For Oracle It Still Boils Down to the Database
For Oracle, another earnings call has come and gone, and to a large degree it’s the same old story. As the company continues its cloud computing push against software competitors like Salesforce (CRM) and infrastructure giants like Amazon (AMZN) Web Services, it’s still the database that matters most.
With a healthy customer base using its accounting software (known as enterprise resource planning or ERP in industry-speak) and human resources tools, Oracle (ORCL) still milks its cash-cow, a relational database that most of the Fortune 500 have used to run their vital operations over the past couple of decades.
“People say a lot of stuff about Oracle, but its database remains the gold standard,” said Gartner (IT) managing vice president Charles Eschinger. As a result, the shift of that business from Oracle databases running on customer servers to operating on Oracle’s cloud is a critical transition for the company.
In the public cloud model, one company, in this case Oracle, aggregates server power, storage, and networking, which it uses to run many customers’ applications. That way the customers don’t need to build more of their own data centers.
But, if those customers decide that, while they’re moving, they might as well try out someone else’s cloud, database, or both, then Oracle would be in a heap of trouble. This is not just a theoretical: You can run Oracle’s database on AWS or on Microsoft (MSFT) Azure clouds, if you desire.
On Oracle’s third quarter earnings call Tuesday, co-chief executive Mark Hurd said more than 350,000 customers run Oracle database in their own data centers, and all of them may migrate some or all of their workloads to Oracle’s cloud at some point. You can quibble over customer count, but no one disputes that Oracle has a boat load of database customers which is why every other tech company is trying to pick them off.
The database, as mentioned, is the lifeblood of enterprise applications of all types. Swapping out one database for another, has never been easy, which probably accounts for Oracle’s longevity in big accounts—even after years of attacks from Microsoft SQL Server, IBM (IBM) DB2, and now Amazon’s Relational Database Service (RDS) which runs different flavors of databases.
In fact, Oracle’s staying power is probably one reason Microsoft recently announced plans to put SQL Server (or at least core bits of it) on Linux. Oracle’s databases have long run on Linux, the popular open-source operating system which competes with Microsoft SQL Server.
It may also be why Amazon announced Tuesday, in an expedient bit of timing, that the database migration tool it previewed last October has been used by 1,000 customers to move their databases to AWS. At least one of those customers, Thomas Publishing, was apparently an Oracle shop. Microsoft unveiled its own aggressive Oracle-to-SQL Server exchange program last week.
As for Oracle’s third quarter, sales of new software licenses for products that run on-premises fell 11% year over year. That on-premises category makes up 70% of Oracle’s overall revenue, so there’s reason for concern there.
On the plus side, the company said sales of cloud products falling under the “platform as a service” and “software as a service” categories were up a healthy 61%. But that’s still a much smaller business.
Oracle co-founder and chief technology officer Larry Ellison said the company is prepared for the battle. “A lot of people have come after us in databases,” he said. “We’re very comfortable defending our leading position in the database market.”
Ellison also cast shade on claims that database migrations can be easy. “If you want to go to Amazon database, you have to rewrite your app,” he said. Amazon says its tool can sweat much of the angst out of these moves. The truth probably lies somewhere in the middle.
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On the call, Oracle co-chief executive Safra Catz expressed confidence that databases—and database customers—will stick with Oracle regardless of their cloud plans. “We’d be thrilled if every one of our database customers came to our cloud instead of running on premise,” she said. “That would be fabulous.” But she added that some will likely put new applications and the test and development of new applications in the cloud, while keeping older apps running internally.
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If those customers do go to Oracle’s cloud, the company will handle the hardware, support, upgrades, and labor. That means they’ll pay more in support fees but will still end up paying less in total because of the “massive economies of scale we have,” Catz noted. “Some will stay on prem indefinitely and that’s fine,” she added, using the slang term for “on premises.”
That sounds like a nice story, but in the end, it may be one that some database shops find hard to swallow.