I definitely will not be the first oracle to see a rocky future for Oracle, nor will I be the last. But the last quarter’s results, released on Thursday, are particularly troubling.
In short: Oracle’s enterprise on-premise software business – Oracle’s core – is simply flat. It did $3.769MM in revenue in 4Q2013… and $3.769MM in revenue in 4Q2014. It hasn’t budged. Sure, its expenses for those sectors may have gone down slightly, but for all intents and purpose, it is no longer a growth engine.
Part of the problem may be the anemic economy, although most large corporations are doing well enough and many have healthy IT budgets. What they have little of is on-premise software IT budgets.
Oracle’s cloud businesses – software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS) – have decent numbers and are growing quite nicely. SaaS grew 25% to $322MM, while IaaS grew 13% to $128MM. Those are very respectable numbers for most companies, especially in the cloud business. But it is hardly sufficient to maintain Oracle at a $189BN market cap.
Oracle’s problems are partially market-driven, and partially self-inflicted.
- Market: Companies do not want to put out big amounts of cash as capex to buy perpetual licenses for software they run in-house, and then expensive engineers or database administrators (DBAs) to run them, followed by big annual maintenance fees… and then repeat in 3-4 years. They are much happier buying pay-as-you-go, and having someone else deal with the headaches of running it. Oracle, by contrast, built itself on selling exactly that kind of on-premise software.
- Culture: Oracle’s culture is built around its business model, as are all companies’. Oracle has acquired and expanded its way into cloud (depending on how honestly we count their hewing to the terms cloud, SaaS and IaaS). While almost any company will trust Oracle’s software to handle their mission-critical data, most companies will not trust Oracle to run their services. Quite simply, few believe Oracle really can do it. Those who do are entirely in a pre-existing relationship.
- Brand: I have lived the technology world for 20+ years, and continue to work directly with all of these providers. Does Oracle even have a serious IaaS offering? Their 10Q is the first time I am hearing about it. If they have $128MM in earnings coming from IaaS, it is news to me. They have never been a contender in any deal I have worked on. There is always Amazon and Rackspace, plus lately Google Compute Engine and some smaller players like Digital Ocean. Oracle? Never.
- Self-Inflicted Wounds: For many years, Oracle had the combination of trusted, solid, performant software and, even more importantly, a sales team that knew how to sell enterprise. All of this gave it a virtual lock on the enterprise market… and it sold like a monopolist. Its pricing was brutal, sales methodology aggressive, and it got away with it. While the older generation lived with it, the younger never accepted it, and even the older generation learned to resent Oracle. The mantra “anything but Oracle” has been repeated in every IT shop and startup across the country for years. The people making technology decisions hate, yes, hate Oracle and will do anything to avoid them, not just in databases but in anything. Oracle is one of the most-hated vendors in the IT and startup space.
With $9BN in quarterly revenue and $48BN in current assets vs $14BN in current liabilities (a great quick ratio), Oracle is not dying anytime soon. But it has managed to put itself in a difficult position to grow.