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Can Oracle substantiate its cloud bluster?

Larry Ellison talks aggressively about having more datacentres than AWS and how Oracle’s cloud sales are growing – but it may have to provide legal proof

Judging by Oracle’s second-quarter 2020 results and its annual OpenWorld conference, the company appears to be making progress in the cloud. But there are questions over its strategy. During the OpenWorld conference, Oracle CTO Larry Ellison declared that by September 2020, the company would have more cloud datacentre regions than Amazon Web Services (AWS). 

The company is fighting to establish Oracle Cloud as a viable alternative to the likes of AWS and Microsoft Azure, given that some organisations are choosing to move some of their Oracle workloads onto public cloud infrastructure. At the same time, a long-term business collaboration with SAP is coming to an end. SAP is aggressively migrating its ERP (enterprise resource planning) customers from ECC – where Oracle is regarded as the primary database choice – to its own S/4 Hana system, which uses SAP’s in-memory Hana database.

In the transcript of Oracle’s first-quarter 2020 earnings call posted on the Seeking Alpha financial blogging site, Ellison said: “We’re bigger than IBM and Microsoft combined. In the previous battles, in the previous war on-premise, we were bigger than Microsoft and IBM combined – our two biggest competitors.”

Commenting on the competition in the cloud, Ellison said the cloud databases were open source-based and a lot more specialised. But he added: “None of them are autonomous. None of them are secure. None of them give you 99.995% availability. I mean, they’re – we’re 100 times more reliable.”

But Oracle does face a challenge from these open source competitors. The competition is not coming directly from its previous enterprise customers and CIOs in these organisations. Instead, it is being driven from the bottom up by software developers choosing products they consider more exciting and, arguably, technically superior for the applications that use them, compared to Oracle.

A recent Stack Overflow survey of 6,000 developers in the UK and Ireland reported that Oracle was not among the top three database servers being used: MySQL was used by 44.9% of respondents, Microsoft SQL Server by 40.7% and PostgreSQL by 31.4%.

The survey found that Redis is the most loved database in the UK and Ireland among developers, suggesting that proportionally more developers want to continue working with it than any other database. MongoDB was rated the most wanted database in the UK and Ireland, according to Stack Overflow – but Oracle and Cassandra ranked as the most dreaded databases.

Rich Gibbons, a software licensing analyst at Itam Review, said: “Companies are often steered by their developer teams.” For instance, a company may have SQL Server or Oracle as its enterprise relational database system, but developers often prefer a cloud database such as Lambda on AWS, he said.

For Gibbons, if developers have selected a different product, it is far harder to get them to change their minds, even if the organisation already has an enterprise licence with one of the traditional relational database providers. The CIO then has a dilemma because the software licences associated with the enterprise database are not being used for new projects. 

Gibbons said: “If you have a £1m SQL Server licence, the unused licence fee either becomes part of the cost of the new project or you look at reselling it in the secondhand software market.”

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In March this year, Union Asset Management Holdings began a class action lawsuit against Oracle, claiming it had used improper tactics to falsify the success of its cloud products. In the court filing, Union Asset Management Holdings claimed that Oracle had resorted to systematically coercing and bribing its existing customers into making phony “purchases” of its new (cloud) product line.

Customers were refusing to renew the short-term subscriptions that had been pushed on them under duress, said the class action filing. “Throughout the class period, defendants concealed these company-wide sales tactics from investors, and publicly reported explosive – but, unbeknown to investors, artificial – growth in Oracle’s critical new market,”  it said.

The lawsuit represents a public test of Oracle’s cloud strategy and its ability to execute on this strategy. “Defendants attributed this growth to supposedly legitimate factors, such as the superiority of Oracle’s products and sales teams, while rebuffing any questions about whether Oracle engaged in aggressive sales tactics to boost its new revenue stream,” said the class action filing.

Although the lawsuit concerns a drop in the share price arising from a gap between Oracle’s stated trajectory for cloud take-up and actual renewable cloud subscriptions, the filing appears to illustrate a sales tactic used by Oracle on its existing customers.

In a recent post on Itam Review covering revelations in the court filing, Gibbons wrote: “The evidence listed in the suit appears quite damning and certainly paints what appears to be a very clear picture of Oracle using audits and discounts to coerce customers into purchasing cloud they didn’t want, all to artificially inflate its cloud revenue numbers.”

As Computer Weekly has noted previously, it is not uncommon for enterprise software companies to bundle cloud subscriptions with on-premise licences and offer attractive upgrades to their cloud services. But the Union Asset Management Holdings class action means Oracle may have to substantiate the extent of its cloud business beyond Ellison’s rhetoric.

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