Just like old times as Ellison lays claim to Salesforce top slot in cloud

Stay tuned, it’s going to be close We’re catching up…and we’re catching up..very quickly.

It’s indicative how far Oracle’s Paul-ine transformation has come that the company, for which cloud was once a 5-strong ‘four letter word’, now cites growth in that self-same market as the main talking point in its latest quarterly numbers.

For the Q2 period ended 30 November, Oracle reported a profit of $2.5 billion, down from $2.55 billion a year earlier, on revenue up 3.5% to $9.6 billion, beating Wall Street expectations after missing them for 5 out of the past 6 quarters. Software and cloud revenues totalled $7.3 billion, while hardware sales came in at $1.33 billion.

A more downbeat reading shows that total hardware revenues for the quarter were flat year-on-year, while sales of new software licenses fell 3.6 % year-on-year. Little wonder then that the spotlight was firmly placed on the cloud business where revenue growth is talked of in terms of 47%.

So where once he sarcastically dismissed cloud as “water vapor’, Oracle chairman and CTO Larry Ellison is now at the stage of bullishly predicting that Oracle will beat Salesforce to the top slot in cloud sales by next year:

As Oracle’s cloud business gets bigger, our growth rate is going up. As our competitors' cloud businesses get bigger, their growth rates are going down. This has big implications.

In Q2 we booked more than $170 million in new SaaS and PaaS annually recurring revenue or ARR. In other words, we sold over $170 million of new SaaS and PaaS annual subscriptions this past quarter.

In Q4 of this fiscal year, we expect to sell more than $250 million of new annual SaaS and PaaS subscriptions. That means, during our next fiscal year we will sell well over $1 billion of new SaaS and PaaS annual subscriptions.

All of which leads to his conclusion that:

What makes this particularly interesting is that next year Oracle will sell about the same total dollar amount of new SaaS and PaaS business as cloud market leader Salesforce.com.

Stay tuned, it's going to be close. We are catching up to them and we are catching up very quickly.

He went on:

Salesforce is slowing down, we are speeding up. They are only twice as big as us. Their round numbers are $4 billion, we are $2 billion. But we are growing a lot faster, and we have a lot more products, and we have a large install base to see into.

We think we can become number one in the cloud. We think we will be number one in the cloud, and we will be number one in the cloud very quickly.

That sudden outbreak of peace between Oracle and Salesforce in the summer of 2013 suddenly seems like an awfully long time ago, doesn’t it?  (NB: Salesforce's current estimate for next year is in the $6.45 to $6.55 billion range.)

Sabres rattled

So is this just ‘Larry being Larry’, a catch-all phrase that’s covered a multitude of sins over the years, or is there a basis in reality here?

Well, the growth is certainly there. Total cloud revenue was $590 million, growing 47% year-on-year and now accounts now for 5.4% of overall revenue.

Breaking that down, PaaS and SaaS offerings make up $364 million, up 41% year on year, while IaaS was up 62% to $155 million, a percentage boosted by coming from a lower base number last year.

While Ellison was predicting $1 billion in new cloud bookings next year, co-CEO Safra Catz was typically more understated in her assessment, but still pugnacious:

Overall our cloud results were better than expected as we are clearly growing faster than sales force and were more than three times the size of Workday.

Our goal remains to be bigger and grow faster in the cloud in both companies while improving our already high level of profitability.

Her co-CEO Mark Hurd drilled down further into the numbers, boasting of growth in excess of 50% across all the various Oracle apps functional pillars, with a goal of 100% growth for next quarter:

We added more than 860 SaaS customers, with more than 230 that subscribed to more than one pillar when they bought a cloud subscription from us. Nearly 650 existing customers expanded their cloud services in the quarter. In HCM we added 230 new customers, in CX more than 460 new customers, in ERP EPM 250 new customers.

In one quarter we added 2.5 times Workday's entire install base. Nearly 150 of the new ERP customers did not have any Oracle ERP before they bought cloud subscription from Oracle in the quarter.

Ellison picked up on that last point to state that while SaaS customers include a significant number of “brand new logos”, it’s a different state of affairs in the PaaS market where the firm is converting its existing installed base. That installed base is a major competitive differentiator, he added:

Our SaaS products are built on top of Java and the Oracle database, the platform, and companies want to make extensions to the applications. They want to link the applications to existing applications, and so on. Using our platform, makes a lot more sense than using a proprietary platform from Salesforce.com.

We don't think it's a fair fight. But wait, Salesforce.com uses our platform to build their applications. They just can't sell our platform as a part of their service offering to their customers. They have no license to do so. We can sell our platform, we do sell our platform. We sell the same platform that we build on to our customers. So we've seen a huge amount of interest, both from our SaaS customers using our platform and also the huge install base we have in the database business.

While that installed base may well be an asset, it’s also something that Oracle needs to defend from attack by the purples. Meaghan McGrath, Research Analyst at Technology Business Research puts it nicely when she notes:

Oracle’s recent commitment to cloud, supported by defensive offerings that enable the easiest transition to cloud for its existing customer base, indicate that their top priority, as a late-to-market cloud provider is to defend their existing install base.

Customers that already have extensive Oracle infrastructure are more likely to further adopt integrated Oracle solutions, while other less-invested customers will opt for more interoperable, industry-leading solutions from multiple vendors, causing the company to struggle to attract new customers beyond its existing install bases and acquisition-sourced customers.

That’s not a worldview that will find favor with Ellison who argues that this latest enterprise software battleground will be fought on the same rules as previous skirmishes in the 90s and noughties:

Who wins in all of these battles? The suite vendors always beat the point solution guys. It's happened in every generation of computing where the end user, the customer, doesn't want to be the integrator of 30 separate applications from 30 separate vendors.

[It’s] no different now, just on the cloud now. Same problem - they don't want to integrate a lot of different stuff. We have all the stuff pre-integrated. That’s unlike anyone else in the cloud business.

My take

One thing’s clear. In this cloud world war, there’s going to be no Christmas Day truce and a soccer match between the warring factions like there was between the British and the Germans in World War 100 years ago.

The sabres are rattling again at full volume. The names have changed - Sybase and Informix are Salesforce and Workday, databases are clouds - but for those of us who’ve been around long enough, 2015 promises to be quite like old times. As Ellison put it: stay tuned!

And as for anyone who expected that Larry would be taking more of a back seat from now on since passing the CEO-mantle over to Hurd and Catz, forget it! While the two co-CEOs played their parts, the post-results conference call was dominated by one voice. Business as usual.

Disclosure: at time of writing, Oracle, Salesforce and Workday are all premier partners of diginomica.