Oprah wants everyone to have a cloud, but the market keeps saying no. While AWS, Microsoft, and Google Cloud keep climbing, legacy IT vendors have struggled to keep up. Though Reuters has called out IBM’s cloud business as “possibly the only sunny spot on the balance sheet,” it’s not offering the kind of self-service, IaaS cloud revenue that, say, AWS or Microsoft Azure keep growing.
As for Oracle, well, let’s just say that it persists in creating its own cloud reality, one that enterprises have yet to esteem as highly as it does. Despite barely making a list of top cloud vendors, Oracle claims to be cheaper, faster, and better in every single way than AWS, the cloud leader, with more than 20X its public cloud revenues in their most recent quarters.
What’s not to believe?
What, me worry?
It has become de rigueur for old-school IT vendors to tout their cloud initiatives even as the rest of their businesses slide (due, in part, to pressure from cloud vendors). I mentioned IBM above, whose SoftLayer business manages to grow, while much of the rest of its business shrinks. That’s not a criticism–it’s hard to fight disruption.
It’s also doubly hard when you don’t seem to recognize the disruption, and instead mistakenly argue you’re already winning.
SEE: Amazon still crushing cloud competition, says Gartner Magic Quadrant for IaaS (TechRepublic)
Take Oracle, for example. Oracle reported continued growth in its cloud and platform service business, growing 62% to $1.19 billion, with IaaS revenue a mere $178 million (compared to AWS’ $3.5 billion in its fourth quarter), even as Oracle’s bread-and-butter licensed software business slid by 16%. Oracle has struggled to hit earnings for years, given the pressure on profits from cloud and open source.
This pressure, however, isn’t alleviated any by pretending that it’s not there.
Super-duper data centers
Take infrastructure investments. Bucking the trend of every single significant cloud competitor (and every single web company running at significant scale), Oracle co-CEO Mark Hurd has claimed that Oracle doesn’t need to enter the data center arms race to compete with Amazon, Google, or Microsoft, who spent a combined $31.5 billion last year, as The Wall Street Journal reported.
Why? Well, because its data centers are amazing: “If I have two-times faster computers, I don’t need as many data centers. If I can speed up the database, maybe I need one fourth as many data centers,” Hurd said in a Fortune report.
SEE: AWS isn’t the cheapskate’s cloud, and Amazon doesn’t care (TechRepublic)
Oracle’s answer to why it’s better is because it is “custom built,” but that’s the exact same claim the big three cloud vendors make and, unlike Oracle, they do it with commodity hardware in scale-out fashion. This is unlike Oracle’s retro “it’s just like Unix and mainframes all over!” scale-up architecture. Given that Oracle’s competitors have years more practice, and a lot more revenue, it’s not clear how Oracle’s approach gives it any sort of advantage. It’s also not clear why a scale-up architecture has somehow become the right approach after Google et al. discredited it for web-scale applications. But this is Oracle and it’s inclined to live out its own reality.
Oh, by the way, Oracle also claims to offer all this magical cloud goodness at much lower prices than AWS (even as it jacks up the cost of running its database on AWS).
Alright, cack to CAPEX.
Bigger really is better
It makes sense that Oracle would try to dismiss capital expenditures as a mandatory step on the road to cloud riches: It simply can’t build them fast enough and the expense would crater its balance sheet even more than its shift to cloud already has. Like it or not, lots of data centers are the ante for competing, as Redmonk analyst Stephen O’Grady has pointed out:
Gone are the days in which vendors had a decade or more to build businesses without an imminent threat of disruption. The only major technology area which is not subject to that fear at this time is cloud infrastructure, because the capital requirements and the attendant economies of scale combine to ensure a more limited field of competitors. Everyone else is left to innovate while wondering about what competition is just over the horizon.
Oracle wants the world to think it already has enough capacity to service 99.9% of the Fortune 1000’s cloud needs, as it decreed back in 2016. Despite this alleged embarrassment of cloud capacity riches, the company saw the need to announce three new data centers in 2017. Arguably, Oracle is trying to tread water in the press even as it figures out how to keep up with its competitors’ capacity.
It won’t work. As Deutsche Bank Securities Inc. analyst Karl Keirstead has said, it’s already “game over” for Oracle’s ambition to compete in the broader IaaS market. Reality bites, but ignoring it doesn’t help.