Oracle’s latest quarterly numbers paint an interesting picture. While overall revenues were pretty much flat year-on-year, cloud revenues were up 61% for the same period, while on premise hardware product revenues were down 13%.
That’s led to speculation (again) in some quarters that the traditional hardware business might be wound down. Oracle’s denied this, but some degree of reorganization or restructuring does appear on the cards, as Oracle co-CEO Safra Catz confirmed:
We are proactively evaluating our expense infrastructure needed to support the on premise hardware business in light of on premise hardware revenue declines and the new availability of IaaS for customers.
Catz also points to an imminent pivot point in Oracle’s revenue model:
We continue to see accelerating growth rates in our cloud business, while our key competitors are slowing down, but more importantly, the increase in revenue from our cloud business is starting to overtake our new software license business decline. Our cloud revenue will be larger than our new software license revenue next fiscal year, when the transition will be largely complete.
For the first time, Oracle’s quarterly cloud revenue topped the $1 billion mark. In terms of how that cloud revenue breaks down, SaaS and PaaS make up the overwhelming majority, up 89% year-on-year to $912 million for the last quarter. In contrast, the IaaS contribution is $175 million, a 9% year-on-year growth rate.
Catz’s co-CEO Mark Hurd picked up on the SaaS growth, citing figures from research firm IDC to stake the claim that:
Oracle is now the number one market share leader in Enterprise SaaS. In the quarter, we got almost 1,100 new SaaS customers and 1,082 to be exact, and have 810 expansions. In CX, we had 443 new customers, 517 expansions. In HCM, we had 224 new customers and 212 expansions. In ERP, we had 532 new customers and that does not include NetSuite> We had 91 expansions. Over half of the new ERP customers never had an Oracle app before they bought. Our active base now is 3,269 with 1,275 live, over 10X greater than Workday. In total, we now have almost 13,000 customers in our SaaS active base and 25,000 if you actually include NetSuite.
The race to $10 billion is back on
Meanwhile in the wake of the completion of the NetSuite acquisition, Oracle CTO Larry Ellison has returned to a familiar theme that’s been absent for a few months - the race to $10 billion cloud run-rate and, more importantly, beating Salesforce to it. Salesforce CEO Marc Benioff predicts his company will cross the line in fiscal 2018, so Oracle with a half-year total cloud revenue run-rate of around $2 billion has a way to go to catch up, even bundling in NetSuite revenues going forward.
Catz says that NetSuite hasn’t made a large contribution to the overall cloud revenues yet - $50 million - with less than one month under Oracle’s ownership:
It’s basically a wash on all the other lines, as you know since we just got it. It’s revenue track is very similar to what it’s been doing, however if you know Net Suite doesn’t grow as fast as our cloud business grows, nor is it as profitable. So over time we’re going to bring it to where we’re doing and we also hope to accelerate it actually, because our productline is so much broader…As we own it over time, we expect to be able to leverage it, but it doesn’t grow obviously as fast as our ERP business does.
But that’s not detering Ellison, who declared:
Our cloud applications’ goal is to be the world largest and most profitable SaaS Company. We are growing our cloud business much faster than Salesforce and we can beat them to the $10 billion mark, but it’s going to be close. IDC already recognizes Oracle as the number one in annual SaaS sales to large enterprise; Salesforce is number two. We will book more than $2 billion in annual cloud sales this year, much more than Salesforce. We are catching after them and we’re catching them very quickly.
There’s even further to go in terms of beating Amazon Web Services in the IaaS space, but Ellison reiterated his superior technology claims made previously:
Our goal in infrastructure and database is to be number one running database workloads in the cloud on our Infrastructure as a Service. The Oracle database has a huge technical and market share lead over the Amazon Web Services databases Azure and Redshift. But much more importantly, the Oracle cloud infrastructure as a service runs the oracle database workloads much faster, more reliantly and at a significantly lower cost than the Oracle database running at Amazon IaaS.
That said, he acknowledged there’s a big challenge ahead in this space:
Big question - can Oracle's Infrastructure as a Service differentiate itself from Amazon? Can we do it more gracefully, more reliably, less expensively, more securely than Amazon can? We think we can, and that's going to make us very, very competitive.
It’s been a long transition road for Oracle to the cloud - and it’s not over yet. But if Catz is correct and the tipping point of new cloud revenue v new license revenue is imminent, that’s a good psychological milestone at any rate.
License sales declined in the latest quarter, with Ellison arguing that this is down to waning adoption of traditional applications, not to the database side of the business. He predicts there that database license revenues will remain on a steady keel, even with the growth of the IaaS market.
On the subject of transition, Catz has also been named as a member of President Elect Donald Trump’s transition team, a role she will carry out while remaining co-CEO at Oracle. It’s been a busy week for her!