Where's Larry Ellison's blind spot in the cloud?
It’s sometimes hard to take Larry Ellison seriously.
Sure, the Oracle chairman has spent decades atop the enterprise software heap, but his comments can be so over-the-top (cloud is “water vapor”, anyone?) that they undermine his company’s once impregnable market position.
But in his comments about competitors at Oracle OpenWorld, as captured by Timothy Prickett Morgan, Ellison spoke truth. Or, at least, more truth than normal.
IBM who? SAP what?
Anyone who works in enterprise software will have grappled with a weird truth: IBM makes billions from selling software, but few ever run into them in accounts.
Part of this may stem from IBM selling deep into “Big Blue” accounts, and nowhere else.
And part may derive from a shrinking share of a variety of markets (e.g., IBM’s DB2 market share has been in stasis for years even as more nimble competitors surpass it and companies like Oracle and Microsoft completely dominate it).
But still, you’d expect Oracle to take IBM seriously, if for no other reason than IBM’s imprint on legacy workloads. Ditto SAP, the world’s largest enterprise application vendor.
“In this new world of cloud computing, everything has changed, and almost all of our competitors are new,” said Ellison. “We now compete with Salesforce.com and Workday in applications. These are the companies we see most frequently when we are selling applications in the marketplace.”
What about SAP? “We virtually never, ever see SAP. This is a stunning change. The largest application company in the world is still SAP, but we never see them in the cloud—and we sell a lot of applications in the cloud.”
OK, but how about IBM? “We never, ever see IBM.”
The problem for these companies, he stresses, is their underwhelming presence in the cloud:
So this is how much our world has changed: The two competitors we watched most closely over the last two decades have been IBM and SAP, and we no longer pay any attention to either one of them. It is quite a shock. I can make the case that IBM was the greatest company in the history of companies. They are nowhere in the cloud. SAP is the largest application company that has ever existed. They are nowhere in the cloud.
Well, not exactly nowhere. According to a recent Gartner report, IBM can point to $3.2 billion in cloud application revenue and another $600 million in cloud infrastructure. SAP, for its part, is nowhere in infrastructure but has roughly $1.6 billion in cloud application revenue.
But, they’re not where they need to be to compete. Ellison is right about that. He is, however, wrong about how credibly he can claim to be a peer to Amazon and Microsoft as they redefine the future of enterprise IT.
Me and Amazon? We go way back
After all, it’s not as if the cloud has been smooth sailing for the yachting Ellison. For several years Oracle has missed more earnings/revenue expectations than it has hit, as new license revenue keeps taking a beating.
In its most recent earnings, Oracle stumbled on software and cloud, with the two combining to decline 2%. Cloud revenue alone was $611 million, while analysts were expecting $630 million.
Not that Ellison is panicking.
As he said on the Oracle OpenWorld stage, “We are in the middle…of a generational shift in computing that is no less important than our shift to personal computing when mainframes and minicomputers dominated our industry.” But not to worry, because “It seems like early days. The biggest cloud companies are $6 billion in size, they are not $100 billion, in terms of their cloud business.”
The problem for Ellison is that $6 billion competitor (Amazon Web Services) is growing at an 80% clip, and has an appetite to devour Ellison’s cash cow: the database.
Oracle, in response, keeps trying to retrofit its legacy software business for the cloud, but that won’t work. Not when Amazon is starting from scratch and building cloud-first services that keep attracting developers. There are only so many rounds of golf Oracle salespeople can play with CIOs before both realize that the battle is being won at the developer level, and Amazon and Microsoft are the only two companies truly winning them over.
So Ellison is right: IBM and SAP are fighting not just for market share, but also for survival.
Where he has a blind spot, however, is that Oracle is in that same fight.