Oracle Corp. is stepping up the volume to educate the world that they are winning the cloud game. Oracle’s CEO, provides a detailed view into the future of Oracle’s overarching business strategy which centers around cloud computing across Platform-as-a-Service (PaaS), Software-as-a-Service (SaaS), and Infrastructure-as-a-Service (IaaS) and how Oracle is highly differentiated and investing heavily in these fast growing markets.
The company has some aces in the hole to play against its competitors: its broad application portfolio and its hyper-converged infrastructure. Oracle hardware business gives it an edge in enabling customers to shift seamlessly between on-premise and cloud infrastructure, and its strength in financial and other business-critical software is a natural attraction for customers looking to move their apps to the cloud.
“Oracle has rewritten all of its applications from the-the ground up,” to live in the cloud, said Oracle CEO Mark Hurd In a rare exclusive 58-minute video interview. “There is no other company in the industry who has got a complete suite of SaaS applications—Oracle’s the only one.”
In five years at Oracle, CEO Hurd has helped transform Oracle into one of the top five cloud companies. Oracle has increased annual research and development from $3 billion to over $5.2 billion, fully “cloud-enabled” its software offerings and driven billions in cloud revenue, he said.
The IT industry is in the early stages of an epic shift driven by a changing business climate and unprecedented pressure on customers, the executive said. Businesses are under pressure to cut costs but also need to invest in order to fend off disruptive competition. “If they cut costs for cutting costs’ sake…they can easily get [disintermediated] from their customer, from their market, and therefore, wind up not being competitive,” he said.
Cloud won’t be be a winner-take-all battle, but the market will consolidate, Hurd said. Customers want it that way. “I don’t think customers are going to buy [cloud applications] from a hundred different companies. This [cloud transition] is an opportunity to make things simpler.”
The current mix-and-match approach customers must take to building hybrid clouds is untenable in the long term, Hurd added. “It’s like driving up and down the highway and buying a muffler and a bumper and putting it together in your driveway,” he said. “I don’t want to spend a bunch of money on my IT staff horizontally integrating a hundred clouds. Instead, I’d like somebody to do that for me.”
Oracle is fighting a multifront battle. On the infrastructure side it faces competitors like Amazon Web Services (AWS), Microsoft, Google and others. But it’s also competing with SaaS heavyweights like Salesforce.com Inc. and Workday Inc. while protecting its flank against traditional competitors like IBM and SAP.
Hurd recently predicted that by 2025, two software-as-a-service (SaaS) companies will hold 80% of enterprise SaaS market and that Oracle will be one of them. To ensure that, Oracle is making massive R&D bets on horizontal and vertical integration.
“When you buy an application in the cloud, [the provider has] procured hardware, database, middleware, services, a datacenter, [floor space], security,” he said. Those are details customers don’t have to worry about. “So this shift to the cloud really is the ultimate testimony to vertical integration.” With a new sales organization, new go-to-market model and aggressive cloud service delivery roadmap, Oracle expects to outlast the competition.
While the market is moving quickly and consolidation is inevitable, cloud adoption won’t be a big-bang proposition for customers, particularly those with large legacy infrastructure. That’s why hybrid cloud will be the model of choice for the foreseeable future for enterprise customers. “The ability to move [over] job by job, and then to be able to coexist these hybrid environments over a period of time, becomes a really strategic and high-priority issue for our customers,” Hurd said.
On the other hand, certain functions make sense to move completely to the cloud right now. “I think moving DevTest the cloud…is an intellectual lay-up,” he said.
At Oracle Openworld 2015, Hurd predicted that by 2025, majority of dev-test will move to the cloud. Using dev-test as an illustration, Hurd is pointing out that the cloud will have significant revenue shifts. Specifically, dev-test accounts for 30 percent of the total $1 trillion annual IT market and represents a whopping $300 billion market. Hurd points out that if customers can optimize 50 percent of dev-test then that’s $150 billion in value. This underscores the enormous impact that cloud can have on even more lucrative workloads like production systems and applications. The cloud shift changes everything and is turning the supplier to customer value relationship on its head.
While Oracle’s SaaS business is big, its platform-as-a-service (PaaS) business will be even bigger, he predicted. “We will book more SaaS and PaaS business in the cloud this year than anybody else in the industry.”
Cloud Has Real Impact On Technology Users
The cloud is changing not only the technology equation, but also the way companies apportion their labor costs, according to David Vellante, chief analyst at research firm Wikibon. By shifting people expenses from their own budgets to cloud vendors, companies will be able to move investment dollars from routine operations to revenue-generating activities. “This is a huge change from the old way of using IT,” Vellante said.
Hurd agreed. Oracle has nearly 2,000 programmers improving its HR applications. “Would you rather be doing that on your IT staff, or have that done by people on our payroll, not yours, to drive your innovation?” he asked.
Global Economy Putting Pressure on Information Technology Economics
Businesses want simplicity, lower cost and a viable innovation strategy to compete in increasingly complex global markets. The cloud is the basis for a modern application and platform IT plan.
“Yes [the cloud] is lower cost, it’s better economics, yes it is simpler, but it also drives more innovation. Companies are very much being very careful with what they spend. I think companies overall are comfortable with their cost structures. They wish they could grow faster. And it becomes the reason why cloud, not just as a technology, but as a business approach and a business model is extremely attractive to our customers into the broader market,” said Hurd.
Perhaps more importantly, cloud computing can drive business innovation, Hurd said.
