If you’re a fan of the cloud, which probably just about everyone is, then one big question that you’d probably like to have addressed is “Why, given that all the signs are that public cloud spending growth is dropping, did Oracle deliver 43% higher cloud revenue in the last quarter?” There have been a lot of comments made on this, mostly the kind of abstract junk we’re all used to hearing. Let’s see if we can offer something actually useful, maybe even insightful, on the topic.
First and foremost, Oracle has the advantage of small starting. A deal that would give Oracle a five or ten percent total revenue hike in one shot would be a pimple on the cloud revenues of the Big Three providers. Thus, we should not be asking whether Oracle is now on a trajectory to becoming one of the giants of the cloud, at least not at this point.
We can assume that Oracle is picking up deals that didn’t go to the Big Three. From my limited base of conversations with cloud users, I’m not seeing companies moving to Oracle’s cloud from of those cloud giants. Instead, what’s happening is that companies who had no cloud commitment have picked Oracle, and some who wanted to expand their cloud usage picked Oracle instead of one of those giants. The question our cloud fans should be asking, then, isn’t the one I posed at the opening of this blog, but rather “What’s different about Oracle Cloud Infrastructure (OCI) that’s attracted those customers? And no, it’s not some abstract factor like Ellison’s aftershave or his innovative vision. It’s something concrete.
I think that the number one technical differentiator Oracle has is that from day one, Oracle has been a PaaS or SaaS play rather than an IaaS, virtual machine, or “cloud native” play. Oracle has applications and extensive middleware to offer, and so while you could do traditional hosting on OCI, those who do have probably picked OCI for the SaaS/PaaS options available, and extended that commitment with stuff that presented more traditional hosting requirements.
Oracle got to that differentiator because Oracle has been a middleware and application supplier all along. Their database technology, for example, is one of the premier offerings in that area even for pure data center hosting. Many companies were Oracle customers before they’d even heard of the cloud.
That leads to the second differentiator, one that Oracle shares with IBM. Oracle has a hybrid cloud focus. They aren’t expecting everything to move to the cloud, but that the cloud will provide a home for applications and components whose resource usage model isn’t optimal for the data center. IBM, you’ll recall, also saw its earnings beat the rest of the IT players because of its express, even strident, hybrid-cloud focus. Apart from the fact that few users even entertain moving everything to the cloud, the effort that would be required to do that would be daunting in an age where skilled tech staff is hard to come by.
The truth is that the cloud and the data center are just different forms of hosting. In the 1950s companies started to use mainframes. In the 1970s they added minicomputers, and in the 1980s they added PCs. We still have mainframes, minicomputers (we’d call them “servers”) and PCs in use today. Every stage of IT evolution has built on, rather than replaced, what came before it. So it is, and will continue to be, with the cloud, and Oracle focuses on that truth. OK, given that they sell stuff into the data center, it’s not hard to see why they’d like to continue to do that and add cloud revenue to the mix, but still it’s smart positioning.
Another smart positioning move is that instead of just abstractly supporting “multi-cloud”, Oracle embraces specific relationships with competing cloud providers. On the leader page of the OCI website, they’re featuring a “multicloud with OCI and Azure” capability. And consider for a moment the choice of Microsoft’s Azure as the featured partner. Who, among the Big Three, is hottest in the enterprise market? Microsoft. Who has platform capabilities and data center credibility? Microsoft. While it might make sense to believe Oracle would rather team up with somebody like Amazon or Google rather than go with the cloud giant who has the most similar mindset to Oracle’s, I don’t think that’s the case. Microsoft’s prospects are the same people Oracle needs to draw upon. Many of Microsoft’s Azure customers are ripe for Oracle’s PaaS/SaaS contribution, in fact.
Because Oracle’s PaaS isn’t monolithic (think database, Java, and other apps) Oracle can introduce itself into even a hybrid cloud dominated by Microsoft Azure. They don’t need to replace it, so their sales process doesn’t face the major hurdle of jumping a user off into the unknown. Get your camel’s nose under the Azure tent and let nature take its course.
That raises the next area, which is that Oracle has been smart is in hitting them where they ain’t. They’ve weaved and bobbed into cloud opportunity areas where other providers haven’t bothered to go. Again, they have an advantage here in that because they’re relatively small, relatively small growth opportunities matter a lot. They’ve been aggressive in deploying alternate CPUs like ARM and GPUs, for example, and they’ve been particularly effective with the notion of a transportable database model and the leveraging of the near-universal Java platform.
Enterprises with Oracle contact tell me that Oracle also generally avoids direct competitive faceoffs. They don’t advocate replacing other cloud vendors, and even in competition with other vendors their first effort is to make a place for themselves rather than competitive counterpunching. Some say Oracle has accepted a piece of the pie rather than pushing for the whole pie, when doing the latter could lengthen the sales cycle. It might be just that the Oracle sales force (like most) wants short time-to-revenue, but I sense it’s more than that. Get in, leverage incumbency, grow…that seems to be the strategy.
I don’t think Oracle is a threat to the Big Three, other than perhaps to Google. Google needs a strategy to grow market share, given that it’s the bottom of the top three providers, and Oracle and IBM have tapped off what would have been the obvious enterprise opportunity. But Oracle could be a threat to IBM, for the obvious reason that their prospect base largely overlaps IBM’s but (thanks to its database and Java) is larger. Still, all the cloud providers need to be thinking about Oracle’s approach, since the pressure on cloud costs could eventually cause current cloud users to look for other options.
The big question, I think, is whether Oracle has looked deeper into what’s behind its own success than Wall Street has. If you have a winning formula, you need to understand what it is or you can’t be assured you can continue to win. Oracle has real opportunities here if they can execute on the right things.
