On my first day of eighth grade, my social studies teacher, Mr. Helfenbein, drew a large rectangle in one corner of the chalkboard. Inside he wrote “TO GET RICH” in big letters. That phrase would remain in that upper righthand corner for the entire year.
As the year unfolded, Mr. Helfenbein proceeded to show our class how financial gain was the motivating factor behind almost everything in history, from Columbus discovering the New World to the Vietnam conflict. That memory has stuck with me over the years and surfaced most recently at Oracle’s OpenWorld conference.
Oracle & The Cloud at OpenWorld
If you are familiar with the OpenWorld conference, you’ll know that “The Cloud” was THE major topic of conversation this year. Cloud was preached ad nauseam by the Oracle team and presenters at various sessions. In a way, it felt like Oracle believed if they discussed “cloud” enough, that their bold predictions would magically come true.
Let’s look at those predictions for a moment. CEO Mark Hurd has stated that by 2025:
- 80% of IT budgets will be spent on cloud
- 80% of production applications will be in the cloud (currently about 25%)
- Two SaaS providers will have 80% of the cloud enterprise application market
- 100% of software dev/test will be completed in the cloud
- All enterprise data will be stored virtually in the cloud
Oracle is a behemoth of a company; the type of company that shapes the market. With $37 billion in reported revenue for the 2016 fiscal year, they’ve earned that ability. However, Oracle’s relentless push to the cloud is reminiscent of Apple’s recent attempts to drag customers into their vision of the future—one without headphone jacks or CD-ROM drives—whether those customers want to come along or not.
I am certainly not trying to say there aren’t significant benefits of cloud technology. I personally use cloud services every day. Whether it’s watching a show on Netflix, streaming my favorite band on Spotify, or accessing files on Google Drive, the cloud can be an incredibly helpful and valuable technology.
On the Enterprise side of things, cloud technology allows for greater scalability, easier disaster recovery, rapid deployment, automated updates, etc. There are a bazillion articles on cloud benefits out there, but that’s not what I’m here to talk about today.
Today I want to focus on WHY Oracle has chosen to slide all of their chips to the center of the table to go “all in” with cloud. It’s important to remember what Mr. Helfenbein said back in eighth grade: people (and companies) do things TO GET RICH. Oracle is clearly a for-profit company, and I will never criticize them for trying to increase their stock value and turn a profit. My point is that Enterprise customers should see through the hype of cloud, understand the seller’s motivations, and take a sober-minded approach in evaluating whether the benefits of cloud technology are truly in their company’s best interest.
Oracle’s Challenge: Taking Market Share
During Oracle CEO Mark Hurd’s Monday morning keynote at OpenWorld, he shared that CEOs are held accountable (and feel great pressure) to grow their company’s revenue. But revenue growth among S&P 500 companies chugged along at a slow 1% in 2015. Add the fact that US GDP is only growing at 2.4% each year, and you have a situation where revenue growth is extremely challenging.
Hurd’s solution is that CEOs must take market share in order to grow revenue within the existing landscape. The tough news here is that our old familiar friend “on-prem” isn’t a viable option for Oracle to take market share. Just like 15th-century Europe, the battle lines for on-premise ERP borders have long been established. You’ll see companies switch ERP affiliations from time to time, but these tend to be exceptional situations as companies have already dug in and chosen sides.
Oracle’s $26 billion in recorded on-premise revenue for 2016 is indeed impressive, but Hurd was quick to point out that Enterprise spending has become stagnant. In fact, Oracle’s on-prem revenues are down 4% from 2015. So when tasked with the challenge of taking market share, Oracle has decided to look to the sky. The answer, for Oracle, is in the Cloud.
The Era of Digital Imperialism
For Oracle, the Cloud represents a technological AND financial promised land. Much like Columbus stumbling upon the New World, the current cloud landscape represents a new frontier in tech. It’s an opportunity for companies to plant their flag and expand their empire. We’ve entered into an era of Digital Imperialism. Research recently published in Forbes shows that worldwide spending on public cloud services was $70B in 2015 and is projected to reach more than $141B by 2020.
Oracle reported generating $2.85 billion in revenue for 2016 from its cloud offerings, which represents a 36% increase over last year. In fact, Oracle’s founder and current CTO Larry Ellison made the following proclamations during the opening Keynote at OpenWorld16:
- Oracle has sold more SaaS and PaaS than any other competitor
- Oracle’s Saas and PaaS revenues grew 82% last quarter
- Customers pay 20% less for Oracle Cloud, which operates 11.5x faster than AWS
But Oracle is not the only company exploring this new land. In spite of the above statements from Larry Ellison, Oracle is still facing an uphill battle when it comes to taking market share. Amazon AWS has established a clear lead, holding approximately 45% of the public cloud market and 31% of overall cloud market share, which is over 3x the market share currently held by Microsoft, the world’s #2 cloud provider, at 9%. Online tech media outlets have even listed Oracle as a “Tier 2” cloud provider, although I’m sure Larry Ellison would strongly disagree with that assertion.
So What’s REALLY Happening?
Let’s face it, cloud is coming. In fact, Surety Systems’ own Annual JD Edwards Survey showed that 69% of companies are already using cloud applications is some shape or form. It is an incredible technological leap, and I personally believe that every company will eventually embrace cloud in some capacity.
Oracle knows that although they may have secured your on-prem business, they still have to fight vigorously for your cloud business. Each customer will have options when they eventually choose to incorporate cloud technology into their IT Strategy, thus effectively representing a piece of market share for Oracle to gain, or lose. Oracle wants to ensure that they get your Cloud business and that you don’t choose to work with competitors, like AWS or Microsoft, instead.
Back to the Basics
So here we are, back in the upper right-hand corner of Mr. Helfenbein’s chalkboard. Christopher Columbus stumbled upon the New World because he was trying to find a quicker route to the East Indies…TO GET RICH. In this new era of Digital Imperialism, the motivation for companies is no different. Cloud technology undoubtedly represents an uncharted land for many companies, but let’s be aware of everyone’s motivations here.
What does this mean for you and your company? It means it’s important to keep from getting swept up in the hype. Companies should spend time carefully analyzing whether or not cloud is the right move for them at the time. Remember, just because cloud is in Oracle’s best interest, doesn’t mean it’s in yours.
This is the second piece in a 6-part series on JD Edwards in the cloud. Read the rest: