Oracle sets its sights on AWS as it ramps up cloud strategy

The company's full-year results show a focus on IaaS and PaaS, with investment in more efficient datacentres and co-location

Oracle has reported revenue of $37bn for the full year to 2016, down by 3%. The company’s combined cloud and on-premise software revenue declined by 2% to $29bn, while its software-as-a-service (SaaS) and platform-as-a-service (PaaS) revenues grew by 49% to $2.2bn.

The full-year results show that cloud and SaaS represent just 6% of the company’s revenue, while its infrastructure-as-a-service (IaaS) business contributed just 2%.

The bulk of the company’s revenue is in on-premise software. Oracle reported $7.2bn total on-premise software revenue, a decline of 3% from the previous year.

This is down to cloud growth, according to CEO Safra Catz, in a transcript of the earnings call posted on the Seeking Alpha financial blogging site.

“New software licence revenues were $2.8bn, down by 10%, reflecting the accelerated migration to cloud. Total hardware – including hardware support – was down by 7%, with hardware systems product revenue of $725m and hardware support revenue of $558m,” she said.

“We expect that the SaaS and PaaS hyper-growth we experienced in FY16 will continue on for the next few years,” added Oracle executive chairman and CTO Larry Ellison. “That gives us a fighting chance to be the first cloud company to reach $10bn in SaaS and PaaS revenue.”

He said the company's Exadata engineered system could be considered a PaaS, which customers could have inside their firewall. The server hardware would be managed by Oracle, explained Ellison, and customers would pay for Exadata as part of their cloud subscription.

Read more about Oracle's cloud

Going after AWS

The company is now pushing SaaS, IaaS and PaaS, putting Oracle in direct competition with the likes of Amazon Web Services (AWS) and Microsoft Azure.

When asked about operating margins, Oracle CEO Mark Hurd admitted the company’s first generation of datacentres was more expensive than the company would have liked. “One of the great things about our Gen 2 datacentre is we think we now have the best bang for the buck, the best class performance datacentres in the world,” he said.

In response to an analyst question on why people would want to run platform and infrastructure in Oracle’s IaaS and PaaS clouds, Hurd said: “We handled the Oracle database much better than Amazon does, and we can run very large Oracle databases. We do a better job than they do. We run it faster, more reliable and more securely.”

In the transcript of the question and answers part of the earning call, posted on Seeking Alpha, Hurd went on to claim that customers gain more efficiency by co-locating their applications next to the Oracle cloud.

“If I’ve got the database in an an Oracle datacentre in the Oracle cloud, it makes sense for me to put the application at a computer right next to that,” he said. Hurd added that this approach would offer higher performance at lower cost “because I’m not moving data in and out of an Amazon datacentre and in and out of an Oracle datacentre”.

He also said that Oracle’s advantage is that it is a strong player in SaaS and a strong player in PaaS, suited to the customers who want to get infrastructure as a service from the same cloud supplier in the same datacentre.

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This title is somewhat misleading, since Oracle's IaaS business grew by less than 5%. It should say that Oracle is going after Salesforce. 
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