With a market capitalization of over $180 billion, and a flamboyant, America's Cup-winning CEO in Larry Ellison, it's not often Oracle (ORCL 4.05%) flies under the radar. But it may have done just that last year, as the company quietly went about making a significant dent in one of the most cutting-edge industries around, cloud computing. Now it's prepping for the expected growth to come from the Internet of Things, or IoT.
New research from Gartner showed software stalwarts Microsoft (MSFT +1.11%) and IBM (IBM +2.22%) at or near the top for software sales in 2013, as measured by revenue. That's to be expected, but what may be a bit surprising is the leap Oracle made last year compared to its software peers.
Not bad, Oracle
Much has been made of the recent cloud pricing wars, with virtually every key player dropping cloud hosting costs to mere pennies. Clearly, growing cloud revenue is not going to come strictly from hosting, though that's obviously a key component. As cloud computing goes mainstream, the companies that offer software as a service or SaaS; platform as a service, or PaaS; and similar solutions will lead the way. According to Gartner, that's exactly what Oracle is doing.
Microsoft once again led the way in software revenue last year, much of which was due to its emphasis on cloud, big data, and IoT-related services. As the last quarter demonstrated, and Gartner's data reinforced, Microsoft is well on its way to making the transition away from PCs. In its fiscal 2014 second quarter ended Dec. 31, Microsoft more than doubled its cloud revenue. That, in part, is why Microsoft generated nearly $66 billion in software revenue in 2013, a 6% jump from 2012.
With $29.6 billion in revenue in 2013, Oracle supplanted IBM as the second-largest software vendor in the world. In 2012, the two IT behemoths were virtually deadlocked, but Oracle's 3.4% year-over-year jump last year outpaced IBM's meager 1.4% increase.
IBM CEO Ginni Rometty, like leaders at both Oracle and Microsoft, isn't taking the transition to cloud, big data, and by extension IoT, sitting down. Rometty recently committed billions of dollars to transition IBM's software and big data solutions to the cloud, in part because of sales erosion of its "traditional" software products.
How'd they do that?
Like IBM and Microsoft, Oracle was slow to embrace the transition to cloud and related technologies. Even today, Oracle hasn't completely rid itself of the reputation as a hardware provider, but software results like those seen last year prove its efforts to change with the times are taking hold.
Gartner cited Oracle's commitment to burgeoning technologies such as cloud computing as enabling the company to take the No. 2 software spot for the first time ever. As Gartner said in its report, "Global trends around big data and analytics with business investment in database and cloud-based applications helped to drive Oracle's top-line growth."
With a full complement of cloud services and solutions, all emphasizing the value of SaaS and similar revenue-generating products, Oracle and IBM are ready to duke it out for No. 2. As for IoT, Oracle has already begun positioning itself for what many industry pundits believe is the "next great thing." Though its Internet of Things platform is sure to change and adapt as IoT goes mainstream, the fact that Oracle is already planning for and implementing its strategy here should be music to investors' ears.
Final Foolish thoughts
Prior to Gartner's data, it's not likely too many folks would have guessed Oracle had become the world's No. 2 software vendor by revenue. Maybe that's why, at least in part, Oracle is priced on a forward price-to-earnings basis below its peers -- a 13.6 forward P/E compared to the industry's 14.32 times projected 2014 earnings.
Microsoft and IBM are both sound long-term investment options as they continue building on their respective cloud, big data, and soon-to-come IoT sales. But Oracle has become another alternative for investors betting on who wins the cloud and IoT wars.
