It's not always the upstarts who cause cloud disruption
It's usually the smaller players who cause the tectonic shifts, but look out for established firms too
The transition to the cloud has been one of those tectonic shifts that the software industry has specialised in over the decades. All such shifts bring opportunity and threat: opportunity for new breed of pureplay providers riding the latest tech movement and threat to the ‘establishment’ providers of the current generation.
It was ever thus. A cautionary tale comes to mind for those of us old enough to cast our minds back to the pre-relational era when the mainframe-centric, flat file database industry was dominated by Cullinet, headed up by John Cullinane, the Larry Ellison of his day.
Cullinet’s dominance of the database market was accompanied by a belief that its success could outlive the rise of relational upstarts such as Oracle. It wasn't to be: Cullinet was eventually crushed by the voracious sales machine that was Oracle's juggernaut.
It’s a lesson I suspect that Ellison has kept firmly in mind over the years. He’s watched as the upstart Salesforce.com turned CRM giant Siebel’s strength against itself, undermining it so much that it became an easy picking for Oracle to acquire. He’s seen how small newcomers can create a momentum based around a technology shift that destabilises the status quo. Once upon a time, Oracle was just such a small newcomer.
In recent times, Oracle’s faced its own dilemma. With Salesforce.com CEO Marc Benioff - who learned the Art of War at Ellison’s knee - evangelising the Software as a Service (SaaS) movement and cloud applications firms such as HCM specalist Workday rising to challenge the on-premise PeopleSoft-installed base of Oracle customers, the database giant has found itself on an unaccustomed back foot.
But Ellison is a survivor. Despite some embarassing outbursts about the nature of cloud - ‘It’s just water vapour!” - the Silicon Valley titan has now put Oracle on full cloud war footing and intends to win. The firm’s mantra has always been marketshare at any price. There’s no reason to assume it will be any different in the cloud.
Indeed, the firm’s most recent set of financial results this week were spearheaded by a declaration from Oracle president Mark Hurd that as far as Oracle is concerned: “It’s cloud, cloud, cloud!”.
But transitions from one era to another don’t come without cost. Like arch-enemy SAP, Oracle’s business and revenue model has been built on selling software licences on premise. Shifting to a cloud model means shifting to a new set of operating expections, as CFO Safra Catz explains when she says: “Most obvious is that revenue is initially lower as subscription license revenue is recognised over the life of the agreement as opposed to licence revenue being taken upfront.
Oracle is on full cloud war footing and intends to win. The firm’s mantra has always been marketshare at any price. There’s no reason to assume it will be any different in the cloud.
“Over time, since we are providing much more than just the software and the updates, the revenue is higher.So while customers are paying overtime, they are using and paying for more Oracle products through cloud subscription.”
But all that takes time. In the short term, fiscal expectations need to be adjusted. In Oracle’s latest quarter cloud subscription revenues were a mere $300 million, somewhere around 3 per cent of the overall corporate figure. That was enough to disappoint Wall Street and send the share price tumbling.
This is not to say that Oracle won’t successfully make the transition to a heavily-subscription-centric model. Far from it. In fact, if anyone wants to bet against Ellison driving through the changes needed, then I’ve got a bridge over here that you might be interested in making me an offer on!