- Oracle's transition to being a cloud infrastructure provider has taken on a new level.
- The company needs time to flesh out its offerings, but the competition won't wait.
- It will be at least a year before we see significant movement in cloud infra revenues.
Oracle Corporation (NYSE:ORCL) is going through a huge transition period as the company moves from traditional on-premise-focused products to products that can be delivered through the cloud. But thankfully, Oracle’s top line has been relatively stable when compared to other companies that are transforming their business lines, such as IBM, Microsoft or Intel.
Oracle’s revenue has been nearly flat around the $37 billion level for the last five years as the company has struggled to improve its numbers due to the onslaught of the cloud industry. As Microsoft and Amazon kept racing towards ten billion dollars in cloud revenues, they took away a valuable number of clients who, if not for the growth of cloud, would have depended on Oracle to be their major supplier of hardware and software. As new clients kept opting for the cloud, Oracle’s potential market kept getting smaller and smaller.
Realising its mistake, Oracle has now jumped full steam into the Infrastructure-as-a-Service market. Though the company wants you to believe that they are the rightful competitors to cloud leader Amazon, they are still many years away from toppling Amazon from the top perch. Oracle does have plenty of strength, but until the company starts showing growth numbers it will be very hard to just take them at their word.
Amazon and Microsoft have already gone past $2 billion in quarterly revenue from their cloud operations, with a major portion of those sales coming through their infrastructure business. In the most recent quarter, Oracle had $171 million coming from the IaaS segment. So even if Oracle manages to grow at double-digit rates from here, they have a long way to go before they reach the current revenue levels of Amazon and Microsoft. When they hit that, however, both will have moved far ahead.
“Azure revenue grew 102% (up 108% in constant currency) with Azure compute usage more than doubling year-over-year” - Microsoft 4th Quarter Press Release
Take Microsoft for example, their IaaS offering 'Microsoft Azure' has been growing at triple-digit speeds for the last few quarters and their Chairman, John Thompson, thinks that the company needs to grow even faster to stay ahead of its rivals.
One key advantage - and the one that has been saving Oracle despite the furious cloud growth - is the company’s expertise in databases. Oracle remains the king of databases, and no other company has managed to come close to them. DB-Engines ranking, which ranks all the database engines around the world, has consistently ranked Oracle at the top of the pile.
Research firm Gartner says that Oracle is in control of nearly half of the database management market:
“Overall, the DBMS space continued to grow in high single digits, coming in at $35.9 Billion in constant currency – an 8.7% growth over the prior year’s $33.1 Billion, which itself represented growth of 8.9% over 2013. over the past 5 years, the megavendors have collectively lost share – the top 5 hold 89% but have dropped from 91.4% in 2011. Still, some shifts among the top 3 are occurring. Oracle has dropped 1.5 points since 2011 to 41.6%, and IBM 5.6 points to 16.5%, surrendering second place to Microsoft, who gained 0.8 to 19.4%.” - Gartner
The stranglehold on the database market has given Oracle a huge amount of breathing space. Most of Oracle’s customers are big enterprises that obviously have large amounts of data and software running their processes. And they all use Oracle’s databases that are more powerful than other comparable databases. Now changing databases is not at all an easy decision for them, and more often than not they would much rather stay with their existing databases.
So clearly, old hands of the business world are going to continue on Oracle database, allowing the company to hold onto its revenue till it builds its IaaS offering and makes it easier for on-premise customers to first try out the cloud using a hybrid model, and then possibly make the full transition to the cloud. Oracle does have a huge opportunity to convert its existing clientele into its own cloud customers, but the company has to work really hard to make that happen as quickly as possible because Amazon and Microsoft are not going to stay quiet. They will come after Oracle’s prospective clients, and possibly many of the existing ones as well.
It’s a huge move by Oracle, but the company needs to prove that it can move faster than the cloud leaders. It will take another year at least to see how Oracle has moved to solidify its position in the IaaS market.
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