The Cloud Continues to Kick Oracle's Butt -- But Not Just in Technology

Enterprise software giant Oracle continues to struggle with its transition to the cloud.

Mar 25, 2014 at 7:00PM

This story originally written by Ron Miller at CITEworld. Sign up for our free newsletter here.

It's actually hard to get a read on Oracle's (NYSE:ORCL) earnings report this week. Take a look at a couple of the headlines to get a sense how split the tech press finds itself:

Whatever it was, investors were cranky as share prices dropped on earnings news, which presumably means they don't like the long-term prospects for the company. As Marketwatch explained, that could be because of competition from more nimble cloud computing outfits like Salesforce and Workday.

In spite of its cloud company purchases over the years, and all the recent cloud talk from Oracle, the Wall Street Journal reports the cloud still accounts for just 3 percent of Oracle's overall business, and even though they reported a 24 percent increase this quarter in cloud subscription revenue, it's such a small percentage of the overall business it doesn't really account for that much revenue.

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Daniel Ives, an analyst with FBR Capital Markets, said Oracle was having issues making a transition to cloud revenue. "It continues to be a bumpy transition to the higher-growth cloud business," he told the WSJ.

And that's the rub -- Oracle might have a reasonably good quarter here and there, but its revenue is still pegged to its traditional on-premise hardware and software business. That's not an easy place for an established company to live, and it's even harder when that company has burned bridges with its customers over the years -- meaning they don't see them as partners and they aren't about to give them a break.

Shadrach White, founder of cloud consulting firm cloudPWR, says Oracle has a culture problem in today's cloud-centric user-driven market, and they exacerbate the problem by playing games with pricing -- adding purchase fees and hidden costs, which only serves to annoy customers even more.

"Oracle is very difficult to work with and the staff required to administer or support their architecture is overpriced," White told me. "Oracle advertises insane list prices but then drops their drawers at the end of the quarter or the fiscal year. Oracle is always looking for a way to change their pricing schemes to take the most advantage of a customer and make it nearly impossible to understand what costs what."

Contrast that with most cloud companies, who charge on a pay-as-you-go model. Yes, some of them still have complicated pricing schemes with lots of different products, but customers pay only for what they need, and only for as long as they need it. Cloud companies simply can't afford to alienate their customers for a one-time big-ticket sale -- they need to satisfy them over and over again, every month.

That's a real problem, even as Oracle shores up its cloud stack. "Oracle has been on a buying binge since 2004 collecting technology assets to create the Fusion Middleware stack and build a cloud story," White said.

"They spent considerable time rewriting those early application purchases to conform with their tech stack based on OracleDB, ERP/CRM and Java. Meanwhile the emerging and disruptive market we now know as the cloud was erupting with completely new ideas on how information would be created, stored, shared, and mined. Oracle has always played the playground bully with its customers exhibiting a take-no-prisoners attitude with any software renewal or up-sell opportunity."

R Ray Wang, principal and founder at Constellation Research, isn't as negative -- he believes that Oracle still has the upper hand over cloud players when it comes to the enterprise. "Few of the cloud vendors are built for enterprise class and professional grade. Many legacy vendors don't have the dollars to make a move to the cloud. It takes a lot of R&D to do the rewrites and an enterprise class development team. Enterprise is still different than consumer," Wang told me.

But White says his customers are fed up, and he believes there are plenty of enterprise-class cloud alternatives out there. "Every customer we have that owns Oracle software is looking for a way to just maintain what they have while they plan a roadmap for replacement. Don't get me wrong, Oracle has some great technology. But they need a major attitude adjustment and a serious marketing makeover and Tony Stark ain't gonna save the day."

So Oracle might have a good quarter, a bad quarter or a mixed quarter, but they need to make that complete transition to the cloud, and they don't seem ready to do that. Otherwise, cloud companies will kick its butt again and again.

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