Oracle OpenWorld 2016 - Ellison goes after Amazon with huge IaaS push, but does it make sense?

Derek du Preez Profile picture for user ddpreez September 18, 2016
Oracle’s Chief Technology Officer Larry Ellison took to the stage to officially kick-start Oracle OpenWorld 2016, where he went for AWS’ jugular.

Ellison on IaaS

Oracle’s Chief Technology Officer Larry Ellison kicked off Oracle OpenWorld on Sunday night, with a keynote that saw the company make a slew of Infrastructure as a Service (IaaS) announcements that firmly puts Amazon Web Services (AWS) in its firing line.

This was expected, after Ellison told investors during the company’s (somewhat disappointing) Q1 results that “for the first time, we have this big technology advantage in the Infrastructure as a Service”.

Ellison took this further during his keynote tonight, declaring:

Amazon’s lead is over.

Oracle is claiming that it’s Infrastructure-as-a-Service offering is not only cheaper than AWS, but that it outperforms Amazon’s IaaS offering. Ellison said:

It’s a commodity. Just like electricity. It’s basic compute. When you buy commodities, cost is important. People pay a lot of attention to cost and we have to be lower cost and higher performance against our number one infrastructure competitor Amazon.

But does it make sense for Oracle to go after the infrastructure layer so aggressively? Comparing Oracle’s IaaS first quarter revenues ($171 million) with AWS’ ($2.89 billion), suggests that Oracle still has a long way to go before it starts to raise too many eyebrows at Amazon.

New competitors

Ellison began his discussion by talking about how companies and people are buying technology differently now. He outlined the progression of technology from on-premise to cloud, declaring that the IT industry is finally catching up with other industries in providing technology as a utility.

He described this as a “generational change” and said that what’s “absolutely stunning” for Oracle is that it’s primary competitors are not the same as the competitors it had five years ago. Instead of focusing on IBM and SAP, Oracle now firmly views its main competitors as Amazon for infrastructure and Workday for applications.

And it was the focus on infrastructure that stole the spotlight during Ellison’s keynote. Oracle has announced its second generation set of data centres, which include enhanced networked failover capabilities, with Ellison claiming that customers would not notice if there was a single outage in one of its regions. However, it was the direct comparisons with AWS that drew cheers from the crowds:

Maybe this is the most interesting thing. Our new second generation data centres offer twice as many cores as Amazon. Twice as much memory as Amazon. Four times as much storage as Amazon. And more than 10 times the IO capacity than Amazon. But you have to be willing to pay less.

Amazon is going to have serious competition going forward. And we are very proud of our second generation Infrastructure as a Service. We are going to be very aggressively focusing and aggressively featuring it. Not only at OpenWorld but for the rest of this fiscal year, and the next fiscal year and the year after that.

In addition to this Oracle announced new key features for its IaaS offering that align with many of AWS’ capabilities, such as better management tools and Docker integration.

PaaS push

In addition to the IaaS push, Ellison also took time to highlight it’s Platform as a Service offering - with the announcement of [email protected] This allows buyers to take PaaS into their own data centres, without having to pay for hardware and still getting subscription pricing. Ellison said:

Our PaaS strategy - compatibility and co-existence. We are now seeing today that we have come out with a new set of computers, a new set of machines that are identical to what are used in our cloud. We are taking the machines that we use in our cloud, the software we use in our cloud, lifting it up and saying we can install the identical software and hardware that we use and install that in your data centre, behind your firewall, attached to your high speed local area network.

By the way we are not going to sell you the hardware. We will treat that cloud extension of ours as just what it sounds like - a cloud extension. It’s easy as possible to move loads back and forth between our public cloud and customer machines.

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So customers that want to adopt a cloud-like model, but aren’t ready to shift all their data and workloads to the cloud can do it from the comfort of their own data centre. Whilst this announcement raised a few eyebrows on the Twittersphere about this not really classifying as ‘cloud’ if it’s on-premise, and baffled me somewhat (why push on-premise flexibility when you’re meant to be pushing cloud?), I think Oracle is probably thinking long-term here.

As Ellison noted, there is likely to be a long period of co-existence for cloud and on-premise. Whilst Ellison didn’t specify in his keynote, I’d imagine that the strategy is to get customers using the PaaS on premise, which then makes the conversation about switching to cloud a lot easier than if they were using technology that made a migration difficult.

Ellison was also keen to boast about the company’s cloud progress. He said:

This fiscal year will be the second year in a row that we have sold more SaaS and more PaaS than any other company in the world. Everyone said Oracle got a late start, but that’s even more impressive. We got a late start and we sold more SaaS and more PaaS than any other company. More than $2 billion worth of new SaaS customers, annual recurring revenue this year. Things are going great in the cloud.

We had a run rate of almost $4 billion in the cloud last year. And the thing I’m most excited about is that we now have a technology advantage over Amazon in Infrastructure as a Service and that is just a gigantic opportunity for us and for our customers.

My take

I was very critical of Oracle’s IaaS push during the keynote today. I couldn’t understand why the company was spending so much effort promoting a business that has such low margins and is essentially viewed as a commodity purchase by most buyers. Why take on Amazon when you could be spending effort selling the high value products higher up the stack?

However, after some conversations this evening, the objective is clearer. Oracle views IaaS as the starting point for future cloud discussions with customers. If it can engage with buyers at the infrastructure level, the discussions around platform become natural.

At this moment in time, Oracle customers that are shifting workloads to the cloud are moving to AWS. Once those systems are on AWS, Oracle isn’t necessarily the first port of call for all other discussions that add value.

If Oracle can go to its customers with an alternative to AWS that is cheaper and just as strong on the capabilities front, it has a foot in the door for its other solutions that will bring more value and revenues. Whether or not customers will buy into this idea remains to be seen - will that pick Oracle IaaS over AWS? Time will tell. But the push makes a lot more sense with that in mind.

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