SAP and IBM? Pah! Says Larry Ellison. Amazon and Salesforce – them’s my competition these days.
Only the truth is a little more nuanced.
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Yes, there is competitive pressure from the cloud entrants but the more Ellison tries to re-invent Oracle, the more he’s going to have to scrap with his rivals IBM and SAP to haul past the new crew.
That’s because IBM and SAP are doing precisely the same thing, and will see Oracle as their number one challenge in getting into the cloud.
Ellison told a company event on Wednesday that SAP and IBM are in his rear-view mirror and Amazon and erstwhile SaaS rival and Salesforce are his new foes.
The CEO opined: "Our competitors are this whole new generation of cloud companies. We are focused on infrastructure companies, like Amazon and the SaaS companies like Salesforce.
"We just swapped a bunch of big guys – IBM and SAP – for a hunch of other guys; small but agile."
Ellison spoke just ahead of Amazon announcing continued and accelerating growth in its cloud business.
Amazon doesn’t say what it makes on cloud and the most we have it's the "other" category on its balance sheet, where revenue from AWS sits.
In Amazon’s fourth quarter, announced Thursday, this group made $1.234bn – up from $1bn in revenue in the third quarter and $892m in Q2.
That’s despite Amazon cutting AWS prices to see off Microsoft and Google. The growth has helped Amazon turn its usual overall loss in to a profit - $510m for the quarter
But, I’ll bear in mind Ellison’s comments about Amazon re: Oracle and SAP next time Oracle announces its results.
These quarterly results debriefs have turned into jocular locker room events with Ellison gamely snapping his bath towel off the butts of IBM and SAP.
The silence should be as deafening as it is disappointing - although we don’t think we’ll be disappointed.
That’s because it’s perfectly natural to associate yourself with winners in the hope that it reflects well on you. If Larry says he competes with Amazon etc, then he hopes we, too, will come to regard Oracle as a company just like Amazon.
But the corollary of associating yourself with those you aspire to compete with is to not mention those who are exactly the same as you.
Enter IBM and SAP.
Oracle is trying to take online market share that would have gone to Amazon and Salesforce in the field of platforms and infrastructure as a service and in the form of serving applications as a service but so, too, are IBM and SAP. And like Oracle, IBM and SAP are staples of enterprise IT in hardware and software and are both responding to the growth of cloud and SaaS by rolling their own.
Oracle, which believed it could get rich simply selling pickaxes to prospectors, is now in the land rush, floating its own developer and database clouds in while pitching its very large servers and chunky middleware as for private clouds.
All that remains to be seen is who will stake out the biggest claim and on that score, there’s two divisions.
The first is comprised of Amazon, Salesforce and Workday – also named checked by Ellison this week. These are cloud companies growing fast.
From a revenue perspective these are are smaller than Oracle, IBM and SAP – they make millions or are just scraping billions - they don't clear anything near the multiple billions the giants make, but they are growing in double digits.
Division 2 promotion
Oracle, IBM and SAP are in Division 2. These are companies that make a lot more money than those in division one, multiple billions per quarter and tens of billions each year, but this comes from operations that the cloud threatens.
The question is this: which of the firms from division two can break into and lead division one?
On this, there is no clear leader and race resembles the jostling just as the horses in a race leave the gate.
SAP claims fast growth from its cloud-related business, but has pushed back its overall revenue goals by two years while also muddying the number it has given. It has stated a $3bn to $3.5bn target but this is a number that is tainted by the fact it leaves in all the costs associated with getting there.
IBM, we found out this month, is making more from selling other people its hardware and software to build clouds than it does from its own cloud services. It will now spend $1.2bn to build 40 data centres to make more online services available, so it is moving sideways in this race.
Oracle is treading water. New software licences and cloud software subscriptions in Oracle’s latest quarter were flat year on year at $2.3bn.
The figure alone means Oracle is in the SAP ballpark on cloud-related income but when it comes to growth SAP is the winner – it claimed a 66 per cent jump in cloud subscriptions and support to €209m ($285m) during its latest quarter (year on year) while software and cloud subscriptions were up two per cent to €2.10bn ($2.87bn).
The pressure to break clear from this pack is intense.
All three companies are of a similar size and force, well financed with billions of dollars to their names and armies of staff and partners.
Each knows the other two has got it in them to beat it, a fact that makes it incumbent on each party to try to beat the other two.
IBM and Oracle have been rivals in software and hardware, but IBM is losing weight on the hardware by dumping x86 servers on Lenovo while bulking up on its data centre footprint to host more cloud services.
SAP has fought Oracle on owning the beating heart of organisations through their ERP. But after 30-odd years and with both companies enjoying huge market share, the bad news is they now need to start all over again.
A Gartner report this week claimed the kind of highly customisable, all-in-one ERP systems that made Oracle and SAP rich will no longer be bought by customers in two years' time. New business spend will be going on best of breed in the cloud.
Andy Kyte, vice president and Gartner fellow has written:
The concept of a single ERP suite that meets all of an organisation's needs is dead, and has been replaced by a hybrid ERP approach that combines cloud point solutions with a smaller "core" of on-premises ERP function, such as financials and manufacturing. Gartner predicts that hybrid ERP environments will be the norm within five years.
Which means SAP and Oracle will lock horns once more, this time offering cloud-based ERP and integrating existing ERP with the cloud. Only this time, they will be up against more smaller, more nimble and fast growing apps rivals, like Workday – offering the HR portion of the ERP puzzle.
So, bend over IBM and SAP - and prepare once more for the sound of snapping bath towels in the locker room of enterprise tech. ®