Why Oracle Must Pivot Now to Be True Cloud Services Provider

NEWS ANALYSIS: News output is light at OpenWorld as host company focuses on convincing customer base that it's now a go-to cloud company.

SAN FRANCISCO—Oracle isn't launching a new version of its database this year. It's not unveiling a new super-duper data-crunching computer for a half-million bucks. It's not even talking about an international boat race.

At Oracle Open World 2014, Oracle is talking about the cloud. That's right—the cloud, the same vacuous thing CTO and co-founder Larry Ellison wrote off as mere hype five years ago. As 2006 as this may sound, the huge all-purpose IT hardware, middleware and services company has pivoted and wants to clear away all doubt to its customers that it can indeed be the reborn company to help usher large enterprises into 21st-century IT.

Ellison, in his usual Sunday night keynote, reiterated what he said on the company's earnings call Sept. 18: "Oracle is going to own all three levels of the cloud: SaaS [software as a service], PaaS [platform as a service] and IaaS [infrastructure as a service]. We're not going to miss this opportunity."

New Cloud Customers Coming In

In 37 years in the IT business, Ellison hasn't missed many opportunities; this is why he's a billionaire. In fact, Oracle has had some early success in selling cloud services. The company has picked up a total of 2,181 new SaaS customers in the last 12 months, with about half of these being CRM applications. About 960 of the new sales involved human capital management (HCM); 263 were in ERP.

On the middleware side, Oracle also chalked up 725 new buyers of its retooled Fusion applications, the tool suite it developed in-house—and with the help of a few acquisitions—over a long period of time and at great cost. These are all substantial numbers. But can this continue long term?

"They are completely repositioning their CRM, cloud first," Forrester analyst Kate Leggett told eWEEK. "It's been a work in progress from four years ago. Their cloud focus has driven their tactical acquisitions of companies. Now that they have their building blocks in place, now they're trying to knit the ecosystem together."

What the company did not talk about, and really doesn't want to talk about this week at the conference, is how much legacy hardware and software the Oracle service division still supports—to the detriment of moving its cloud and services sales ahead in the market. Oracle has 122,000 employees around the world; two-thirds of them are stuck with supplying and maintaining older systems that companies don't need to upgrade for one reason or another. This usually involves the serious cost of forklift upgrading.

'Weighted Down with Older Products'

"One of their main problems is that they are weighted down with older products that they have to maintain," Leggett said. "Even though their cloud solutions are competitive in their own right, they are weighted down by all these old systems, like the old J.D. Edwards and PeopleSoft systems that take away some of the momentum that could be dedicated to the cloud solutions."

Because more Oracle customers are interested first in customer-facing cloud services, CRM is on top of the list for sales and implementation.

Connecting the IT dots inside the Oracle ecosystem is not a job for lightweights. The dozens of acquisitions the company has made during the last decade have required rewriting tons of code, rerouting hundreds of siloed databases and storage arrays, and moving zillions of applications into virtual machines and clouds. The work isn't near being done; in fact, this is an ongoing project.

Emphasizing CRM: It's What Customers Want First

"Oracle's customer experience vision has driven its tactical customer relationship management (CRM) acquisition strategy," Leggett wrote in recent report. "These solutions are lightly integrated, and heavy lifting is required to deliver on the promise of the vision. In addition, many of Oracle's legacy CRM applications, which are still widely used, lag in capabilities and in strategy in this area."

So an important question is this: Is Oracle still too invested in maintaining old systems and selling replacement software to be able to make a claim of "owning the cloud" credible? No company can be all things to all customers all the time; IBM, Hewlett-Packard, Microsoft and numerous others have proven this in years gone by.

Leggett concluded that Oracle needs "radical change" and that its customers can expect the company to continue to struggle with its transition to cloud services. Companies that live by hardware die by hardware; look up Sun Microsystems, Digital Equipment Corp. and dozens of others if you don't believe this.

Oracle's earnings numbers last quarter were generally positive, but not as great as many investors would like to see.

In order to really bump up revenue and margin, The Company That Larry Built is going to have to get that ecosystem whipped into place and sell a lot more on an increasing scale against serious competitors like Salesforce, SAP, HP, IBM and Dell—all of which want the same customers as Oracle.

It also needs to hope that those old database servers still cranking away will be retired sooner rather than later.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...