(Note: After an award-winning career in the media business covering the tech industry, Bob Evans was VP of Strategic Communications at SAP in 2011, and Chief Communications Officer at Oracle from 2012 to 2016. He now runs his own firm, Evans Strategic Communications LLC.)
CLOUD WARS – Because Larry Ellison and Oracle Corp. have often defied conventional wisdom and approaches, the company has frequently been misunderstood by those who are captivated by short-term tactical developments and oblivious to longer-term strategic positioning and potential.
I think that's exactly what's taking place right now in the wake of Oracle's earnings release late last week as short-term details related to its cloud business are blinding some observers to Oracle's fundamental strengths as a world-class provider of enterprise technology capabilities.
Let me offer three examples:
- At a time when customer choice is paramount, Oracle offers business customers around the world more enterprise-IT choices—in the cloud, traditional, or a mix of both—than any other tech vendor.
- At a time when the cloud is being viewed—and rightly so—as a generational transformation in how businesses deploy technology to innovate, to grow, and to dazzle their customers, Oracle offers far more cloud services than any of its competitors.
- At a time when the latest in the many hundreds—thousands?—of would-be "Oracle Database killers" that have surfaced over the past 40 years are doing a great deal of barking but not so much biting, Oracle is introducing a "self-driving" database that is vastly beyond what any of those aspirants can even dream of offering.
With Oracle and every other top player in the Cloud Wars, we're seeing those vendors play to the power of their own unique advantages of incumbency in their cloud strategies.
For Microsoft, that involves an end-to-end cloud strategy that encompasses the entire "digital estate"; for IBM, it's working with large customers to adapt their vast arrays of legacy systems to the cloud; for Amazon, it's doubling-down on its powerful brand appeal among developers and architects for its cloud-infrastructure offerings.
For Oracle, that advantage of incumbency is that the Oracle Database powers the workloads that run vast chunks of the global economy. And anyone willing to take something other than a very short-term view of Oracle's prospects will be able to see that the company is very clearly delivering to its existing and new customers an unmatched set of options for taking their IT environments—on-premises, cloud, and hybrid—into the emerging world of digital business.
This reality-based perspective—that the cloud, for all of its prowess, will need to coexist with traditional on-premises systems for at least the next 10 years—was captured nicely in brief Barron's article that quoted financial analyst Mark Moerdler of Sanford C. Bernstein & Co.:
"We believe customers' interest in a Hybrid environment along with an upgrade cycle are driving strength in the on-premise database business," Moerdler is quoted as saying.
"We believe this is a Hybrid story...in which Cloud growth + on-premise growth is the most important metric."
The leading cloud-native companies—among them Amazon, Salesforce.com, Workday and ServiceNow—are providing significant value to their customers by offering modern and transformational cloud services that help pave the way to that digital future.
But the traditional IT powerhouses that play not only the cloud but also in the traditional realm of on-premises software and systems—including not just Oracle but also Microsoft, IBM, SAP and VMware—offer their customers the ability to span the worlds of cloud and on-premises technology with exactly the kind of hybrid approach described by analyst Moerdler.
And that forms my core belief about why Oracle is beautifully positioned to compete successfully in the marketplace and offer a wide range of powerful options to customers moving to the cloud in their own ways and at their own paces.
So as promised in the headline, here are 10 reasons why I believe Oracle is in a powerful spot to become a dominant player in the Cloud Wars.
- It's got a big and fast-growing cloud business, and its traditional business is also growing—meaning it's able to meet current and future needs of customers. For its fiscal Q2 ending Nov. 30, Oracle reported total cloud revenue of $1.5 billion, up 44%, including SaaS revenue of $1.1 billion, up 55%. The combined revenue for cloud and on-premise software was up 9% to $7.8 billion. Overall, those numbers show that customers are moving at their own paces and in line with their own unique needs, and that Oracle's extremely broad set of products—both traditional and cloud—is able to align with whatever approach those customers choose to take.
- The Oracle Autonomous Database will become available in January. This latest edition of the company's flagship product could well become the linchpin of Oracle's hybrid strategy as customers can use it in the cloud, for on-premises workloads, or both. During the earnings call last week, Ellison began his prepared remarks by talking about how this "totally automated" and "self-driving system" will not only "dramatically accelerate" Oracle's PaaS and IaaS businesses but also strengthen the company's database license business. "People are buying database licenses to run on-premise and in the cloud—you can run them either place," Ellison said.
- BYOL: Bring Your Own License. Three months ago, Oracle launched a program to dramatically expand the flexibility customers have in making their hybrid journeys by allowing them to move their on-premises licenses to Oracle PaaS offerings, including Oracle Database, middleware, and analytics. This is another example of how Oracle's remaking not only its technology but also its business practices to give corporate customers more flexibility in deploying the unique set of both cloud and on-premises technologies that meet their business needs on the timetable that's optimal for them. On last week's earnings call, CEO Safra Catz said, "With BYOL, we are seeing a strong increase in our Technology installed base as customers renew their Unlimited License Agreement, invest in more licenses and options and renew support. Because BYOL is now available and customers better understand their transition options to move to the Oracle Cloud, Technology new-software license revenue is dramatically improving from the declines we were seeing previously."
