Oracle may still have some ways to go in surpassing the likes of Salesforce for cloud software sales, but nonetheless remains a key bellwether for the state of enterprise software in general. This week, Oracle reported second-quarter results that slightly topped analyst expectations but also saw revenue growth slow.
As usual, the accompanying earnings conference call with top Oracle executives was informative, going beyond the numbers into color that provided deeper insight into the results. Here are the highlights (h/t to Seeking Alpha for the transcript):
Crossing the rubicon: New on-premise software license sales fell once again in the second quarter, as customers shifted more investments into cloud software. Oracle CEO Safra Catz says a pivotal day is coming soon for the company's software business:
Our cloud revenue will be larger than our new software license revenue next fiscal year, when the transition will be largely complete. With cloud overtaking new software license revenue, we expect our business to once again exhibit the same pattern we delivered over the previous decade as a license business.
The bigger transition for Oracle to overcome regards its massive and highly profitable on-premises maintenance revenue stream.
Database-driven: Oracle recently released version 12.2 of its flagship database, but it's only available for now as a cloud service. The company logged $100 million in revenue for its database-as-a-service, and on-premises database license sales grew as well, although specific numbers weren't provided.
Its database business will continue to support maintenance revenue even as customers transition workloads to the cloud, as Oracle executive chairman Larry Ellison noted:
In database, if you bring database to infrastructure as a service, you need to own the database license, you never cancel your database license and support. That goes on forever. So as people migrate let’s say you take the Oracle database to Oracle infrastructure as a service, you still your support and if you need more, you but more -- license more database.
A lot of license decline is attributable to our applications business which is getting -- with the on-prem application business is getting smaller and smaller. The database business, license business looks as growing.
It’s not an unlikely outcome that our database license system goes on forever and the associated support goes on forever even though customers are running that database now not on their own computers, but on our infrastructures as a service or Amazon’s infrastructures as a service, or Azure’s infrastructure as a service.
In other words, Oracle's subscription-based database cloud service appears geared for new workloads.
Deep pockets: Oracle's growth over the years has been fueled by a slew of acquisitions. The company now has $68 billion in cash and marketable securities on hand, a massive sum that could support quite a bit of deal-making in 2017. That means more opportunities for Oracle but potentially big changes for customers.
Cloud ERP On a Roll: Oracle's $9.3 billion acquisition of cloud ERP vendor NetSuite had barely closed within the quarter, so the impact on revenue was minimal at about $50 million. But Oracle added 532 Fusion cloud ERP customers in the quarter, accounting for about half of the overall 1,100 SaaS wins, said CEO Mark Hurd. Another 91 Fusion ERP customers expanded their deployments. ERP wins included some prominent brands, such as Canon, Deutsche Telekom, FedEx, Hasbro, Koch Industries and Texas Instruments.
Shifting targets: Ellison is well-known as one of the software industry's most colorful trash talkers, and while he was restrained on the call, he outlined who Oracle views as its top competitive targets today:
Historically, I’d measured Oracle performance by comparing our technology and our market share to our two primary competitors, SAP and application, and IBM and infrastructure and database. That changes as we move to the cloud. In the cloud, we measure Oracle against salesforce.com and application, and Amazon Web Services and infrastructure and database.
Greasing the cloud skids: Oracle unveiled its Accelerated Buying Experience program earlier this year. The effort is intended to help customers easily and quickly buy cloud software through the use of Oracle's CPQ (configure, price, quote) software, a streamlined approvals process for sales representatives and simplified ordering documents. It's going well so far, according to Hurd:
We’ve got about now 70% of our transactions, not necessarily our dollar volume going through. And our customers are just to be very frank, is very well received and is happier. It's just easier to do business and to get a contract with Oracle now than it’s ever been and it's great when customers are happier.
Our next target is really to focus around our overall experience in the cloud after the purchase. And to that end on December 1, I announced a group inside Oracle, called the Oracle cloud global service and support group. And it really pulls together all the various organizations around the company that had touched our cloud customers and brings them together into an organizational unit, focused slowly on pleasing and delighting our customers and giving them the absolute best customer experience they can possibly ask for.
Given that customer satisfaction around Oracle contract negotiations has long been a pain point, anything the company can do to improve its processes will be welcomed by the installed based and prospects.
24/7 Access to Constellation Insights
Subscribe today for unrestricted access to expert analyst views on breaking news.
