Oracle's tricky transition to cloud

Posted by Ron Miller on Jan 26, 2017 1:02:17 PM

3465206474_22ea3f1611_z-1.jpgIt's no secret that Oracle was one of the most successful software companies in the client-server era, raking in billions in software license and support revenue. But, as the world has begun to shift to the cloud, it has been forced to make a full-on transformation to become a cloud company.

As we've discussed in this space before, it's late to the game and it faces an uphill battle in a cloud market crowded with established players.

Last week, it announced some new products designed to make it more competitive in the cloud space. Whether that happens or not, we shall see, but let's not forget that for every move Oracle makes, market leaders aren't exactly sitting still waiting for it to catch up. They are continuing to innovate and add features and services, and as they do the mission becomes all the more difficult for Oracle.

Let's be clear, however, Oracle is hardly a poor also-ran. It sits at at number 9 on Fortune's list of top tech companies. It is also listed as number 2 behind Microsoft on a list of the most successful software companies in the world, as measured by revenue. However you choose to look at it, Oracle is still making money hand over fist (and it has over $58 billion in cash to make acqusitions).

Plenty of customers, plenty of cash

One other thing that Oracle has going for it besides wads of cash, is a huge installed base using its database products. As those companies move to the cloud, it makes sense that at least some of them would move that data from on-prem Oracle systems to analogous systems in the cloud. That strategy is certainly showing early promise.

In its most recent quarterly earnings report, Oracle predicted that by next year cloud revenue would surpass software revenue, but what's not clear, is if the company could maintain the same margins it had in the on-prem world. 

Yet for all of that, Oracle still came late to the market and it is struggling to catch up with the companies ahead of it, which include market juggernaut AWS (The New England Patriots of the cloud), Microsoft, Google, IBM, and others. In fact, in Synergy Research's numbers from Q3, 2016 it broke down the cloud market into three segments segments — public IaaS, public PaaS, and managed private cloud — Oracle didn't show as a market leader in any of them.

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All of this is a moving target of course, and things can change quickly in a growing market. Oracle could very well make billions in the cloud, just as it did on-prem, simply because of the size of the market opportunity. The question is whether it can make the kind of money it made when it controlled the database market and set prices accordingly. With much stiffer competition and lower margins, as its software license and maintenance revenue declines, can it make up the difference with the cloud?  It seems less likely, but only time will tell.

Intronis MSP Solutions State of the Industry Survey

Photo Credit: Kevin Krejci on Flickr. Used under CC by 2.0 license.

Topics: Cloud Trends

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