- Oracle Cloud Machine offers flexibility for customers in regulated industries. This is a perfect example of one of the ways that Oracle makes the heads of cloud-purists explode: for companies in highly regulated industries such as financial services or pharmaceuticals that want the advantages of the cloud—speed of deployment, better economics, less maintenance—but want those capabilities based inside their own data centers in order to company with regulatory mandates, the Oracle Cloud Machine fits the bill. But it drives the purists nuts because they scream, "That's not really 'cloud'—that's faux cloud!' " For the sake of their health, I hope those ankle-biters get over themselves—because Oracle said on the earnings call that customers are eager to purchase the Oracle Cloud Machines, with initial revenue to be posted in next quarter's results.
- Amazon runs on Oracle Database, not on its own RedShift database. One of the world's premier corporations, Amazon, dominates the IaaS cloud category and wants to compete with Oracle, Microsoft and IBM in the PaaS category. But in replying to an analyst's question about "hearing" that competitors are making inroads, Ellison was effusive in saying that an incredible endorsement of the Oracle Database is the very fact that Amazon chooses to run its business on Oracle, not on its own database. "Let me tell you who's not moving off of Oracle: a company you've heard of just gave us another $50 million this quarter to buy Oracle Database and other Oracle technologies—that company is Amazon," Ellison said. "They're not moving off of Oracle. Salesforce.com isn't moving off of Oracle. Our competitors who have no reason to like us very much continue to invest in and run their entire business on Oracle."
- Oracle's SaaS business is booming among customers that never used Oracle on-premises applications. Most of Oracle's SaaS revenue "did not come from our on-prem user base," said CEO Mark Hurd on the earnings call. "Most came from competitors or came from companies that really are in their first set of [SaaS] applications: mid-market companies, fast-growth companies, etc." So in the apps business, this is not just switching the same dollars from the on-premises pocket to the SaaS pocket—these are net-new customers bringing new revenue to Oracle.
- Oracle is guaranteeing—in writing—that its forthcoming Autonomous Database will dramatically outperform Amazon's Redshift and cost much less. Warming once again to talking about the Oracle-Amazon dynamics, Ellison put it this way during is opening remarks on the earnings call: "We're so confident of our cost advantages over Amazon that Oracle will provide customers with written service-level agreements that guarantee—guarantee—that moving to the Oracle Cloud will cut Amazon customers' database bills in half or substantially more than half."
- Oracle's Q3 guidance offered growth rates extremely close to those recently posted by Salesforce.com. By any measure, Salesforce is regarded as a huge cloud success story. And in its three most-recent quarters, Salesforce has posted revenue increases for its combined SaaS and PaaS business of 25%, 26% and 25% (that's for Q3 '18 ending Oct. 31; Q2 ending July 31; and Q1 ending April 30). In the Q3 guidance offered by Catz last week, she said that combined cloud revenue for SaaS, PaaS and IaaS is expected to grow 21% to 25%. So if a company with a $6-billion cloud business is growing very close to or at the same rate as Salesforce.com, then that's gotta be a good thing, right? Particularly when you add in the highly nontrivial fact that that same company with the $6-billion cloud business also has a $33-billion on-premises business and has rewritten every single bit of that IP for the cloud, with complete compatibility for customers taking the hybrid approach—and the percentage of customers taking the hybrid approach will be somewhere between 98.4% and 100%.
- Customer choice is becoming front and center in everything Oracle does. Two years ago, Oracle began revamping its internal business processes away from the heavy-handed approach of its on-premises days and toward those of the customer-centric philosophy of the cloud. With its unmatched set of products and services that give customers a huge range of choices to fit their unique needs and tastes, plus this new internal orientation toward customer success to ensure renewals, Oracle's overcoming one of the major obstacles confronting it on its own journey to the cloud.
- Larry Ellison. As I wrote last week about the Oracle chairman's completely unmatched 40-year legacy in this business: "But over the past four decades, Ellison's track record of visionary success and strategic positioning is stellar—so it's worth at least considering his predictions on how the enterprise-cloud business will unfold over the next several years, and particularly with regard to those three primary competitors: Amazon, Salesforce and Workday." Like all of us, Ellison is sometimes wrong; but unlike all of us, Ellison's achievements in the enterprise-tech business are unmatched—and he is once again parlaying his unique sense of business vision and technological vision into a strategy that will most assuredly not fit neatly into some preconfigured, one-size-fits-all view of the world.
So if you choose to believe that Oracle doesn't have what it takes to be a top player in the cloud, and to believe that it's not fully prepared to exploit its advantage of incumbency to become the pre-eminent player in the massive market for the hybrid cloud that the bast majority of businesses are embracing and will continue to embrace, then you're also betting against Larry Ellison.
And you're betting that he's wrong. And that this time, he's going to fail.
Anybody want to take that bet?
