Was it really only 2 years ago that peace broke out in the cloud industry?
Remember that frisson of hope that fluttered through our collective hearts as Oracle reached out to Salesforce and Microsoft and a new spirit of detente was forged?
Well, forget all that. It’s back to fighting like a bag of cats and no mistake.
I mean, we could all hear the tension creaking anyway, but when at the end of last month Salesforce CEO Marc Benioff rattled his sabre in Oracle’s direction and dug out the old ‘Fusion v Confusion’ line, it was inevitable that there would be repercussions from Redwood Shores.
So it was that with yesterday’s end-of-quarter Wall Street analyst call from Oracle, the gloves came off as Chief Technology Officer Larry Ellison led the charge against Salesforce and current corporate enemy number one Workday.
The escalation in tension was prefaced in the official press release, which included a canned comment from Ellison about how Oracle was set to overtake Salesforce, a point he quickly picked up on for his audience on the call:
Oracle now has a cloud revenue run rate of well over $2 billion a year. We're already the world's second-largest SaaS and PaaS company. On our last quarterly conference call, I predicted that in our fiscal year 2016 Oracle would likely sell more SaaS and PaaS new business than salesforce.com [sic]
I was way too cautious.
Our cloud business is growing a lot faster than even I expected. Our cloud bookings are now growing at over 100% per year, so I'd like to revise my prediction.
I now believe that Oracle will sell more new SaaS and PaaS business than Salesforce.com in this current calendar year, 2015. It's going to be close, but I think we're going to sell more in the cloud than they do this year.
I suspect that might come as a big surprise to a lot of people out there. You won't have to wait very long to find out who's going to win this.
Workday in the sights
Them’s fighting words and ones which livened up news of what was essentially a flat quarter for Oracle. The firm posted adjusted third-quarter earnings per share of 68 cents, meeting Wall Street forecasts, but slightly missed on revenue, turning in $9.33 billion for the quarter, at least partly caused by a stronger US dollar.
Oracle's software and cloud revenue up was up 7%, meeting the company’s own 5%-8% growth in constant currency, with SaaS revenue up 30% to $372 million. But the overall cloud business total of $527 million, set against total revenues for the quarter, was a reminder that there’s a long way to go before cloud dominates.
That said, it was bullishness on cloud growth that dominated Oracle’s pitch to Wall Street and kept analyst nerves steady. Co-CEO Mark Hurd trotted out the numbers that to support the growth argument:
- 800 brand-new SaaS customers
- In HCM, 220 new customers
- In customer experience, 407 new customers
- In ERP, 160 new customers.
- Less than 25% of ERP SaaS wins involve any on premise Oracle ERP
- 30 existing customers expanding their cloud services in the quarter.
Ellison picked up on these numbers to take a shot at Workday:
This quarter Oracle sold cloud ERP systems to 160 new customers. That's more ERP customers than Workday has acquired in all the years they've been in the cloud business.
But as befitting his new role as CTO, Ellison primary choose a technology angle to attack his bete noir du jour:
We think we put multi-tenancy at the right level of the stack in the database rather than multi-tenancy in the application. We think we have a huge advantage over someone like Workday that doesn't have a database.
Workday kind of built their own little database. And that's what you're buying into when you buy Workday. We built our own little database. It's called Oracle. Workday has its own programming technology. We haven’t. We used this programming technology called Java.
We built everything, everything from scratch,. Every single line of code in Fusion HCM is new for the cloud every single line of code where Fusion ERP is new for the cloud. And those new cloud applications are based on by far the strongest platform. Workday doesn't even have a platform that they sell. They have no platform. They have the platform that they kind of use internally.
I'll give you an example of how strong our Cloud platform is. Salesforce.com uses our Cloud platform. NetSuite uses our Cloud platform. In fact, every single cloud company of size, the top 10, nine of them use our database in the Cloud. Workday is the only one that doesn't. But tell me again the advantages they think they have?
Salesforce wasn't spared a technology analysis either, this time around its PaaS offering:
Salesforce.com PaaS is based on proprietary technology that allows you to send Salesforce.com applications.
Our PaaS, our cloud platform as a service is based on two products: Java, the world's most popular programming language and an industry-standard, and the Oracle database, the world's most popular relational database and an industry-standard.
We have enormous on premise usage, both Java and the Oracle database. And now people don't have to decide where they're going to run things. They can do tests and development in the Oracle Cloud and run production in on-premise. And then they can decide if they need more capacity, they can go from on-premise into the Cloud and back to on-premise.
We're the only ones that allow you to move data and workload back and forth between the Cloud and on-premise. That's the primary use case we think that's going to drive Oracle PaaS to be the number one PaaS in the cloud very, very quickly.
Challengers and Challenged
From a sales perspective, Hurd pitched a slightly different line, acknowledging that Workday is a challenger to Oracle in certain sectors:
I would say that the competitive environment with Workday is different in HR than in ERP, EPM. In ERP, EPM our position is extremely strong. I would not call Workday competitive in that market at all. So let's put that aside.
From an HCM perspective, head-to-head, there are in the United States some strong fights. I think as our awareness, the education of our sales force and our references have gotten better, we now win more than half the deals in the United States. Outside the United States, our win rate goes up actually exponentially because of the breadth of our distribution in those markets.
Where Workday is pitched as challenger, when it comes to Salesforce, Oracle is cast in that role, Hurd conceded:
Salesforce is clearly the incumbent in most accounts, not Oracle. We are, frankly, the guy coming up with a challenger capability, and we now bring a suite of capability with marketing in addition to sales automation.
We do a lot of things that they don't do. We really come to the customer with a different approach. As opposed to trying to help the customer basically report what the sales force is bidding on, we actually come to market trying to help the sales force, being our customers' sales forces, sell more stuff all the way from automating a marketing campaign to the actual process by which they communicate to the customer, get information about the customer, and actually go through a whole engineering selling process with the customer.
Plus ca change etc etc. It’s Oracle v Salesforce and Oracle v Workday where once it was Oracle v Ingres and Oracle v Informix. It makes me feel quite nostalgic.
Underneath the rhetoric though, you see in Oracle a company transitioning from the old license-based world to one in the cloud. It’s absolutely heading in the right direction, but it’s a long road to travel though as the broken out numbers remind us.
It’s also a costly one. Overall cloud SaaS and PaaS revenues were up $85 million year-to-year, but outstripped by related expenses which were up $91 million.
Ellison reckons that we won’t have long to wait to find out who wins. On that point, I have to disagree with him. With Salesforce now boasting it will pass $6 billion run rate in a matter of months, Oracle still has a lot of catch-up to do.
Short of an acquisitive take-down of competitive forces, it’s going to be a while yet before we can crown an outright winner. But it’s clear that 2015 is going to be feistier year when it comes to claim and counter-claim.
Disclosure - at time of writing, Oracle, Salesforce and Workday are premier partners of diginomica.