Oracle Faces Tough Competition in Move to Boost Cloud Business
September 19 2016 - 06:32PM
Dow Jones News
By Jay Greene
SAN FRANCISCO -- Oracle Corp. is brashly moving to provide
computer power and storage for other companies, but it faces an
uphill climb against the market pioneer and leader, Amazon.com
Inc.
"Amazon's lead is over," Larry Ellison, Oracle's executive
chairman and chief technology officer, said during a Sunday night
keynote speech at the Oracle OpenWorld conference. "Amazon is going
to have serious competition going forward."
Now, though, Oracle barely registers in the market, where
Microsoft Corp.'s Azure and Alphabet Inc.'s Google Cloud Platform
also compete and have a significant head start.
Oracle said last week that in the three months ended Aug. 31, it
generated $171 million in revenue from what it calls cloud
infrastructure as a service. In its most recent quarter, Amazon
reported revenue of $2.9 billion for its comparable Amazon Web
Services unit. Neither Microsoft nor Google break out revenue
figures for the market.
Oracle "must somehow alter the perception in the market that
it's not able to compete effectively at the same level and scale as
Amazon, Microsoft and Google," International Data Corp. analyst Al
Gillen said in an email.
To persuade customers to use its offerings, Oracle must do more
than create solid technology to handle cloud-based computing and
storage. It also needs to build massive data centers around the
globe, table stakes to compete in the rapidly growing but intensely
competitive market.
Oracle isn't starting from scratch. It operates several smaller
data centers to handle many existing customers. The company has
spent "many billions" of dollars building its 26 data centers,
Thomas Kurian, president of product development, said in an
interview.
"I think people discount how much we've already spent," Mr.
Kurian said.
Mr. Kurian acknowledged that Oracle's data centers are smaller
than those run by Amazon. He said that allows the company to reach
more markets and expand as needed.
Oracle co-CEO Mark Hurd on Monday declined to disclose how many
data centers Oracle plans to build or how much it intends to
spend.
IDC's Mr. Gillen said it could cost Oracle "multiple tens of
billions of dollars" to build a world-wide network of cloud data
centers. In its most recent annual securities filing, Oracle
reported capital expenditures of $1.2 billion in the year ended May
31.
"The company does not appear to have the sheer scale it needs to
effectively compete with these other providers at the moment," Mr.
Gillen said. Catching up will require "a massive acceleration and a
massive investment," he added.
Even so, Mr. Ellison said Oracle is in a position to challenge
Amazon. Oracle said its latest infrastructure offerings are 11.5
times faster and 20% cheaper than "the fastest solution offered by
the competition."
"We now have a tech advantage over Amazon in infrastructure as a
service, " Mr. Ellison said during his speech.
An Amazon spokeswoman declined to comment.
Oracle is trying to shift from selling software licenses, a
lucrative business that is shrinking, to web-based, subscription
services. Its cloud-based business applications, known as software
as a service, are growing quickly, as are its web-based tools to
program and manage apps and analyze data, called platform as a
service.
But as more companies shift their operations to the cloud, the
infrastructure-as-a-service market is crucial for Oracle. That is
because companies often rethink the software they use when they
shift operations to the cloud.
Those customers can run Oracle's applications on rival
offerings, such as Amazon Web Services. But Mr. Ellison believes
that the company can move many of those customers to its computers
and storage.
IDC's Mr. Gillen said those customers will have "more affinity"
to use Oracle's services.
At OpenWorld, Oracle trotted out infrastructure customers, such
as ClubCorp Holdings Inc. and SEI Investments Co., which touted the
savings and security of the company's technology.
Write to Jay Greene at Jay.Greene@wsj.com
(END) Dow Jones Newswires
September 19, 2016 18:17 ET (22:17 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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