As the 20^th annual Oracle OpenWorld conference gets underway next week in San Francisco, the world’s second-largest independent software company will have a lot to show off — and a lot to prove.

An estimated 60,000 customers, partners, journalists and analysts will gather for the five-day event to hear how the company plans to maintain its surprising momentum in cloud computing while keeping its traditional licensed database and business software from declining even faster.

Just two years after Larry Ellison stepped back from an operational role at the company he co-founded, prompting a SiliconANGLE story that asked, Is Oracle in trouble?, Ellison will return Sunday night to debut at least two major new products that he hopes will help Oracle thread that strategic needle. (* Disclosure below.)

For one, Ellison will fire a warning shot across the bow of Amazon.com Inc., the leader in cloud computing. Ellison said during an earnings conference call Thursday that Oracle will introduce a new version of its Infrastructure as a Service (IaaS), the type of cloud computing that offers storage, computing and other resources over the Internet.

The Oracle chairman promised that this second generation of its IaaS will offer “twice the compute, twice the memory, four times the storage and ten times more I/O [data transfer speed] at a 20 percent lower price than Amazon Web Services.” That sounded like a shift from last year’s OpenWorld, when co-Chief Executive Mark Hurd insisted Oracle wasn’t trying to build a system to go up against AWS.

Not surprisingly, Oracle also will introduce a new version of its database software and services. That’s partly a cloud play, too. Ellison said he thinks that while some customers naturally will install databases on their own premises as most do today, he also expects that “a significant amount of new database consumption will be in the cloud.”

Ellison and Co. have plenty of convincing to do on the cloud front. For one, questions continue to swirl around the techniques Oracle has used to account for cloud revenue. Moreover, the company’s IaaS offering has trailed far behind Amazon Web Services, Microsoft Azure and even relative newcomer Google Inc.’s Cloud Platform. Not least, Oracle faces new pressure both from direct competitors and from a burgeoning crop of open-source relational products and increasingly powerful NoSQL competitors.

Oracle’s difficult transition from data center to cloud was obvious again in first fiscal quarter earnings reported Thursday, which fell short of Wall Street expectations. That was partly thanks to a higher tax rate from more cloud sales in the U.S., possibly a positive indicator of cloud momentum, as well as borrowing costs and a strong U.S. dollar.

For all that, Oracle has somehow continued to evade the forces that have depressed sales even more at its legacy brethren such as IBM, Hewlett-Packard Enterprise Co. and EMC Corp. The Oracle difference was perhaps best summed up by MapR Technologies Inc. Chief Executive Matt Mills, a 20-year Oracle veteran, who was asked recently what Oracle strength he would most like to see his new company emulate. “Operational excellence,” he responded.

Buying entry

That’s certainly the case with Oracle’s quick recovery from its late start moving to the cloud. “Oracle has made significant progress transforming its business to be more cloud-centric through a series of acquisitions that have brought new products, people and processes into the company,” said Jeff Kaplan (@thinkstrategies), managing director of cloud consultancy THINKstrategies.

Recent purchases have included LogFire Inc., an Atlanta, GA-based startup that provides cloud-based warehouse management applications; NetSuite Inc., a cloud financial software provider; and Opower Inc., a maker of cloud-based customer engagement applications for the utilities sector. It’s probably no coincidence that each of those companies has the word “cloud” in its description. The price tag of more than $10 billion for the three still leaves Oracle with $45 billion in cash and short-term investments.

Why so much activity in vertical applications? Analysts say Oracle realizes that sofware-as-a-service (SaaS) is a leverage point both for long-term subscription revenue and also a way to embed Oracle’s infrastructure software more deeply in customers’ environments. “They are hoovering up as many applications as possible to ensure that their database and middleware stack remains at the foundation,” said Wikibon Big Data Analyst George Gilbert (@ggilbert41). “They also now have an inside sales force that is capable of selling the applications and the stack to smaller companies they couldn’t reach before.”

With strong positions in financial applications, middleware, hardware and numerous vertical markets, Oracle has diversified its business. As competitors such as HPE exit the software business and IBM’s DB2 market share declines, the number of traditional direct competitors is dwindling.

New competitors

But that doesn’t mean there isn’t competition. In the core database arena, Microsoft is stepping up its direct challenge with the release of SQL Server 2016. Boasting vastly improved scalability, better performance and integrated online analytical processing (OLAP), SQL Server 2016 presents the most formidable Microsoft challenge yet to Oracle’s bread-and-butter.

