Exclusive first public interview with Oracle's new EVP Dave Donatelli and his vision of extreme vertical engineering combining software and hardware from the app to the chip to the cloud.
The trillion dollar+ information technology (IT) business is not growing and pressure on existing suppliers to transform has never been greater. This is most evident as seen in the financial disclosures of the major systems and software companies where performance comparisons are made in constant currency, layoffs are termed “workforce re-balancing,” and the business segment discussion is focused almost entirely on the parts of the portfolio that are actually growing—which are typically much smaller than the parts that are shrinking.
Open source software is creating a long, slow decline in software pricing and cloud computing is dramatically altering the economics of infrastructure acquisition and deployment. While this changing technology landscape delivers benefits to businesses big and small, it is impacting virtually all major server, storage, networking, software and services companies.
Oracle’s $7.9 billion acquisition of Sun Microsystems in 2009 marked a dramatic shift in the competitive IT landscape as for the first time, a major software company eyed hardware as a strategic direction. While most observers predicted that then CEO Larry Ellison would sell off Sun’s hardware business and remain focused on higher margin software opportunities, he had a radically different plan to create an integrated systems and software business. Many thought this move was a mistake and predicted disaster for Oracle, however the company was able to absorb and re-architect Sun’s hardware business and achieve pre-acquisition operating profits rather quickly.
This move ushered in the beginning of the era of integrated systems, where, in theory, a software and hardware platform could be optimized from chip to application where all the pieces fit and work together. The promised benefit for customers was simplification, better performance and a more integrated experience. For Oracle, it gave the company a huge financial advantage over other hardware competitors.
Oracle Picks Pp Donatelli
Recently, I had a chance to sit down with Dave Donatelli for his first interview as EVP of Oracle’s Converged Infrastructure business reporting to Mark Hurd. What’s relevant is that Donatelli and Hurd are believed to be close—Donatelli worked alongside Hurd to engineer HP’s acquisition of high-end storage array vendor 3PAR Inc. back in September 2010. 3PAR turned out to be a great move for HP’s storage business adding significant revenue to an outdated storage product line. Donatelli was once considered to be one of HP’s most powerful executives, serving as executive vice president of its Enterprise Systems division until Meg Whitman landed in the CEO’s chair to replace Hurd.
This year, Donatelli emerged as the EVP of Oracle’s Converged Infrastructure business, joining another former HP executive—former HP CEO Mark Hurd—to lead Oracle’s cloud infrastructure initiatives. At Larry Ellison’s recent Oracle Cloud Platform announcement in Silicon Valley, I sat down with Donatelli to talk about the future of the Oracle hardware and software business as cloud computing is transforming the industry.
To say that Dave Donatelli has left a significant imprint on the IT landscape and led some of its most critical tectonic shifts would be an understatement. Donatelli is a 28-year IT industry veteran with a track record that reads like some of the industry’s greatest hits. At EMC, Donatelli led the acquisition of Data General in 1999 and grew that business from $400M to over $2B in the form of EMC’s VNX storage lineup; led the acquisition of 3PAR at HP in 2010 a business that grew from $184M to approximately $1.6B today. He also led the acquisition of 3COM at HP in 2009, a business which is approximately $2.7B today.
While at HP, Donatelli put his marketing muscle behind the term “converged infrastructure,” which, along with the efforts of VCE – the joint venture between EMC, Cisco and VMware – helped rapidly spread the concept throughout the industry as standard IT lexicon. The idea was to converge networking, compute and storage into a single unit of infrastructure to simplify management.
In Donatelli’s new role he will be responsible for all go-to-market strategies and global sales and marketing for Oracle’s Converged Infrastructure portfolio, including engineered systems, server, storage, networking and tape products. He reports directly to Mark Hurd, co-CEO of Oracle.
According to Donatelli, the move to the cloud is one of the most profound underlying infrastructure changes causing massive restructuring and change for existing hardware players. To amplify is point of view he says "any large-scale hardware vendor without a successful public cloud business will have a severely challenged business model.”
“If you’re in the infrastructure business the cloud has fundamentally changed the industry,” said Donatelli. “Hardware companies are trying to sidestep the issue with marketing and by attempting to position themselves as a ‘cloud arms dealers,’ but the fact remains—any hardware vendor without a successful public cloud business will face significant business challenges.”
Fierce Competition
According to Donatelli, software tied to hardware is a core strategy for Oracle and a competitive advantage for the company. Oracle is touting software co-developed with the underlying infrastructure for all their on-premise and cloud offerings.
As Larry Ellison said during the company’s latest cloud services announcement, “We sold $426M worth of business in SaaS and PaaS last quarter, a 200 percent increase over the same quarter last year. That’s an industry record, no company has ever sold that much in just one quarter.”
Donatelli points out that that’s $426M of hardware, software and services revenue that various vendors used to generate from discreet products. Now it’s all shifting to the cloud and, says Donatelli, fortunately, by virtue of its optimized vertical engineering focus, Oracle gets that hardware revenue since it operates its Platform as a Service (PaaS), Software as a Service (SaaS) and Infrastructure as a Service (IaaS) public cloud services all using Oracle hardware.
The cloud generally and AWS specifically is clearly having a negative impact on many suppliers. As former NetApp CEO Tom Georgens stated in his last public earnings call before being asked to step down, “NetApp is in the midst of two transitions, one faced by all IT vendors, the shift to the cloud; and one that is NetApp-specific, the transition from legacy ONTAP to clustered ONTAP…the complexity and duration of clustered ONTAP transitions have implications on several dimensions…clearly the flaw here on our part is that we underestimated the complexity of these transitions..."
