In the first three articles in this multi-part series, we covered the cloud businesses of the world’s top cloud providers: Amazon, Microsoft and IBM. In this fourth part, we take a closer look at Oracle’s “splash” entry into the market with its grand claims of being able to take AWS head on in the public cloud space.
When the cloud phenomenon first captured the attention of the world, Oracle was dismissive about the prospects of third-party-managed IT infrastructure. Oracle’s core business model revolves around enterprises managing their own infrastructure by buying Oracle’s hardware and software products, and their decision to not get into the cloud world was perfectly understandable.
But Amazon disrupted the whole industry with a pay-as-you-go IaaS model, and although large scale enterprises – the core clientele of Oracle – still sit on the fence opting for a hybrid cloud model, businesses around the world have slowly started to understand the benefits of the cloud and started gravitating towards it.
Oracle may be able to hold on to its clients for some more time, but the future market is shrinking by the day due to this transition. When Amazon and Microsoft’s IaaS offerings get even bigger and better in the future, they may convince large scale enterprises to make the shift to the cloud, or perhaps be able to offer a better hybrid solution that addresses the security, regulatory, switching and other issues that are currently keeping them on the wall.
Oracle realized that its future business growth is under a huge threat, and has now swiftly moved to address those concerns. Instead of burying its head like an ostrich, the company accepted that it was late and has now jumped into the cloud game with both feet.
Oracle CEO Larry Ellison announced at the recently concluded Oracle OpenWorld Conference in San Francisco that Amazon’s lead is over. Let’s take a closer look at that statement to understand the reasons behind his making what many industry experts are calling a preposterous claim.
Amazon is the undisputed leader in the cloud segment, especially in the infrastructure segment. Their quarterly revenue from the cloud business has already crossed over the $3 billion mark and, if the current growth rate continues, Amazon Web Services (AWS) will hit $20 billion in annual revenues in the next two to three years.
Those aren’t small numbers at this moment in time when the entire IaaS industry is currently at the $22 billion level annually, per Gartner. Interestingly, Software-as-a-Service (SaaS), another cloud-based offering, is already at $37.7 billion this year, and Platform-as-a-Service (PaaS) is estimated to be at $42.6 billion.
That’s significant for Oracle because that’s where their real strength in cloud currently lies.
Oracle’s biggest strength in the cloud segment is its SaaS offerings. Oracle has been a player in the Customer Relationship Management segment for many years, but Salesforce came in from behind to take the lead role in the segment. But Oracle has been in the business management software segment for many years, with a hand in all three segments: CRM, ERP and HCM.
Larry Ellison : “We think we have a fighting chance to be the first SaaS company to make it to $10 billion in revenue. We’re the second largest SaaS company in the world now and we think we can be the largest SaaS company, including our – by the time we hit $10 billion, we’re going to be the first one there.”
Oracle bought Netsuite – one of the world’s largest cloud ERP companies – for $9.3 billion this year, further strengthening their position in the ERP market as well as giving them a huge pool of SaaS clients.
During the most recent quarter Oracle’s revenue from the Saas and PaaS segment was $878 million, a growth of 81% compared to the prior period, while the IaaS segment brought in $175 million, a growth of 6%. Oracle’s Saas and Paas offerings grew 79% in the first six months of the current fiscal and 49% during 2016.
Oracle’s position in the business management software segment is strong because of the breadth of the offering, that includes Customer Relationship Management, Enterprise Resource Planning, Human Capital Management and Supply Chain Management. As the company perfects its cloud delivery mechanisms, such breadth will be highly valuable for their larger clients, who would likely prefer to have a single cloud vendor handling all their business management software needs.
This strength will propel Oracle’s position in the SaaS and Paas market, but as of now the segment is yet to cross one billion dollars in quarterly revenues. Even if Oracle sustains its current above 50% growth rate, the company will need another two years to reach its ten-billion-dollar annual revenue target, which it should be able to achieve if unimpeded by too many external forces (which we’ll discuss in another piece by bringing in Salesforce and the relatively new player in the game, Microsoft.)
On the Iaas front, Oracle is starting from an extremely disadvantageous position. Despite their existing marquee client list, Oracle’s IaaS offering grew 6% in 2016 and 7% in the first six months of the current fiscal. In contrast, Microsoft’s IaaS offering, Azure, has been growing at triple digits for the past several quarters, while Amazon’s total cloud revenue has been growing well above 50% during the same period.
As a late entrant, Oracle lacks the breadth and width of services that Amazon and Microsoft offer, and the company needs to add many more datacenters around the world before it can even hope compete with the segment leaders on an even scale – not to mention the robust stacks of services that both have built over time.
The Reality of Oracle Competing in this Segment
Oracle is the king of databases. When it comes to databases, Oracle’s dominant position in the market has never been under threat and they remain the company to beat when it comes to database expertise. As their IaaS offering grows in strength, by adding more data centers and all the necessary services, their powerful database will offer a huge differentiation factor in the market. But it will take time, and Microsoft and Amazon would have considerably expanded their lead over Oracle in the meantime.
Oracle is paying the price for starting late, but database expertise and SaaS offerings will provide enough cushion for Oracle to stay in the fight and take on the big guys some day. But that day is at least a few years away, and Oracle needs to keep chipping away one major client at a time to eventually get there.
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