Oracle, the King of Cloud? Maybe in Ellison's world

Claims that cloud will drive Oracle's future growth ring hollow

Analysis Oracle's executive team spent most of its second-quarter earnings conference call on Wednesday talking about its cloud business – which made sense, since that was the only part of the business that showed significant growth.

As in last quarter's call, the trio of Safra Catz, Larry Ellison, and Mark Hurd chirped away about the Oracle cloud's double-digit growth, while deftly skating around the fact that the database giant's core software and hardware businesses are still showing the same worrying softness they have for many quarters now.

"I would think of it as we're just winning," co-CEO Hurd said, perhaps channeling Charlie Sheen. "That's the overriding thing that I'd take away from it." But the overall numbers didn't really support that claim.

Ignoring Oracle's cloud business, its total revenues for the second quarter were up less than 2 per cent, year over year. Including the SaaS, PaaS, and IaaS offerings, they were up just 3.5 per cent. So while the numbers beat analysts' estimates and even co-CEO Catz's own guidance, this didn't really seem like much of a quarter to crow about.

What's more, while Ellison – now Oracle's CTO and executive chairman – says Oracle is on track to be "the leader in cloud," that must be for some definition of "cloud" that the rest of the world doesn't use.

Amazon doesn't break out the financials of its Amazon Web Services cloud business in any detail, but the business unit under which it reports earned revenues of $1.34bn in its most recent quarter alone.

And Microsoft claims its own commercial cloud business – by which, like Oracle, it means not just IaaS and PaaS but also SaaS offerings like Office 365 and Dynamics CRM Online – has seen annual growth of 128 per cent this year. The exact revenues are a little murky here, too, owing to Microsoft's reporting structure, but they're thought to be comparable to Amazon's.

Each company certainly sells lots more cloud than Oracle does, which in its second quarter sold just $516m of IaaS, PaaS, and SaaS combined.

Both Amazon and Microsoft are also investing massively in capital expenditures, the lion's share of which they're believed to be spending on building data centers, the fundamental building blocks of a broad and robust cloud business. For the twelve months that ended on June 30, 2014, each spent around $5bn on new real estate and equipment.

By comparison, Oracle spent just $580m on capital expenditures for the fiscal year that ended on May 31. But Catz claims this isn't a problem, and that Oracle doesn't need to invest as much as the other guys.

"I'm not going to make some announcement that we're going to spend billions," she said during the call, "because we've already spent, and it's just showing up a little bit at a time."

So when Oracle says it plans to be the cloud leader, what is it really talking about? Having booked just $155m in IaaS revenues this past quarter, how can it ever hope to beat Amazon, Microsoft, or Google at the cloud game?

Ah, but there's the rub. Because despite Catz's claim that Oracle controls almost its entire supply chain – "we're very close to starting with sand and then we have computers," she said on Wednesday – cloud infrastructure isn't where it's at for Oracle.

"We're in IaaS, which is a low-cost, commodity business," Ellison said. "What we're pushing very hard is PaaS, as opposed to infrastructure as a service."

Ellison argues that Oracle's PaaS offers better value for customers than other companies' offerings, because Oracle's stewardship of Java means it can offer customers the same platform that the database giant uses to build its own SaaS applications.

And, oh yeah, those SaaS applications are important, too. "Next year," Ellison said, "Oracle will sell as much PaaS and SaaS as cloud market leader"

And that might be the key to all of this cloud talk. Because while Oracle may not be willing to put in the elbow grease or make the same investments as the kingpins of cloud, when it comes to beating Mark Benihoff at his own hype game, Larry Ellison will stop at nothing. ®

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