To many, Larry Ellison looks like the Steve Jobs of the enterprise. Oracle’s new strategy is a very “Applesque” move where Oracle (like Apple) optimizes from the chip all the way up to the end-user application. Industry analysts recognize this as a smart move that stands in stark contrast to the likes of other hardware vendors.
Wikibon’s CTO David Floyer said, “Oracle’s co-engineering across the hardware and up/down the software stack gives Oracle a big advantage in running their software on their hardware. If the hardware is tied to the app or the Database, Oracle will have a significant performance advantage over their competition running Oracle software.”
Public Cloud Meets Enterprise
Amazon Web Services (AWS) is the real competition for Oracle. In its latest quarter Amazon Web Services revenue grew 81% with a run rate of over $7B annually. Notably, AWS operating margin was 21.4% for the quarter, greater than the 12 month average for both EMC and IBM. While AWS still faces challenges in getting widespread adoption in the enterprise, its momentum is undeniable. Donatelli’s perspective, however is that the Oracle brand is entrenched in the enterprise and the company has emerged as the only real enterprise-grade cloud solution, catering to developers and enterprises alike, with everything from cloud services for big data, SOA, JRuby and Node.js, among dozens of others.
One example Donatelli cited was, as part of its recent cloud platform launch, Oracle rolled out its new Storage Cloud Archive service, designed for deep, cold cloud archives—for financial records or digital movie masters. Oracle says that it’s solution is priced at 1/10th the price of Amazon Web Services Glacier cloud service, which starts at 1 cent per GB per month.
Clearly, the battle between Oracle and Amazon Web Service is intensifying.
“The world is moving to cloud. Unless you’re successful at public cloud you won’t be successful going forward. ‘Buy my hardware instead of the public cloud’ is not a viable answer. And giving up revenue to third party cloud providers doesn’t help your hardware business. It erodes it. Clearly, Oracle is at the front-end of the hardware industry restructuring that is taking place. Having a successful public cloud is a requirement for any large-scale hardware company that plans to be successful over the longer-term. Without a public cloud, infrastructure vendors could experience a material negative impact to their business operations,” said Donatelli.
Moving Up The Stack Is Hard
Donatelli also pointed out that every other vendor—from startups to the enterprise hardware providers—is fixated on the same self-limiting strategy: selling x86 servers and storage systems and touting how they are “hyper-converged” up to the virtualization layer, such as VMware or Hyper-V. The problem, says Donatelli is, “as high as they can get up to is the virtualization layer. That’s it. They have no applications, no middleware, no database, no public cloud,” said Donatelli. “You have to try and run Oracle software better than Oracle hardware. Nobody can do that. Saying you are hyperconverged is fine but the point is that Oracle has the software optimization that makes the hardware run better and that sits above the virtualization layer. The layers beyond virtualization are what customers are looking for today.”
Donatelli also notes that developing your apps on the same infrastructure as you’re going to deploy them into production is critical. For example, he asks, if you’re operating a high-end enterprise infrastructure on-premises and testing your new app in Amazon Web Service, do you really expect the application to run the same when you bring it back in house for deployment? Fortunately for Oracle customers, says Donatelli, what they run on premises—such as Exadata—is now available as an Exadata Public Cloud Service, meaning the same products, the same architectures, the same industry standards and the same skills to manage it. Contrast that he says, to testing on Amazon with its generic white box servers and storage kit and running production on a VCE vBlock and you’re faced with an environment comprised of different products, different architectures, different industry standards and different skills necessitated to make it all make some form of sense.
Results Matter
Oracle emphasized two main areas in its recent cloud announcement—1) financial results and 2) major product enhancements, both hardware and software optimized for cloud computing. Last month Larry Ellison announced 41 new cloud platform services plus cloud revenue of over $400M in its most recent quarter. Oracle’s new fiscal year just kicked off in June and as a sign that the company’s R&D focus continues, Oracle’s Santa Clara hardware campus is expanding, with two new buildings going up to accommodate the influx of new engineering talent.
At a time when cloud computing is hitting the mainstream enterprise, Oracle is fighting a two front war, taking on both the likes of Amazon Web Services and the incumbent hardware vendors. It’s secret weapons are the popularity of its database, a continued software maintenance revenue stream, a strategy to integrate hardware and software together and a very strong financial posture.
“Amazon loves it when hardware vendors offer cloud onramps into AWS,” noted industry analyst Dave Vellante, Wikibon. “It’s free revenue for them and it becomes a one-way trip to the public cloud.” According to Vellante, the way to compete with Amazon is to generate Web scale volumes and build in loads of functionality – as Microsoft appears to be successfully doing – or integrate database, middleware and application functionality into cloud offerings which protect margins – which is Oracle’s strategy.
Vellante, however is not quite ready to compare Oracle to Apple or Larry Ellison to Steve Jobs. “Apple innovates radically and integration is fundamental to its strategy whereas Oracle integrates well within Oracle but isn’t known for radical innovation. Apple creates markets where Oracle comes late to the party and innovates as a fast follower.”
In speaking with Donatelli he points out that Oracle will compete on best-of-breed and isn’t shy about investing heavily in R&D. According to Vellante “massive R&D is a huge plus, but most of the world isn’t only Oracle and will likely stay that way.” Many don’t argue that Oracle’s new cloud and integrated systems will benefit Oracle, but the big question many are asking is “what about customers that aren’t using Oracle?”
All we can say is the next 3-5 years will be an extremely interesting time for the IT industry and while many vendors are struggling to cobble together and / or communicate a coherent cloud strategy, it appears that Ellison has somehow done it again.
