TBR T EC H N O LO G Y B U S I N ES S R ES EAR C H, I N C. TBR EVENT PERSPECTIVE. Oracle goes all-in on cloud options to survive disruption

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1 T EC H N O LO G Y B U S I N ES S R ES EAR C H, I N C. TBR EVENT PERSPECTIVE Oracle goes all-in on cloud options to survive disruption Oracle OpenWorld Conference 2014 San Francisco, Sept. 28-Oct. 2, 2014 Authors: Stuart Williams Vice President of Research Meaghan McGrath, Research Analyst TBR perspective Oracle wants to be the platform vendor for the next generation of computing, adapting to the chasm traditional technology vendors face by selling a tightly integrated collection of solutions. At Oracle OpenWorld, the company s annual customer and partner event, Oracle launched an expanded portfolio of cloud, big data and analytics platforms that run across silicon, engineered systems, packaged software and cloud services. A single, integrated stack was presented as a unique solution that enables customers to move data and applications across architectures. Oracle unveiled an expansive vision proprietary in development and based on standards for how its technology will enable the new forms of IT and applications. If successful, Oracle will be the market leader in the new era. However, other visions for the future exist, driven by Microsoft and its stack, VMware basing its growth on the hypervisor and open-source adherents in IBM, HP, Dell and others. Oracle needs to convince its enterprise and service provider targets that its stack offers greater benefits, lower operating costs, better security and more flexibility than can be delivered with a mix from competing vendors.

2 Oracle faces sales and service transformation challenges as it helps customers make the choice between packaged and cloud offerings. TBR believes Larry Ellison s new role will be to lead his company through the chasm over the long term, guiding the portfolio and company culture as chief technology officer (and executive chair of the board). New CEOs Mark Hurd and Safra Catz will deliver profit and revenue growth by managing short-term operations. As enterprises rearchitect their IT environments, Oracle aims to be the integrated, end-to-end cloud solutions provider of choice. Oracle unveiled a portfolio at OpenWorld 2014 designed to enable it to survive as a traditional technology vendor through the business disruption created by the shift to cloud, analytics, social and big data. Oracle will retain its focus as an engineering-led company with former CEO, and now CTO, Ellison at the helm of innovation. As CTO, Ellison has committed to be the lead for Oracle in avoiding the chasm of failing traditional vendors that cannot adapt to the cloud paradigm. Market implications Like traditional multiline competitors including SAP, IBM and Microsoft, Oracle s priority remains its cloud. TBR notes the degree of cooperative integration across traditional software vendors clouds remains to be seen. TBR research shows most customers are implementing multiple cloud technologies to avoid lock-in; however, they also want the ease of deployment, governance and full range of deployment options Oracle offers. Oracle s proven performance and delivery in the on-premises business positions the firm to have initial credibility with established Oracle customers as they consider cloud expansion. Oracle s recently announced Customer 2 Cloud program enables customers to shift the maintenance fees for existing licenses to a cloud subscription; the implication is that Oracle s existing contracts are quite close to being a continuous fee, and the shift to consumption-based cloud is simple. TBR notes, however, customers considering the shift need to carefully examine the net benefits and terms first. The model is good for Oracle financially and will sustain high margins over time while controlling the conversation with customers, as competitors including SAP have done. Oracle s expanded portfolio and database refresh will enable partners to sell new licenses and migrate customers to new architectures, keeping Oracle top of mind with critical systems integrators including Accenture. TBR believes the partner opportunity, however, runs into the growing momentum for many of the large systems integrators (SIs) to build out cloud practices based on open-source platforms such as OpenStack. Their investments in what essentially becomes their platforms places these SIs in competitive positions with longtime software allies such as Oracle, SAP and IBM. Oracle will face increased competition across the cloud marketplace. CTO Larry Ellison stated, [Oracle is] the only cloud vendor on planet Earth that allows you to use the platform we develop on for you to extend our SaaS applications on. When you want to make an extension, you can use the same cloud platform our developers used to build core HCM in the first place. pg. 2

3 TBR TBR feels that is a claim Microsoft and IBM will attack, while public cloud providers such as Google and Salesforce.com will likely flip the rhetoric to argue customers buy cloud to avoid development; Google and Salesforce.com will provide the tested solutions customers want so they don t have to build them themselves. Moreover, many customers are comfortable using an API to build to a result, but not necessarily owning every line of code or infrastructure it runs on, therefore customers could find more value in competitors APIs than Oracle s developer tools. Oracle unveiled the capability to shift, with the push of a button, a workload s deployment across deployment modes. If the customer uses the Oracle stack, it will have the built-in capability to move the application from one deployment mode to another. This capability is similar to Docker and other cloud technologies. TBR customer research shows most customers are still landing workloads on clouds for the first time and are not yet worried about the ability to continuously shift them. This is a valuable feature, but one that comes with the price of standardizing on Oracle technology. Key conclusions Customers seek simpler messages, and Oracle can pivot to highlight solutions to win against disruptive market foes As numerous themes were projected across the event, TBR believes OpenWorld attendees are positioned to see Oracle evolving long-standing strategies, but the depth and breadth of divergent announcements may cloud that vision for the near term. TBR research shows cloud firms in the enterprise software market are materially influencing customers, with new levels of expectations around transparent road maps, seamless solutions and rapid deployments. Oracle s broad, deep portfolio will not be streamlined in the near term, and TBR sees an opportunity for Oracle to consolidate messaging to avoid overwhelming customers seeking a simple, rapid path to deployment and business value. Oracle Database 12c is the key to Oracle s strategy, growth and profitability Oracle unveiled an expanded, refocused portfolio designed to enable Database 12c (and data) to become the central control point for all workloads in the Oracle cloud schema, with apps, analytics and hardware all doing their part to enable scale, flexibility, performance and the ability to shift workloads. Oracle has a surround strategy for non-oracle Hadoop and NoSQL databases that ties them back to the SQL query skills of the Oracle buyers. TBR projects Oracle is positioned to accelerate revenue growth in the near term atop migrating its deep install base to Database 12c, monetizing the multitenant and inmemory options available as of June and the upsold hardware opportunity that accelerates the new database version s performance and integration with broader customer installations. The position of Oracle s software-on-silicon enablement will challenge the migration of key clients from the Oracle database to SAP HANA environments. While SAP has had an 18-month window of opportunity, TBR believes Oracle is moving to close the value gap among its client base, offering pg. 3