Value in the Data
The industry is seeing more data being generated than ever before from mobile devices to Internet of Things (IoT) sensors to machine learning. While offering opportunity to extract more value from IT, this deluge is also creating more complexity. That’s an opportunity for companies like Oracle, which has strength in both applications and data analysis.
Analysts and customers are asking which vendor will provide the value fastest for getting the most out of the data and who’s going to build the tooling and the automation and the integration capabilities to maximize the data, whether it comes from some integration on an iPhone or a collaborative document or an ERP system. It could come from anywhere and/or mixing and matching data.
Hurd details Oracle’s vision: “things are changing now…those analytics have to move right next to the application itself. They have to become real-time, and they have to be integrated into the core applications. So with Oracle applications today, you no longer have to take data out of the application. You can integrate it directly into the application, so you can now get real-time insights. The ability now to integrate structured data and unstructured data, and do it in near real-time so that you can make a decision on something based on early indicators and then merge it and integrate it with the core way that you run a company. But it’s not going to be good enough just to analyze that unstructured data, that social data. You’re going to have to be able to merge that data with a system that can now do something with it”.
Cloud is rapidly redefining the competitive landscape of the IT industry. Amazon is racing to dominate the enterprise market. Microsoft is all in. EMC is selling out to Dell. HP split in two and has shut down its public cloud. Citrix divested large parts of its business under shareholder pressure, as did Symantec and Riverbed. IBM is shrinking as it tries to pivot its legacy business. cloud. These factors are causing customers to re-evaluate existing relationships. Hurd believes that the vendors that survival need to have a strategy to seamlessly move customers between on-premise computing and the cloud.
“If you’re not first in the cloud to begin with, you’re not going to be long for this industry,” he said. “In the end, companies want more [cloud capabilities] from a smaller number of cloud providers.”
AWS currently dominates the public cloud, but Hurd said the market is still in its early stages and the requirements being articulated by enterprises are better suited for Oracle. “Very little of the [enterprise] workload today has moved [to the cloud] compared to what it will be five to seven years from now,” he said. “The ability to get the bulk of this market is the ability to move massive amounts of workloads from some of the most complicated jobs in the world.”
That favors companies like Oracle, which have the resources to build out a comprehensive cloud platform. For most competitors, “good luck trying to do that,” he said.
Oracle has spent 10 years rewriting its software for the cloud, Hurd asserted. While it will continue to invest heavily in research and development, Hurd asserted that Oracle would still be strategic in buying companies. “We’ve had very much a buy-and-build strategy,” he said.
The company has growing cloud platforms across software and hardware. Much has come from organic in-house development and some from R&D. According to Hurd, Oracle’s growth and innovation strategy will continue to be a blend of organic R&D and outside M&A.
“We spend a fair amount on R&D. When I came to Oracle in 2010, I think we were spending $3.8 billion. And we’ll probably spend $5.2 billion this year in R&D. So we invest. Not all of it is ‘D’—we have a few hundred million dollars of pure ‘R’ as well. And in addition to the ‘D,’ the way I like to think about the innovation of Oracle, is it’s the D, and it’s the R, and it’s also what we acquire. And so we have not built everything—we’ve had very much a buy-and-build strategy. We’ve bought in some capabilities that we weren’t building, and we’ve merged those to create the portfolio that we have today,” said Hurd.
A core part of the strategy will be hybrid cloud, which will permit customers to fluidly move their workloads between public and private resources. In an interview last July, Oracle Executive Vice President David Donatelli said Oracle intends to offer the same infrastructure on-premise and in its public cloud, as well as the same management tools, security, and support. Hurd reiterated that Oracle is doing all of the complex and time-consuming integration work so companies don’t have to.
Competitive Strategy: On-Premise and Public Cloud
Hurd reiterated the advantages that Donatelli spoke about during our interview last July, specifically that Oracle offers the same infrastructure on-premise and in its public cloud, as well as the same management tools, security, and support, making data portability from private to public cloud environments simple and intuitive. Hurd reiterated that Oracle is doing all of the complex and time-consuming integration work so companies don’t have to, removing the burden, as Hurd says, of having to do everything yourself.
With Oracle’s cloud strategy, customers can run on-premise database compute and database recovery and, when the enterprise is ready, they can transfer those licenses to the Oracle Public Cloud. This puts the pressure on the competition to provide an on-premise only compute and backup offering, such as EMC, Dell, HP or NetApp who have no option for customers beyond their on-premise hardware.
New Oracle – Things to Watch
Oracle’s push for cloud leadership raises questions. Can it keep its existing base of customers and grow revenue while shifting them to the cloud? Can it attract the new “cloud-native” non-Oracle customers? Can it fend off their new competitors like AWS and Workday while holding the fort against traditional rivals like IBM, Salesforce, and SAP? Will the strategy of having on-premise platforms that blend seamlessly with the cloud matter?
On the first question, at least, Hurd is confident. “As Oracle’s cloud business has grown, “our growth rate has actually gone up,” he said. He’s also confident in the company’s “100% cloud bet. Think of us now as multiple billions of dollars in revenue in PaaS and SaaS, and growing rapidly,” he said. “We’ve added more salespeople, made more of our products available in the cloud and we’ve now got lots of references.”
Can Oracle shift a business model that has succeeded so well for so long to a business with entirely new rules? The stakes are high and trillions of dollars in revenue is up for grabs.