@dahowlett competing with Amazon is a strength? :-)
Oracle plays nicer as cloudy quarter calms Wall Street
Maybe it’s just the time of year or maybe there really is a new detente out there in the market, but Oracle’s just turned in an OK set of quarterly results and didn’t get into bashing its competition once in the subsequent conference call.
2013 you will recall was the year that Oracle did its self-styled reshaping of the entire cloud industry, reaching out to Salesforce.com and Microsoft for new alliances and understanding. (A state of affairs perhaps tested by Salesforce.com’s decision to go with Workday for its own HCM needs and HP for its SuperPod initiative, but which overall seems to be holding up in public at least.)
So there were no ‘roach motel’ gags, no attacks on SAP and what reference to the competition there was was grounded entirely in terms of how Oracle goes to market against them. (There was sadly also no reference made to a story emanating from Pat Walravens, director of technology research for JMP Securities, that HP has signed a $150 million contract to renew its Oracle licenses – a development that given the tensions between the two firms over the past few years would have opened up some interesting discussions!)
The numbers themselves were enough to reassure if not exactly excite Wall Street. Total revenue was up 2% year on year to $9.3 billion, just ahead of the $9.2 billion consensus estimates had predicted and at the top of the range Oracle had forecast. Net income was down 1% to $2.6 billion as was operating margin which hit 37%
All about the cloud
In the subsequent call to financial analysts, Oracle’s top team were keen to focus the conversation on the cloud. Pledging that he’d be spending more time on cloud matters in the coming quarter, co-President Mark Hurd pitched cloud as one of the “hyper-growth” businesses within Oracle and managed just the teeniest weeniest jibe at Workday when he said:
The growth of just our software business is more than double the revenue of Workday.
Hurd cited cloud bookings growth of 35%, with Fusion HCM, sales force automation and ERP seeing triple digit growth. HCM wins across the quarter included BT, Intercontinental Hotels, Marks and Spencer and Siemens (the last one of course being SAP’s flagship SuccessFactors client in Europe) while in CRM new deals include Tesco, the Washington Post and Proctor & Gamble.
All of this, he added, before the benefits of the 12c database – specifically designed for the cloud”according to CEO Larry Ellison – kick in.
Ellison, back from his yachting imposed absence on last quarter’s analyst call and in full born-again mode, was equally evangelical in his pitching of the Oracle cloud message:
“Oracle 12c makes all your Oracle applications multi-tenant applications without you having to make any changes to your applications whatsoever. Oracle 12c also dramatically speeds up all your Oracle applications by making them in-memory applications without you having to change a single line of your application code.
“Oracle’s Fusion Cloud applications for HCM, CRM and ERP, all have a new simplified user interface and an integrated social network that makes our enterprise applications as easy to use and familiar as Facebook, while enabling better collaboration and teamwork among your employees and your customers. All these new application interfaces were specifically designed for use on modern mobile devices like telephones and tablets.”
Of course the question of the competitive landscape couldn’t be completely avoided, but the difference this time around was in the emphasis placed on Oracle’s claimed advantages rather than tearing into the rivals weakness. So Ellison said:
“We think we have a much stronger platform than any of our SaaS competitors. Let’s just start from there. If you look at SalesForce.com and Force.com, you look at their platform capabilities versus the Oracle Database and Java and we think we have a considerable advantage and of course all of our SaaS, all of our applications are built on the Oracle Database, built on our platform, our database and our Java server.
“Down at the infrastructure level, we intend to be price competitive with Amazon and Microsoft Azure and Rackspace. So we intend to compete aggressively in, what I will call, commodity not being a bad word, the commodity infrastructure as a service marketplace.
“But we are not going to that alone. It is not going to be just Infrastructure as a Service. Our intention is to sell our customers infrastructure as a service and the same customer a highly differentiated platform as a service will let us get better margins and highly differentiated suite of enterprise applications for the cloud.
“So we are going to be cost competitive and price competitive at the infrastructure level while being highly differentiated at both the platform level and the application level. Already we have more enterprise SaaS applications than any other cloud services provider. We will continue to expand our footprint and use our size as an advantage.”
The way Oracle takes this message to market is one that leaves the firm:
“organized against our secular competitors. A while ago though, we decided, we had to lineup an HCM sales force directly against workday. That’s all they think about. Every day is competing against every workday prospect and going out there competing against workday.
“We have another team people that compete against Salesforce and Salesforce Automation. We have another team that competes against Salesforce in service automation and customer experience. We have another team that focuses on ERP and SAP and so far it’s the cloud ERP which is a relatively new market where that team is focused entirely on Workday. Workday is really not in cloud ERP yet. That’s an area they would like to get into but we watch that very closely. We are organized. We are organized by functional area so we can compete effectively against these new generation of specialists.”
Looked at a certain way, this was Oracle the born-again software company.
A lot of recent public comments by Ellison have focused on the hardware business, but it was cloud and software that were the chosen talking points this time around.
Cynics might say that’s understandable enough given some of the pain points Oracle has had to pass through since acquiring Sun Microsystems. This past quarter hardware sales slipped 3% but the argument from the top is that this is a sign of a shift in emphasis that will have positive results longer term.
Ellison himself admitted:
“I know we got a lot of criticism when we bought Sun and we have gone through this transition where we had a growing hardware business, Engineered Systems, and a shrinking hardware business, Commodity Systems as we shied away from Commodity Systems in trying to be competitive in that marketplace.”
“As we more or less completed that transition now, the Engineered Systems business is now a large business and it has much higher margins than the commodity business that we have gotten out of over the last couple of years. So the mix has changed in hardware from the low margin hardware to much higher margin hardware.
“The mix has changed somewhat in our software business where a larger percentage of our software business are annuities or are renewals versus new licenses. That renewal business is a more profitable business. We think, as our cloud application business gets larger, that’s also when annuity business that promises to be even more profitable than our license business.”
So overall, a quarter to send Wall Street away to the holidays without too much nervousness.
Disclosure: at time of writing, Oracle, Salesforce.com, SAP and Workday are all premium partners of diginomica.