Oracle in transition, just like SAP - only different

Prior to Oracle's Q4 earnings announcement I detected a certain amount of skittishness among the financial analyst community as the pace of Oracle related posting on Seeking Alpha spiked in anticipation of earnings that were thought to have been in line with expectations. I on the other hand was not surprised to find that Oracle missed what The Street thought would be the earnings numbers. I was even less surprised to see that the earnings call was dominated by cloud talk. Why?

Make no mistake, Oracle is going through a transition and trying to figure out how best to communicate that to investors and customers alike. SAP is in the same boat.

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Oracle does not (yet) split out its cloud based sales in the press release but does so in the formal filings. According to reports, the current quarter saw cloud sales of $250 million (some reports says $264) compared to $231 million in the previous quarter and an annual run rate now of $1 billion.

Contrast this with SAP which has chosen to split cloud and other revenues. It too is on a path to transition. In its case, SAP is taking two parallel streams: the first is cloud, the second is pushing new applications and its Business Suite onto HANA. Oracle is now betting on the maturity of its 12C database to carry the day in the market while it builds both cloud apps and continues its 'engineered systems' approach. Hardware is the one area that Oracle can't seem to get right with sales tanking 21 percent for the full year.

During the commentary, it was interesting to hear Oracle taking pops at Workday and SAP. I have long held the view that Workday will reach an annual revenue run rate of $1 billion by fiscal 2015 and nothing I see leads me to think I need to revise that estimate. SAP is aiming to get close to $1 billion on HANA this year and $2 billion on cloud by 2015. Whereas in the past I would have been inclined to think that SAP and Oracle had fought themselves to a standstill - occasionally swapping customers but ultimately stagnant in real terms - HANA introduces a new dynamic that clearly ruffles the feathers of the Redwood Shores giant.

Is there a winner here? From a PR perspective, you'd have to say that SAP is out in front. The relentless HANA talk is now being supplanted by customer stories and a modest but important influx of new applications being developed by third parties, many of them in the startup category.

During the call, Oracle hinted at much the same: "Oracle database and Java— those are the two most important platforms on the face of the Earth for building applications," said Larry Ellison, CEO Oracle. Next week will be the telling moment when, as Oracle said, it plans to make important partnership announcements. SAP should be concerned about this. While it is largely relying on those familiar with SAP to build apps, Oracle has a huge number of DBAs in the market who have been building non-Oracle applications for many years. Transitioning those people to cloud apps based upon 12c ought to be relatively straightforward.

Transitioning SAPpers to HANA requires dusting off SQL skills. That leaves HANA at a relative short term disadvantage but one that could easily obviated by SAP's claim that HANA represents a simpler and, long term, cheaper 'stack' against which to build the applications of the future.

As both companies move through their transitions, it will be interesting to see which will emerge the stronger. Until recently, analyst colleagues felt that Oracle's engineered systems approach would likely win the day. It's most recent announcements hint at a strong cloud push, along with the hiring in of a fresh and dedicated cloud sales team add to the mix. That is super smart since these folk don't bring the baggage of an on premise licence sales mentality.

As for SAP? Vishal Sikka, executive board member SAP has only just taken over responsibility for all SAP development.  Their next quarter is up at the end of this month. We'll need to see their report card and take another reading of the tea leaves to gain a clearer picture.

Disclosure: at the time of writing, SAP, Oracle and Workday are premier partners

Endnote: this post has been updated for cloud revenue numbers not shown in the press release but contained in formal filings.