Oracle Cloud Pushes Forward Despite Immense Headwinds

Oracle this year announced a partnership with Microsoft to allow customers of their respective cloud businesses to move and run their mission-critical workloads in the other’s environments, a significant step for each company in the fast-growing public cloud space with a dominant leader in Amazon Web Services (AWS).

It was a particularly important move for Oracle, which over the past few years has been aggressively pushing to expand a cloud business that famously got off to a late start after executives initially dismissed the nascent public cloud market as a passing fad. The company is betting on its long history as a top database and enterprise application vendor to retain current customers and attract new ones to its cloud.

Oracle’s Mark Hurd

The company also is working to transform its internal operations to embrace licensing and recurring revenue models that are inherent in an increasingly cloud-centric world. During a June 19 conference call to discuss the latest quarterly numbers, Oracle co-CEO Mark Hurd noted that of the $11.5 billion in trailing 12 months revenue, 92% of it was recurring.

In the same call, Hurd and other executives talked about the growth in the cloud business and the number of new customers making the move to Oracle Cloud, particularly the second-generation cloud infrastructure introduced late last year that promised better performance, pricing and security. It includes an autonomous database that automatically encrypts data, backs it up, upgrades and patches. According to Oracle founder and CTO Larry Ellison, the company in the most recent quarter added more than 5,000 trials for its autonomous database.

Furthermore, total cloud services and license support revenue for the quarter grew 3% during the quarter, to $6.8 billion, and cloud license and on-premise license revenues jumped 15%, to $2.5 billion – up 15% – co-CEO Safra Catz said. Technology license growth increased 19%.

“This popularity is largely because our products are capable of doing things others just can’t do, whether it’s security, performance or scalability and in our cloud autonomous capabilities,” Catz said, per Seeking Alpha. “In addition, the recent interconnect agreement with Microsoft will only help accelerate the transition from on-premise database to the autonomous database service.”

Oracle Cloud’s Challenges

However, all this can’t hide the challenges that Oracle faces, including a cloud infrastructure services market that while growing – a 39% year-over-year increase in the second quarter, to $1.6 billion – is dominated by AWS and four other companies in Microsoft Azure, Google Cloud Platform and Chinese providers Alibaba and Tencent, according to Synergy Research Group. The analysts grouped Oracle with IBM, Salesforce and Rackspace as other market leaders with lower growth rates and more of a niche play.

Oracle also faces skepticism in the industry about …

… its prospects in the cloud.

Moor Insights’ Patrick Moorhead

“There is little evidence Oracle is making headway in the cloud,” Patrick Moorhead, principal analyst with Moor Insights and Strategy, told Channel Futures. “One of the biggest data points is that the company stopped reporting cloud breakouts and buried it into its core business. You don’t hide what you’re proud of.”

The Partner View

The list of skeptics doesn’t include Accenture, Oracle’s partner of 25 years that’s been working with the vendor on its cloud strategy from the beginning. Oracle has solid and maturing offerings in the software-as-a-service (SaaS), platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) realm, and is now attracting not only longtime customers of its enterprise software to the cloud but also enterprises that hadn’t been Oracle customers in the past, Brian Sullivan, managing director and global Oracle Cloud applications lead at Accenture, told Channel Futures.

“Oracle has the most complete set of SaaS capabilities in the market to be able to cover, through one full suite, every business need or every business functional need across both the front office and back office,” Sullivan said. “Within their platform layer, Oracle continues to innovate. Their PaaS services provide a range of mature capabilities that can serve as ways to support integration or expansion or expansion of technologies. From an infrastructure point of view, that may have been the more recent offering that Oracle has put into the market. It is now fully mature and is proving to be the most optimal set of infrastructure [services] for running Oracle workloads based upon performance reliability and overall price points.”

Accenture’s Brian Sullivan

That everything-in approach is key to Oracle Cloud, according to Steve Daheb, senior vice president of Oracle Cloud, adding that the cloud is more than individual SaaS, PaaS or IaaS offerings.

“What we’re seeing is really a blurring of the line,” Daheb told Channel Futures. “Where does moving an application to the cloud stop and platforms begin? As I move things to cloud, I need to be able to connect them to something — and that’s where a platform layer comes in. Or if I want to run it some place, that’s where an infrastructure comes in. We’ve taken a much more holistic approach to cloud and have said that all three of these layers need to be available. We could label those SaaS, PaaS or IaaS, but for us, we just think about it as a suite of cloud services because, again, they’re linked.”

Oracle is doing this with a lot of big-name channel partners on its side. That includes not only Accenture, but others like Deloitte, KPMG, Logicalis and AppsLink, and they span everything from global and regional systems integrators [GSIs and RSIs] to VARs like CDW, according to Dale Weideling, group vice president and channel chief of Oracle’s North America cloud and technology business. They play a key role in pushing Oracle Cloud in the market, particularly at a time when enterprises are still mapping out their cloud strategies, not only what workloads and data to move but where to move them.

“As you get into more of those complex solutions selling environments, the services-based RSIs and GSIs are really a critical part of our go-to-market,” Weideling told Channel Futures. “If you look at how we will work with them, a lot of that market space is very much use-case selling. For a lot of customers that are just getting started into cloud, they’re typically looking for smaller use case-driven projects to go prove out the technology in general, not just specific to Oracle. … We find those partners that are services-based are very well skilled in …

… that use-case selling. They have customer references they can evolve and they bring industry knowledge or actually wrap IP around our solutions to deliver industry-specific solutions.”

The Future Is Unclear

Whether Oracle can grow its cloud business beyond the niche space Synergy Research analysts talked about is unclear. Moor Insights’ Moorhead said Oracle Cloud’s IaaS services aren’t competitive with what AWS, Azure, Google and IBM Cloud can offer. He also said its PaaS and SaaS capabilities are lagging other cloud providers.

“Oracle has likely lost the IaaS cloud game,” Moorhead said. “Oracle can leverage the fact that customers have a hard time leaving the company because it would take so much time and effort to escape it and move apps and databases elsewhere. AWS and Azure have better databases, but it’s a heavy lift to move those and then move the apps. I see Oracle’s cloud future as database as a service and an apps-as-a-service [provider] on someone else’s cloud, like Azure.”

Oracle officials aren’t showing any signs of waving the white flag. Reports earlier this year indicated that Oracle was laying off hundreds of employees to bolster its cloud business, with a company spokesperson saying that “as our cloud business grows, we will continually balance our resources and restructure our development group to help ensure we have the right people delivering the best cloud products to our customers around the world.”

They’ve also taken other steps, including adding more capabilities to Oracle’s cloud environment, courting industries like retail, bringing in high-performance computing (HPC) systems to better enable enterprises to run mission-critical workloads in the cloud, and enticing startups to use Oracle Cloud. The partnership with Microsoft will be a good for both Azure and Oracle Cloud customers and a boon to Oracle’s cloud business, Hurd said during the conference call.

“We want to make it as easy as possible for you to run those Microsoft analytics in Azure, accessing the Oracle database and the Oracle public cloud,” he said. “But we also have unified the customer experience so it feels to the customer like they’re working in one cloud, but they have two suites of products and technologies they have access to, and they can interconnect those things. The Oracle database is still running in the Oracle Cloud and the Microsoft analytics technology is running in the Microsoft Cloud. They’re just talking to each other at high speed and highly reliable.”