Oracle may be best known for selling big, pricey business software and databases, but at its annual customer conference this week in San Francisco, the company spent most of the time talking about all things cloud.
In recent years, Oracle (ORCL) has been trying to shed the perception that it’s been slow to adapt to the shifting way businesses buy technology. Instead of buying high-priced software and installing programs directly onto their own computers, companies are increasingly subscribing to software hosted in someone else’s data centers, a model known as software-as-a-service.
Additionally, businesses are increasingly renting computing capacity from companies like Amazon (AMZN) and Microsoft (MSFT), freeing them from having to maintain and operate their own data centers.
Oracle executive chairman Larry Ellison spent much of his Sunday keynote presentation at the conference trying to distance his company from longtime rivals like IBM (IBM) and SAP, which are also known for selling traditional business software but, like Oracle, have been attempting to reinvent themselves amid a changing technology world. Instead, he directly named Amazon Web Services (AWS) as Oracle’s top competitor.
Never mind the fact that Amazon’s current cloud computing revenue dwarfs Oracle (Oracle’s cloud infrastructure business brought in $171 million in sales in its latest quarter compared to Amazon’s $2.89 billion), Oracle is also trailing Microsoft and Google (GOOG) in some popular cloud-provider ranking systems as a recent Gartner report shows. If Oracle is going to catch up, it will take a long time, many analysts say. For example, a Deutsche Bank analyst recently wrote that “Oracle talked up its ‘next-gen’ infrastructure as a cheaper rival to AWS, but we don’t believe it will be competitive anytime soon.”
As Oracle CEO Mark Hurd explained during his presentation on Monday, 80% of corporate IT budgets will be spent on cloud services by 2025. No wonder Oracle is trying to convince the world it’s serious about the cloud. Oracle’s legacy software licensing business faces an existential threat if Hurd’s own predictions are accurate.
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In an interview with Fortune, Oracle president of product development Thomas Kurian explained why and how Oracle has been rejiggering much of its existing software services to work on a cloud-subscription model.
Around 2006, Oracle decided to rewrite all of its existing software products to be available as cloud services, Kurian explained. It’s a decade-long process that is still ongoing as the company introduces new products like a newer version of its cloud database service that it announced at this year’s conference.
Oracle only decided to make the shift after it saw rivals with a cloud-services subscription gain some traction and though its own observations with customers that showed that upgrading older software was a long, time-consuming process.
“We felt pressure,” Kurian said about the rise of cloud-centric companies. “We thought it’s a better model.”
As competitors grew, Oracle “thought it was time to do something fundamentally new,” he added. Kurian did not directly name any of those companies, but he likely meant businesses like Salesforce (CRM) and Amazon.
Kurian said that Oracle started its transformation on September 6, 2006 with no software code to build on top of. He explained that Oracle’s 10,000 software programmers had to adopt newer, so-called agile software development practices that require coders to build software in short spurts rather than in the longer and more traditional manner. Proponents of agile software development say one of the methodology’s benefits is that it lets coders more easily modify their software based on ever-changing requirements.
One of the company’s most recent developments is its cloud computing service, a challenger to AWS or Microsoft’s Azure, that required 700 coders and roughly five-to-seven years to build.
Now the challenge for Oracle is to persuade new and current customers to move to its cloud services (both software and infrastructure) by convincing them that they are better than that of current leaders like Amazon, Salesforce, and Microsoft. But several attendees interviewed at Oracle’s conference told Fortune that Oracle faces an uphill battle. Some didn’t believe Ellison’s assertion that Oracle could provide a cheaper alternative to AWS.
Axel Benavides, an IT worker at the Universidad Francisco Marroquín in Guatemala, said that countries outside of the U.S. “still have a fear to put data” on someone else’s infrastructure. He said his university is experimenting with using Amazon’s cloud service because the company was first to promote its services in the country, but it’s possible that the school could use Oracle in the future if its fear of the cloud subsides.
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Luther Mabona, an IT manager for Botswana Unified Revenue Services, the tax collector for the southern African nation, echoed Benavides’ concerns about storing data in the cloud. He said that he’s not ready to use any cloud service, especially when it comes to the technology that powers his country’s tax service.
Still, it’s no surprise that Oracle is talking a big cloud game. The cloud “appears to be the way the world is going,” said Kenneth Avery, a senior database administrator for the city of Austin, admitting that he wasn’t that familiar with the difference between Oracle’s cloud products and competitors.
But Avery said he’s willing to keep and open mind and “see where they are going.”
