Mark Hurd - CEO, Oracle
Industry acquisitions continue to improve Oracle’s cloud execution, with the tech giant on track to sell more than $US2 billion of Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) recurring revenue on an annual basis.
Revealed ahead of further database and NetSuite influence, Oracle’s first quarter financial results in 2017 highlight that cloud growth is finally outpacing licensing declines for the vendor.
“We believe this will be the second year in a row that Oracle has sold more SaaS and PaaS than any cloud services provider,” Oracle CEO, Mark Hurd, said.
While such bold comments from Hurd are commonplace, this time, he might have a point.
In the first quarter alone, Oracle added more than 750 new SaaS customers including 344 new SaaS Fusion ERP customers.
“That’s more ERP customers than Workday has sold in the history of their company,” Hurd claimed.
Amidst unimpressive financial results for the first quarter of 2017, the vendor’s top-line growth benefited from ongoing cloud-based momentum.
Cloud SaaS and PaaS, the segment in which Oracle has put significant financial investment, messaging and sales efforts behind, grew 77 per cent year-to-year to $UYS798 million in 3Q16.
“Oracle remains unfazed by declines across its professional services, hardware and new software license revenue streams,” Technology Business Research principal analyst, Meaghan McGrath, said.
“Instead focusing on the positive growth in cloud segments and software license and update support, all of which led to year-to-year growth of less than two per cent for the firm.
Although Oracle CEO, Safra Catz, noted organic SaaS and PaaS growth has accelerated for seven straight quarters, McGrath believes the assertion that this growth was only helped a little by acquisitions is misleading.
“Opower and Textura together contributed close to $US45 million of the $US108 million sequential increase in the segment,” McGrath observed.
Going forward, McGrath expects similar acquisition-related SaaS and PaaS revenue increases in the coming quarter, with the closing of the NetSuite acquisition set to contribute partial-quarter revenue and growth from PaaS products announced at Oracle OpenWorld.
As explained by McGrath, these include Oracle Database 12c Release 2 (Database 12.2), and Oracle MySQL Cloud Service will offer only a full-quarter impact in F3Q17.
“Even faced with accretive NetSuite revenue and the expected acceleration of customers moving to cloud from the cloud-only-at-first Database 12.2 launch, Oracle will need to initiate other accretive acquisition(s) to achieve its $10 billion annual SaaS and PaaS revenue goal over the course of the next two fiscal years,” McGrath explained.
As the company stands, its $US3.2 billion run rate will reach only around $US4 billion with the addition of NetSuite’s last reported $US721 million subscription run rate.
Barring other substantial acquisitions, Oracle’s Database 12.2 release and other organic growth efforts would have to more than double the Cloud SaaS and PaaS revenue stream to execute on the $10 billion goal before Salesforce (which achieved a $7.5 billion run rate at the end of July) reaches it.
Oracle OpenWorld
Aside from the NetSuite acquisition announcement, McGrath branded Oracle’s fiscal first quarter and earnings call as “relatively uneventful”, with the vendor stashed up on product and strategy announcements for its annual conference, Oracle OpenWorld, which starts this week.
As revealed by Oracle chairman and CTO, Larry Ellison, the tech giant will use the conference to introduce the second generation of its Infrastructure-as-a-Service.
“Our Generation2 IaaS delivers twice the compute, twice the memory, four times the storage and ten times more I/O at a 20 per cent lower price than Amazon Web Services,” Ellison claimed.
“IaaS represents a huge new cloud opportunity for Oracle to layer on top of our rapidly growing SaaS and PaaS businesses.”
Undoubtedly, McGrath believes Oracle’s cloud capabilities will remain the central basis on which announcements and strategy road maps presented at Oracle OpenWorld 2016 will build.
More specifically, however, TBR expects Oracle to focus on its Oracle Cloud Platform advancements, particularly Database 12.2, and the infrastructure improvements that will help it better compete against IaaS leader Amazon Web Services.
“We anticipate customers will voice praise and criticism around the database update that is being launched only in the cloud at first, becoming available on premises later,” McGrath said.
“Though this tactic aims to get more customers to move to the Oracle Cloud, TBR believes Oracle will need to be sensitive to its on-premises customers not yet ready to move to the cloud, but in need of the product updates that fall within their maintenance agreements.
“Though less certain to be a major point at the event, a solid industry-oriented cloud application storyline would provide Oracle a basis on which to accelerate adoption of applications in a highly competitive market, as Oracle aims fiscal 2017 at making headway on its goal of $10 billion in annual SaaS and PaaS revenue.”
Consequently, McGrath believes Oracle has an advantage in its base of largely acquired, industry-specific software expertise, with early translation of these differentiating capabilities to the cloud portfolio.
Various cloud solutions launched thus far in 2016 have catered to financial services, healthcare, communication service providers, retail and hospitality, within which Oracle has strong legacy portfolios and can differentiate in the cloud market by drawing on specialisations.
“Oracle’s industry expertise will remain valuable on premises, but Oracle has the opportunity to support differentiation of cloud applications in a crowded market,” McGrath added.