“Microsoft has spent decades trying to do little more than stay in Oracle’s rear view mirror, but this release is an amazing product that leapfrogs Oracle in some important areas – like speed – though not yet in scale,” Gilbert said. Research firm Gartner recently placed Microsoft ahead of Oracle in its 2015 database Magic Quadrant, citing SQL Server’s hybrid capabilities, Microsoft’s in-memory computing advances and its “cloud first” strategy.

Open source competitors are also applying pressure on the pricing front. MariaDB Corp., whose namesake database is a branch of the popular MySQL engine that Oracle now owns, is preparing to publish research that claims that Oracle’s licensing costs are 14 times that of a comparable MariaDB configuration, according to Cate Lochead, chief marketing officer at MariaDB. 

Scale-out databases and repositories such as Cassandra, Hadoop and NoSQL “are running away with a lot of the huge workloads that only Oracle used to be able to handle,” Gilbert said. However, there is no evidence that enterprises are ready to trade out relational engines for NoSQL alternatives in transaction-intensive environments.

Then there is Amazon Web Services, which joined Gartner’s quadrant for the first time last October. In addition to hosting multiple commercial and open source products, Amazon’s Aurora has attracted notice with the company’s claims of automated scalability and five times the price-performance ratio of traditional alternatives. Amazon’s DynamoDB is also considered to be a strong NoSQL play.

Amazon is using pay-as-you-go pricing and simpler administration as a way to attack Oracle from beneath. “Aurora clips off a big chunk of what Oracle was so good at,” Gilbert said. “It uses clever compromises to do much of what is good enough for 80 percent of Oracle customers.” Readers of Clayton Christensen’s The Innovator’s Dilemma know how effective this tactic is.

So what about cloud?

Having come late to the cloud, Oracle has been making up for lost time, but there can be no question that it’s serious about leading there. Ellison recently said Oracle has “a fighting chance to be the first cloud company to reach $10 billion in SaaS and PaaS (platform-as-a-service) revenue.” More than 400 OpenWorld sessions – about a quarter of the total – are devoted to various Oracle cloud platforms. “It’s a very, very large-scale effort that is blessed all the way to Larry,” said Ashish Thusoo, CEO of Big Data-as-a-service startup Qubole Inc.

In addition to buying its way into numerous vertical markets, Oracle has been moving its entire database and application portfolio to subscription pricing. That transition has hit other legacy software suppliers hard, forcing several to use leveraged buyouts to conceal revenue declines from customers and investors.

“Enterprise customers want to reduce their capital outlays for technology and applications and get a greater ROI from their IT operations,” Kaplan said. “This has fueled the shift to subscription services and is driving down the overall growth opportunities for players like Oracle.”

But the company seems to making the transition better than most, reporting flat margins in its most recent quarter while adding hundreds of new cloud customers. Some competitors have accused Oracle of bundling cloud services into its database deals in order to account for the revenue as cloud. Oracle denies this, but it doesn’t really matter. “Microsoft did the same with Azure for a while with their enterprise license agreements until usage took off,” said Gilbert.

‘iPhone for the enterprise’

Oracle is considered a master of account control, and as it brings together a multi-layer portfolio that spans everything from hardware to cloud applications, David Vellante (@dvellante), co-founder and chief analyst at Wikibon, sees a strategy emerging that he called “iPhone for the enterprise.”

In that scenario, Oracle’s database and servers becomes control points for functionality and licensing deals that box out competitors and keep customers in the fold. For example, he said, “Oracle will eliminate the concept of database backups with an instantaneous recovery system using system memory, database re-do logs and a proprietary appliance that does recovery almost instantaneously, with no backing up. Everyone selling backup appliances will be at a disadvantage.”

Another is “trusted partitions,” a licensing program for Exadata database servers that permits users to turn off a subset of hardware cores in order to save on software licensing costs.

“These are classic Oracle tactics, and customers should understand the implications,” Vellante said. “The CFO will be happy to sign off on lower capex, but when Oracle gets enough market share and needs more growth, they’ll probably increase prices.”

It will be up to customers to decide whether they’re willing to trade off lower spending today for Oracle’s relentless brand of operational excellence tomorrow.

SiliconANGLE Media’s theCUBE will interview many executives from Oracle and other companies starting Monday morning. (* Disclosure: Oracle and other companies sponsor some OpenWorld segments on SiliconANGLE Media’s theCUBE. Neither Oracle nor other sponsors have editorial control over content on theCUBE or SiliconANGLE.)

Photo via Oracle OpenWorld on Facebook