cannot have a fixed, 7 year contract without modularity or dynamic computing resources. Microsoft still have a huge on-prem offering, but that is mainly sold through resellers as opposed to a direct sales force, leaving Microsoft more able to dictate its new sales culture.

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