Oracle Joins The Cloud Price Wars

Posted by Ron Miller on Sep 30, 2014 8:37:00 AM

Oracle is holding their yearly party this week, Oracle Open World and they want people to know (again) they're all about the cloud. Of course, the long tail still haunts their leader, CTO and executive chairman (or whatever his title is now) Larry Ellison who once famously dissed the cloud in a 2008 speech calling it "ludicrous" and concluding, "We think it’s very hard to make money in this thing."

canstockphoto12993185He may actually be right about that last point because interestingly enough, 6 years later the world has changed, and so apparently has Oracle. Not only has it jumped into the cloud with both feet offering infrastructure, platform, and software as a service; it's also entering the cloud pricing wars announcing that it would match AWS's Database Database-as as-a a-Service pricing.

That's Oracle we're talking about getting down and dirty with Amazon. It's all a bit startling, but step back for a second and remember that at its heart Oracle remains a company selling on-premises software running on mega hardware and it’s hard for a company like this to make any kind of transition to a new way of doing business.

In the classic case of Innovator's Dilemma, Oracle must protect its highly profitable core business while trying to build a newer business in the cloud. They have to convince their sales teams, their engineering teams, and their marketing teams to alter the company DNA and change completely. It's not easy to do and Oracle has struggled.

Even while announcing the growing cloud focus, you see Ellison and company parading the big hardware on stage at the event. Hey, I get it. Big hardware is sexy. Cloud services, well, they're not, but according to Bloomberg, in the latest earnings report released earlier this month, "new software licenses shrank 2 percent, while its cloud-computing divisions saw double-digit growth." The question is how much revenue that actually involved.

For a company like Oracle, used to making huge dollars from hardware and software licenses, competing with AWS on pricing has to be hard, but it shows how the cloud and competition can drive down pricing even in the most unlikely companies. If you want to play in this space and get any kind of scale to compete with the market leaders, you can't be appreciably more expensive than the other guys or there is little reason for customers to buy your services (regardless of your enterprise pedigree or whatever your growth is on paper).

Was Ellison right when he made those remarks in 2008? Maybe his company will have a tough time making money in the cloud, but his words still haunt him I'm sure.

That's because even Oracle has realized in order to compete today, it can't just sell on-premises equipment and software. I know not everyone will go to the cloud, and there will be plenty of companies who still need the on-premises versions of what Oracle sells, but over time that's going to be far less than what Oracle has been used to in the past --and pivoting isn't easy for a big company like them.

Photo Credit:  (c) Can Stock Photo

Topics: Cloud Trends

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