4 customers greater performance and choice and highlighting that there is no need to migrate off Oracle offerings to seek improved performance and functionality. Oracle will focus on expanding its cloud and engineered systems success to lead the company s growth strategy by marketing a full, integrated stack solution to customers expanding wallet share in its install base. Specialized cloud vendors threaten Oracle s position in the space and are the targets of Oracle s messaging of a superior underlying infrastructure on which to run and customize SaaS applications. TBR believes Oracle s ability to market a cohesive cloud portfolio has been improved by the numerous enhancements and launches announced at OpenWorld, including Oracle Analytics Cloud, Data as a Service (DaaS) and specialized SaaS offerings. Applications are the entry point, but Oracle is still not as strong when communicating the business outcomes message as it will need to be as it ramps up cloud. Cross-sales will accelerate growth of Oracle Cloud in the Oracle install base Cloud is the future for Oracle, but the extent of that vision remains tied to the Oracle stack. TBR believes the key to Oracle s plan for profit expansion as it moves to the cloud is tied to cross-selling. By marrying its applications portfolio to the Oracle database, then highlighting performance benefits for that software atop Oracle- or client-owned infrastructure, Oracle can take the next step to solutions selling and broader portfolio narratives. TBR notes a potential impact to long-standing SI relationships in this new Oracle stack, though migration to this new stack will create near-term opportunities. Hurd s keynote address set the stage for a pointed focus on highlighting customers successes, challenges and even suggestions for improvement to the Oracle team. Joined by seven prominent chief information officers (CIOs), Hurd highlighted the difficulty CIOs face with increasing employee and customer demands for innovation coupled with flat or declining IT budgets. Oracle s answer to the innovation demand is to increasingly adopt the full Oracle Cloud stack, to lower the stated 80% of IT spend dedicated to maintaining legacy applications and to free IT to innovate. Oracle has been transitioning its products to the cloud for the last 10 years, according to executive comments at Oracle s Financial Analyst Event, held concurrently with OpenWorld on Oct. 2. While customers may be challenged to wade through the volume of cloud announcements regarding the evolving Oracle portfolio, TBR notes Oracle s public SaaS products are based from acquisitions, while Oracle s traditional applications are being transitioned to a managed service model. These applications are available on a subscription basis to Oracle Cloud customers and equipped with mobile capabilities and specialized applications that make up broader, industry-specific software suites and are delivered as a Service. Oracle also wove its PaaS announcement into many presentations, most notably Ellison s keynote demonstration on Sept. 30. Ellison stressed that 19 of the top 20 SaaS providers develop their applications on Oracle s platform, then offer a different platform to their customers to extend those applications. Oracle s PaaS differentiator is that customers will be able to develop application extensions on top of the same platform the application was developed on originally, creating a seamless pg. 4

5 appearance for users and enabling easy movement of workloads across different environments. While the benefit of these capabilities is notable, TBR does not see this as critical to many customers cloud platform decisions because customers are consumed by the initial migration of workloads to the cloud and not continuously moving them around. Event Overview More than 60,000 customers and partners attended Oracle s OpenWorld Conference in San Francisco from Sept. 28, 2014, to Oct. 2, Cloud was the most pervasive theme by a significant margin; it was the highlight of many sessions. According to Hurd, cloud is Oracle s biggest opportunity and will likely remain unmatched in magnitude of business opportunity for years to come. With licenses growing just over 3% in GAAP results in Oracle s September 2014 earnings release, Oracle s focus on cloud will help it convert its significant install base from license to cloud and deliver long-term revenue stability and growth. Many discussions at Oracle OpenWorld 2014 were dominated by the announcement of 202 new SaaS products, increasing the company total to 564. Oracle has shifted its cloud messaging, marking a turning point for the company as Ellison noted, to being among the company s main focuses and drivers of growth. Oracle is confident in its ability to translate its best-of-breed on-premises applications to the cloud. Expecting customers will look to complete their cloud stacks with solutions from as few vendors as possible, and Oracle will aim to sell SaaS solutions coupled with PaaS, IaaS and DaaS to increase wallet share in accounts. Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis. TBR has been empowering corporate decision makers since For more information please visit Technology Business Research Inc. This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is not and should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value, purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce. pg. 5