Oracle CTO Larry Ellison put Amazon and Microsoft firmly in his sights as the company turned in better-than-expected numbers yesterday, pleasing Wall Street with a 62% year-on-year increase in cloud revenues.
As ever, it’s necessary to put that in context. Total cloud-related revenues across SaaS, PaaS and IaaS was $1.2 billion for the third quarter out of total Oracle revenues for the period of $9.3 billion. It also needs to be noted that the cloud numbers are boosted by the NetSuite acquisition.
So there’s some way to go yet to reach what could reasonably be termed a tipping point, although CEO Safra Catz reckons that’s not that far off:
We continue to see outside growth rates in our cloud business, especially when compared with our key competitors who're all seeing slowing growth. But more importantly, the increase in revenue from our cloud business has overtaken new software license business decline on an annual basis. Next year I expect our cloud revenue will be larger than our new software license revenue.
Stats of note from the quarter:
- 1,125 new SaaS customers and 908 expansions.
- 210 customers who bought SaaS also bought PaaS.
- 480 new CRM customers and 586 expansions.
- 206 new HCM customers and 217 expansions.
- 564 new ERP customers (excluding NetSuite) and 120 expansions.
In the ERP space, it was noted that 50% of new ERP cloud customers were not Oracle ERP users before. Ellison talked about a shift happening in the sector:
Our ability now to service much smaller customers than we could have serviced in the past is because the cloud allows you to deploy ERP in much, much lower costs. You don't have to have ERP. You don't have to build the data center. Obviously, you don't have to hire programmers. You don't have to hire a bunch of data operations people.
We do all that for you, and therefore the available market has at least doubled what it used to be. And we're also beginning to see, SAP customers moving their ERP and some very, very large SAP customers looking very closely at our ERP systems. So, we expect to have some big wins in the SAP install base
Against Ellison’s sabre-rattling in Amazon’s direction, a breakout of IaaS numbers shows Oracle generating $178 million against Amazon’s $3.5 billion in its most recent quarter. But that’s where the challenge lies for Ellison, who declared:
SaaS and PaaS are large, rapidly growing businesses for us. Together SaaS and PaaS grew 85% this past quarter. But soon infrastructure as a service will be growing even faster and before long infrastructure as a service will become Oracle's largest cloud business.
He cited the Oracle database footprint as key to delivering on this boast:
We have a very, very large database business. We have hundreds of thousands of database customers and we have millions and millions of applications that run on the Oracle database. Most of those databases and most of those customers will move most of their databases and most of these workloads to the cloud. Right now, we have a huge technology lead over both Amazon and Azure with our new Generation 2 Infrastructure-as-a-Service. We can deliver ultra-high performance.
It will be a five year migration to get databases to the cloud, he added, but predicted that the rate of migration will accelerate:
Our application business began to move to the cloud several years ago, but that's a little bit different. We built all new applications and [customers] migrated from an old application, either an SAP application or an old PeopleSoft application or eBusiness Suite, and they migrated to our new Fusion ERP suite. That's very different than simply lifting up an Oracle database workload and moving it over to Oracle.
The application goes to Infrastructure-as-a-Service and then the database goes to Platform-as-a-Service. That's the faster process, but a much larger install base. My estimate is that…the majority will move over the next five years and that's going to give us enormous growth rates over that five-year period.
No mention of ‘first to $10 billion’. No mention of Salesforce. A passing reference to Workday. A nod to SAP. The competitive messaging coming out of Oracle yesterday was somewhat different to that we’ve become accustomed to. It’s Amazon and Microsoft in the sights now, particularly the former.
At this stage, Ellison’s declarations sound incredibly ambitious, but then once upon a time his ambitions for relational databases were dismissed by the likes of Cullinet.
What is of note is that his pitch for Oracle’s IaaS future is based firmly on functionality and technological superiority. In a world of Amazon-pricing, that’s approaching the IaaS market from a different front to the main rival. Will Oracle be ready to get into a price war if necessary?