Larry Ellison - Oracle's ready to come out of cloud start-up phase
- Summary:
- Oracle's been in start-up mode in the cloud for the past 3 years, according to Larry Ellison, but the real battles are about to start, with cloud ERP dominance the key to success.
Timing is everything. While all eyes in the cloud industry were focused on Dreamforce and just minutes before Salesforce CEO Marc Benioff’s keynote, Oracle slipped out its latest cloud numbers, complete with modest growth and promises of better to come.
Cloud revenue is now $611 million, 7% of total and up 2% year-on-year. Elsewhere the overall picture was downbeat. Total revenue for the quarter to August 31 2015 was down 2% to $8.4 billion. Net income was down 20% to $1.7 billion. And new license sales dropped 16% to $1.15 billion.
Co-CEO Safra Catz emphasized the positives as much as possible in the analyst conference call after the results went public:
Within the cloud business, we continue to see excellent momentum in SaaS and PaaS, with bookings growth of 165% this quarter on top of the 54% growth from Q1 of last year. SaaS and PaaS revenue was $452 million, up 38% from last year.
The triple-digit bookings growth that we have been experiencing will translate into significant acceleration in SaaS and PaaS revenue in the second half of the year.
The SaaS and PaaS revenues will grow rapidly and will quickly become a significant contributor to revenues and profit as we help those same customers transform their businesses over time. In total, we will see growth in the total software business begin to increase this year as cloud revenue grows as a percentage of the total software business.
Start-up phase?
CTO Larry Ellison characterized the past 3 years in the cloud as the “start-up phase” for Oracle:
We have developed services at all four layers of the cloud, a complete set of enterprise SaaS applications, plus our database and middleware platform services, plus compute and storage infrastructure services, and an expanding set of data systems. We have deployed those cloud services in 19 data centers and 14 countries around the world.
We now have in place the physical infrastructure to dramatically expand our cloud customer base. We are entering the rapid growth, scale-out phase of our cloud business. We are adding thousands of new SaaS, PaaS, IaaS and data customers to our existing data centers. With all that customer growth on top of our existing infrastructure, we expect that our cloud margins will double from 40% to 80% over the next two years.
With cloud CRM dominating the landscape over at Dreamforce, Ellison put an interesting stake in the ground by arguing that whoever wins in the cloud ERP space will be the one who wins the day. That, according to Ellison, plays to Oracle’s strengths:
Whoever is number two in ERP, they are a long, long way behind. ERP is the largest segment of application in the cloud. SAP was the leading on-premise application software vendor in the last generation of applications, because they were number one in ERP. The leading applications vendor in the cloud this generation will also be whoever wins the ERP work.
Co-CEO Mark Hurd picked up on this point, claiming:
The ERP opportunity has just started. Now, what happens that we are ramping incredibly fast. I think if I had said four quarters ago ‘hey, I think we will have 1,350 customers signed up to run in our cloud in about four or five quarters’, you should go seek some help, because it won’t happen like that. It has. That said, we are only now getting to the point, where we actually have all the references required, we have got our sales force scaled.
My take
Oracle finds itself in the unenviable position that it’s smallest revenue-contributing business unit is the one that everyone - including Oracle - wants to talk about. That said, there is growth, even if the transition to the cloud is taking a long time to break out of Ellison’s self-style start-up phase.
The firm has a self-imposed deadline of the end of next month to have all its offerings available in the cloud, coinciding with the OpenWorld conference in San Francisco. Expect to hear a lot then about how the ‘real’ cloud battles are only just about the break out.
Disclosure - at time of writing, Oracle and Salesforce are premier partners of diginomica.