Long-term Oracle (ORCL 0.98%) shareholders will be the first to tell you that the company's pivot into cloud-based ERP solutions wasn't always the clear way forward for the company -- though it has become that, today. Shareholders have had to watch Oracle play second fiddle to on-premise ERP Solutions like SAP (SAP -1.48%) for years while the cloud-based ERP Market developed fully. 

On-premise ERP options initially gained popularity because they ran on a company's internal servers and were implemented like your old-fashioned software installation. Many companies clung to the aging software until the pandemic changed the world.

The pandemic accelerated the transition from the siloed on-premise offerings to the cloud-based options as the autonomous databases, superior data visualization, and indexing/analytical functionalities suited a more digitized, impersonal economy much better than the on-premise options.

What is an ERP Platform?

ERP stands for Enterprise Resource Planning -- which is essentially a jargony way of saying it helps businesses run their day-to-day operations in a handful of different ways. The main difference between on-premise and cloud-based is where the platform resides. On-premise solutions are housed locally on a companies' computers and servers, whereas cloud-based options live on the provider's servers and can be accessed via the web .

The interesting thing about ERP software is that they are more of an amalgamation of functionality than a stand-alone solution no matter where they reside. ERP Solutions represent a variety of different modules and serve an even wider array of use cases. They integrate multiple facets of your typical business operation -- from inventory to receivables, which ultimately helps businesses save money with increased efficiency and autonomy. 

Oracle was one of the ERP providers that quickly identified the opportunity that the cloud had to offer to its clients. Cloud-based ERP solutions operate a little differently from their on-premise counterparts. They often feature autonomous databases which allow the company to instantly see receivables, authorize charges and index data coupled with a low cost of deployment allowing them to scale quickly. 

The clients who implement this product tend to see significant savings on labor, inventory mismanagement, and fewer unauthorized charges. But it has been hard for cloud players to differentiate themselves from the on-premise options -- until now. 

Large companies that relied heavily on physical record-keeping, authorizing charges, and invoicing with traditional options have seen notable internal challenges due to the pandemic, and this has significantly upped the value of Oracle's offerings. 

Woman working on her computer next to servers.

IMAGE SOURCE: Getty Images.

Why Does it Matter Now? 

SAP is the largest ERP provider in the world and has been for years . And until now, other ERP providers have seen very little success in competitive bidding against them. But the pandemic is changing the ERP market dynamics, and SAP still only offers on-premise options which creates a huge opportunity for Oracle. 

According to the recent earnings call, Oracle is now winning virtually all competitive bids against SAP. Oracle was seeing twice as many new customers as existing customer upgrades in Q4 2021. In Q1 2022, its two major ERP products, Fusion, and NetSuite, saw revenue up 32% and 28% respectively, which drove a 4% increase in total revenue, and an impressive 19% improvement to earnings per share.

What Can Investors Expect Going Forward?

Oracle is certainly benefiting from first-mover benefits. It is currently the top dog in cloud ERP and have been winning some huge deals with companies like Bank of America (NYSE: BAC) and Vanguard. But it is unlikely that the on-premise ERP options will continue to watch Oracle gobble up their market share much longer. 

SAP still hasn't announced a real answer to Oracle's cloud business, but it is likely that it will develop a solution at some point in the future. Some big names like Amazon (AMZN 0.51%) and Alphabet (GOOGL 0.57%) have shown some interest in the space, but the strong growth rate in the cloud business in terms of market share and as a percentage of Oracle's revenues point to persistent growth over the short to medium term. 

It also pays a nice dividend while you wait on growth, and is executing a strong repurchase plan. I personally love Oracle, and any investor looking for a healthy dividend with a relatively low-risk profile can add shares with confidence.