Momentum for Oracle

After something of a tough year for Oracle—with doubters questioning the pace and efficacy of its move to the cloud—the firm came through with a couple of noteworthy developments on the week. On Wednesday Oracle beat expectations in its announcement of quarterly earnings, and on Friday Oracle announced an agreement in principle to purchase the marketing cloud company Responsys.

Oracle actually had some significant successes earlier this year, with the general availability of its Oracle Database12c multitenant database and the announcement of associated cloud management and an in-memory version and associated supporting hardware. The impending Responsys purchase looks to be Oracle’s seventh pickup since its acquisition of the marketing firm Eloqua just a year ago. (Although the transaction has been approved by the Responsys board, a shareholder vote is yet to come.)

But it took estimate-beating results coupled with increased projections for growth in the coming quarter for Oracle to reach a 13-year high in the market this week. The Responsys deal is only another of Oracle’s moves, via acquisition and product enhancement, to increase its presence both in the fast-growing cloud and in the fast-growing area of marketing automation. The confidence of Oracle management to provide sequential-quarter guidance that “total revenue growth on GAAP and non-GAAP basis is expected to range from 3% to 7% in constant dollars and 2% to 6% in U.S. Dollars.”

These results and projections separate Oracle from the slow to negative growth struggles of large integrated IT suppliers such as IBM and HP.

The question of cloud

Still, the question of Oracle’s successful move to the cloud persists. Its next-generation Fusion applications have not been widely embraced by its current customers of its legacy applications. The company’s ‘Applications Unlimited’ promise not to force migration from its J.D. Edwards and PeopleSoft ERP applications, for example, undercuts its campaign to move that base to Fusion applications, and Oracle could be seen as following behind early challengers in cloud ERP for manufacturing, in particular. And, when Oracle customers do choose Fusion solutions, they are overwhelming opting for cloud implementations.

Challengers making inroads

Salesforce and Workday, as Oracle’s two greatest SaaS challengers in the enterprise, have moved beyond inroads, to forging in-highways in major Oracle accounts. As ComputerWorld reports:

Some 38 percent of Oracle customers use, up 30 percent from a year ago, and another 15 percent of Oracle’s installed base is either planning to migrate or evaluate, according to a new report from Morgan Stanley, which recently downgraded Oracle’s stock.

Meanwhile, 15 percent of Oracle customers are using HCM (human capital management) software from Workday, up 40 percent year over year, and another 25 percent intend to take a look at Workday HCM, according to Morgan Stanley.

Oracle’s muscle

As Oracle president Mark Hurd noted in this week’s earnings call, “The growth of just our software business is more than double the revenue of Workday.” Indeed, Oracle’s sheer scale should not be discounted in its intentions to become dominant in the cloud. The company this week stated its intention to be cost competitive in the commodity-oriented Infrastructure-as-a-Service (IaaS) market (whereas it, for example, continues to eschew participation in the market for commodity-priced, as opposed to more differentiated, servers), as well as to compete in the Platform-as-a-Service (PaaS) segment and to do whatever it takes to to succeed in SaaS as well.

Implications for the enterprise

What does Oracle’s strategy look like from the vantage of enterprise IT buyers? In short, Oracle appears to be using the same two-tier strategy for ‘cloudification’ that many large enterprises have adopted. That is, Oracle will bring in best-of-breed cloud solutions on an application-by-application basis, while postponing disruption of its traditional ERP core as long as possible. The company will increasingly mix SaaS, private cloud, and legacy solutions. Oracle also sees IaaS as an inevitable commodity, cost-based play and an emerging role for PaaS.

Is this too much? Can Oracle successfully invest in and integrate such a comprehensive, SaaS to IaaS pincer strategy? Realizing such a grand strategy, if possible, is still a long ways away. Many Oracle customers will wait simply for the SaaS pieces to come together, while many others will continue to move ahead before even that comes together. However, from the firm’s toe-to-toe response to Salesforce and Workday, it appears the firm has the wherewithal and intention to spend freely in bringing another generation of enterprise applications—and challenger firms—under the Oracle umbrella.