Database giant Oracle (NYSE:ORCL) is taking the gloves off. The shift to cloud computing threatens the company's core business, and it's been slow to adapt. Amazon.com's (NASDAQ:AMZN) cloud computing arm is the overwhelming leader in the infrastructure-as-a-service (IaaS) market, enjoying a first-mover advantage that competitors have struggled to overcome. Oracle's own IaaS business generated just $171 million of revenue in its latest quarter, compared to $2.9 billion for Amazon.
Just a few days ago, Oracle unveiled its plan to take on Amazon. Oracle's Generation 2 cloud infrastructure, announced at Oracle's OpenWorld conference, promises higher performance and lower costs. Oracle executive chairman and CTO Larry Ellison didn't mince words: "Amazon's lead is over. Amazon's going to have serious competition going forward."
Oracle claims that its new cloud offering is vastly superior to Amazon Web Services (AWS). According to Ellison, Oracle's database running on its cloud is up to 105 times faster for analytics workloads than Amazon's Redshift database running on AWS. These numbers are straight from Oracle, so take them with a grain of salt, but even a fraction of that increase in performance would be impressive.
AWS supports Oracle's database products, but Oracle's cloud is still faster, according to Ellison:
"Why does Oracle Public Cloud run the Oracle Database so much better than the Amazon Public Cloud? Well, on our infrastructure, if you look at this, our storage performance, our I/Os per second, are eight times better than Amazon."
Should Amazon be worried about a resurgent Oracle? Probably not. Oracle has a large base of enterprise customers that use its on-premises software, with databases being a key product. Every major cloud infrastructure provider supports Oracle's database software, but Oracle is giving up additional revenue if its customers choose AWS or another cloud provider instead of its own cloud.
I'd be willing to bet that those running Oracle software on non-Oracle clouds are more likely to dump Oracle altogether than those running Oracle software on-premises or on Oracle's cloud. AWS even offers a service that allows customers to migrate Oracle databases to other supported databases. It doesn't support going in the other direction.
Oracle's success over the years has been due in part to the switching costs associated with moving from its database software to a competing product. Organizations running Oracle's database on-premises are unlikely to switch to a competing product, even if it's cheaper, since the database is often deeply entrenched in its IT infrastructure.
Cloud computing flips the script. Switching is still not trivial, but once a database is moved to the cloud, it becomes a lot simpler. It's in Oracle's best interest to ensure that it's existing on-premises customers have a viable path to the cloud that doesn't involve Amazon. Oracle's second-gen IaaS offering aims to accomplish just that.
I seriously doubt that Oracle is going to invest the kind of money necessary to truly compete with Amazon in the IaaS market, and that's probably good news for Oracle investors. IaaS, renting virtual machines and storage, is largely a commodity. In the long run, the real money will be in software-as-a-service. Oracle's cloud enables the delivery of its high-value products.
I could be wrong. Maybe Oracle is truly determined to build up a massive IaaS business that rivals Amazon. It won't be easy, and it won't be cheap. My best guess is that Oracle wants to be taken seriously in the IaaS market, increasing the chance that its on-premises customers choose its cloud over the competition. Ultimately, I'd wager that this IaaS push is simply part of the effort to retain its very profitable customer base.
I don't think Oracle will be threatening Amazon's cloud computing dominance anytime soon, although greater competition could drive prices and margins down. For Oracle investors, the company getting serious about the cloud is a positive.