Hubris, Thy Name Is Oracle: So, Cloud Is Still Totally For Nerds, Right?

Comment If Larry Ellison earned a dollar for every phrase advertised in the cloud he made, Oracle's market share in cloud infrastructure would not be the measly 0.3 percent, according to Gartner's calculations, of what it is today.

Big Red has spent years playing simulation with the cloud, trying to convince the world that it could simultaneously invest little in the data centers while getting the maximum benefit. Oracle is finally learning what it must invest to collect its ambitions in the cloud.

As such, the company recently announced that it will build 12 new data centers, despite claiming it did not need more because its databases and computers are much faster than those of AWS or Microsoft Azure. Even with this loosening of the stock markets, it is not clear whether Oracle has a good chance of closing the gap with its tougher competitors.
Pot, meet kettle

Oracle has become a caricature rather than a competitor, regularly throwing sparks in such a way that his executive suite looks silly at best. In 2009, as an excuse to start to fall behind Amazon Web Services, the then CEO Ellison ranted: "Everyone looks around and says, 'Yah, as if everything were in the cloud.' My objection is that it is absurd, it's nonsense ... What are you talking about? It's not water vapor, it's a computer connected to a network! "

And, of course, no one was better than Oracle in computers connected to networks.

The problem is that, in fact, "cloud" is neither "water vapor" nor as simple as connecting a few computers to a network. Oracle's unwillingness to take the trend seriously (along with IBM colleagues and elsewhere) led AWS CEO Andy Jassy to say in 2017: "I do not think that in our best dreams we thought we would have an advantage of six to seven years. "But they did, and Ellison's arrogance played an important role in guaranteeing that.

Even though Oracle hardened the future, its core licensing business was in terminal decline. As noted by Redmonk analyst Stephen O'Grady in 2013, Oracle has had increasing difficulty selling software to anyone, except those who are already buying. Even its cloud strategy has focused on a relatively small niche: existing customers looking to eliminate applications from the data center and move them to the cloud.

Unsurprisingly, in its last quarter, Oracle's new license revenue was reduced, even as its SaaS business grew 55 percent to $ 1.1bn and its total PaaS business (which includes IaaS) rose by only 21 percent. at $ 396m. This cloud business is growing faster than the decreases in its legacy business, but not fast enough to keep pace with market leaders AWS, Microsoft and Google.
If you build it, will they come?

Clearly, Oracle's strategy did not work. That strategy, in part, inexplicably has depended on the company managing to save its way to the glory of the cloud. Even when AWS, Microsoft and Google obtained $ 41.6bn in data center constructions last year, 33 percent more than the previous year, to bring their collective total to hundreds of data centers, Oracle had difficulty announcing just three data centers. in 2017, spending a little more than $ 2bn.

Even then, Oracle wanted the world to think that all this was by design. CEO Mark Hurd tried to explain Oracle's insignificant investments in data centers: "If I have computers twice as fast, I do not need as many data centers, if I can speed up the database, I may need a quarter of data." . "The reason for Oracle's parsimonious approach was simply that it is the best in everything, it does not matter that in spite of everything its boast of having a" personalized "infrastructure, so do all the others. that AWS, Microsoft and Google have much more scale and experience with the customized creation of their hardware and software, Oracle is a neophyte.
Keeping up with the cloudy Jones

Can Oracle catch up? That is hard to imagine. While the company can (and should) dramatically expand the footprint of its data center to even be credible, it is difficult to see how it can catch market leaders. Leaving brute capacity aside, even Microsoft Azure, a distant second in AWS market share, has had trouble adding features and services to the pace of AWS. Oracle is not even in the same universe as AWS when it comes to cloud services, but it can not enter the same zip code as Azure or Google Cloud. Once again, the database giant hopes to attract existing customers with offers such as automation in "almost all" of its services, but it has yet to prove that it can compete hand-in-hand with cloud heavyweights.

But Oracle not only relies on sizzling to sell this product: it has been honing the sales machine, hiring sales and engineering personnel from more experienced rivals while greatly increasing bonuses and changing structures to achieve renewals. License experts report that Oracle customers are offered the cloud as a means to reduce the bill of any license breach problem.

No wonder, then, that Deutsche Bank Securities Inc analyst Karl Keirstead has declared that "the game" has been "finished" for Oracle in the IaaS market.

Nor does the strength of Oracle's previously impregnable databases seem so secure these days. Modern data is much more similar to Amazon DynamoDB or Microsoft Azure CosmosDB than to the ordered and zeros of the relational databases of yesteryear. Oracle, unlike AWS, Microsoft and Google, has no experience in the development of large-scale next-generation cloud applications, so you will always have difficulty building a modern data infrastructure.

As such, Amazon has helped migrate 50,000 instances of databases to AWS, most of them from Oracle, as AWS CEO Andy Jassy proclaimed. The pace of these migrations seems to accelerate to approximately 5,000 per month. As Gartner analyst Merv Adrian told me, in an interview, Oracle has lost market share of database every year for the past four years. While the company still holds 40 percent of the market, its absolute dominance is no longer guaranteed.

Is there any positive news for Oracle? Of course. While Oracle is a rounding error in IaaS and can get a 2% market share in PaaS, it can claim a more respectable fourth SaaS with a market share of 5.6%. Ellison can boast that Oracle is "completely transforming the way all companies buy and use the cloud by offering flexibility and options," but the best thing to say is that it is still relevant in SaaS. It is a big market and a big business.

Meanwhile, Oracle is experimenting with the cloud market because it is funded by a massive base of installed companies that pay for maintenance in all instances of old databases. A recent survey from Rimini Street indicated that up to 74 percent of those customers run the legacy database without support, however they pay anyway. It is a high margin revenue that Oracle can use to fund their cloud aspirations.

Twelve more data centers are a way to spend that cash. It will be enough? No. But it can only give Oracle the ability to convince more of its customer base to give it an opportunity with its cloud-based applications. That will be worth a few billion dollars a year, even if the competition counts in tens of billions now (AWS) or in the not too distant future (Microsoft and Google).