Oracle CEO Safra Catz calls it “hyper-growth” and certainly, on first glance, 40% over year-on-year growth in Q3 cloud revenue is impressive.
The Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) rate looks even better at 57%. So the cloud numbers are absolutely heading in the right direction, even if Infrastructure-as-a-Service slipped 2% year-on-year.
But to put that in context, SaaS/PaaS revenues of $583 million still only accounts for 6% of total revenue of $9 billion, itself down 3% year-on-year, although that percentage of the whole is up from 4% this time last year.
Once again, the main message coming out of the latest set of numbers from Oracle is that the transition to the cloud model is taking time, will continue to take time and that, for now, the balance between cloud revenue growth and on-premise revenue decline is that the former isn’t making up the latter in terms of hard cash just yet.
On-premise revenue was down 4% year-on-year to $6.3 billion, now 70% of total revenues as opposed to 71% this time last year. Meanwhile, new license sales have fallen 15% year-on-year to $1.68 billion. The cloud giveth, the cloud taketh away.
For her part, Catz talks in terms of being:
not quite at the end of the beginning.
But she insists that this is a long game:
The move to cloud is a generational shift in technology that is the biggest and most important opportunity in our company’s history. We embarked on this transformation over 10 years ago, when we began rewriting all of our software to enable our customers to leverage our solutions as cloud solution. We now have the most complete set of cloud services in the industry with more than 11,000 of our customers around the word already using these cloud services to help run their business.
We’re in an extremely virtuous cycle with the business now, because success breeds even more success. We have so many customers’ lives we have so much interest from our customer base, and from prospects, et cetera, that as we deliver on our orders that we already have and get even more orders we’re very, very upbeat on the growth rate.
For his part, Oracle Chairman and Chief Technology Officer Larry Ellison was his usual upbeat self, boldly proclaiming that it “should make it easy” to overtake Salesforce and become the largest SaaS and PaaS company in the market:
Oracle is now selling more new SaaS and PaaS annually-recurring cloud revenue than any other company in the world including Salesforce.com. We are growing much faster than Salesforce.com more than twice as fast, because we sell into a lot more SaaS and PaaS markets than they do. We compete directly with Salesforce.com in every segment of the SaaS customer experience market including sales, service and market.
But Oracle also competes in huge SaaS markets, were Salesforce.com does not compete at all, such as ERP and HCM. It took many years for Oracle to develop the most complete ERP suite in the cloud including Fusion Financials, procurement, supply chain, logistics, manufacturing and much, much more. That long effort is now paying off.
We have more than 10 times the number of customers than Workday. I should say we have more than 10 times the number of ERP customers than Workday. And ERP has always been a much larger market than CRM. Salesforce.com is missing all of that ERP market opportunity.
CEO Mark Hurd fills in the stats to back up the claims. He cites:
- 942 new SaaS customers during Q3.
- 783 SaaS “customer expansions”.
- Total SaaS customer base of 11,000.
- 465 CX wins and 500 expansions.
- 213 new HCM wins.
- 175 new cloud ERP wins.
- 159 expansions or add-ons to on-premise ERP.
- Cloud ERP customer total of 1,800.
- 1,143 new PaaS customers during Q3.
- PaaS customer total of 5,000.
Hurd also argues that Oracle is displacing the likes of Workday in key accounts:
There is Southwestern Energy. They had Workday and stopped their Workday implementation and use Oracle. Fannie Mae used Workday no longer does and now uses Oracle. ArcGIS…went to a global decision for HR, decided on Oracle and replaced their Workday implementation in the US, MoneyGram started off implementing Workday. It didn’t go well, [they] re-evaluated and now have Oracle HCM cloud as their core HR for their enterprise.
One of the first implementations of Workday, I think it was in Asia-Pacific, was it Simick in Australia. They’ve now stopped their Workday implementation removed it and installed Oracle HCM. Genesis, who’s a technology provider here in the Valley, they implemented Workday, stopped, threw it out, and have been implementing Oracle HCM.
These are real companies that said, ‘We’re going to stop and we’re going to go implement Oracle HCM’. That’s what I see going in the market.
He adds that this is why he keeps listing customer brand names:
So we can get away from words and rhetoric and get down to what’s really happening.
The cloud v on-premise balance is also a factor in the database market. Here Ellison is on confident ground as market leader:
People want Oracle in the cloud. People have a huge investment in Oracle products. People are coming after us because we are by far the market leader in database. If you’re in the database business, the only one you can come after is us. So, of course, Amazon, they’re going to be in the database business too, is coming after us, and of course Microsoft wants to be bigger in the database business, they have to come after us. We’re the biggest player. We see our customers, literally millions of applications and millions of users of those applications built on top of the Oracle database, wanting to move those applications into the cloud and we do that very well.
So we see the next generation of our database business predominantly in the cloud, [but] that will still sell an awful lot of that software on-premise. The beauty of what we offer is the same exact database experience on-premise and in the cloud and the ability for our customers to move a workload from on-premise and into the cloud, and move data from on-premise into the cloud with the push of the button. That’s something that Microsoft can’t offer. We have a huge installed base that wants to migrate to the cloud, but still wants to have an on-premise infrastructure.
On-premise databases will remain a fact of life, adds Catz, although she admits:
We would be thrilled if every one of our Oracle database customers came over to our cloud instead of running it on-premise. That would be fabulous. Now, do we expect many of them? Many of them clearly are doing it. But we have such an enormous installed base, that some of them will put new applications in the cloud, or different types and development in the cloud or a combination or a hybrid. But we would be delighted.
The business case is there, insists Catz:
If our customers move to the cloud, that means that they not only of course pay us for the software, but we also offer them a service where we own the hardware and we manage and we do all the labor. So even though they end up paying us more than they would have historically, just for a support license, a support fee, they themselves as customers end up spending a lot less in total because of the massive economies of scale we have in running the Oracle database for them.
It would be delightful, if they’d all move [to the cloud]. But some are moving and many are moving, which is wonderful. But I think this will take quite a long time and some will stay on-premise, in definitely and that’s entirely their choice.
Catz’s last point exposes the dilemma for Oracle. You can lead a customer to the cloud and you can probably persuade them to ‘drink’, but they’re still going to want to do it at their own pace.
Clearly the growth rates are impressive, but the actual revenue sums involved remains low, for now at least. The advantage Oracle has, is the ability to sit this bumpy transition period out and leverage its installed base. Not quite the end of the beginning perhaps, but most certainly not the beginning of the end.
What’s increasingly interesting, quite apart from Hurd’s claim to be getting away from the “rhetoric”, is how bullish the company is getting in its claims for the cloud business. It’s old-school Oracle in its tone, the sort of tone that characterised – for better or for worse, depending on your point-of-view – the database wars of the 1990s. The difference here is that Oracle is coming from behind rather than from a position of relational dominance. Other than that, for long-time Oracle watchers, swap out Salesforce and Workday for Informix and Sybase and there’s a (curiously comforting) pattern emerging here.
Disclosure - At time of writing, Oracle, Salesforce and Workday are premier partners of diginomica.