Chronicle to the Cloud
Oracle’s long successful history with their database products brought them tremendous riches. When ERP came into full swing, the demand for Oracle’s database products to operate the ERP system provided Oracle with a front row seat to the tremendous opportunity in the exploding business applications market.
With a sizable war chest and steady support revenue stream, Oracle decided to enter the business applications market via acquisition. This was a much smarter move than trying to build from scratch. Oracle was able to pick up many of the ERP winners and capture market share. They realized the stickiness of business applications and was able to increase support fees to 22% across all database and application products and build in an annual 3% price uplift.
At the same time, Oracle was able to expand its product portfolio and sales infrastructure exponentially with each acquisition, while also slashing much of the corporate overhead from their acquisitions. Revenues and profit margins increased without having to provide much additional value other than the product development roadmap which was already in place and funded through the original support fees before annual increases.
Oracle’s culture never truly evolved to include application innovation, only database and related technology stack innovation. For this reason, the creative and innovative leaders from the application companies they acquired would quickly move on after the transition was complete. The challenges that then gradually began for Oracle were around lack of application product innovation, continuously milking customers for more money via price increases, audits, etc., and taking customers for granted.
In short, Oracle’s projection to customers appeared to be one of entitlement, with the focus shifting from empowering customers through solution innovation, to achieving Oracle’s growth objectives at any cost. Customer satisfaction took a back seat while Oracle’s coffers kept growing. All of this led to Oracle’s late cloud entry and limited cloud market share through today.
However, market dynamics are constantly changing. Today’s market provides a unique opportunity for Oracle to put in place a plan to truly dominate in the two key product areas Larry Ellison has been preaching about for almost two years – Cloud ERP and Autonomous Database.
Oracle’s Future: Adapt, Evolve, and Trailblaze
We understand there could be many real and perceived obstacles to implementing these changes, but here are our five recommendations that we believe would truly separate Oracle from their competition.
1. Consolidate Cloud Applications as One Business with One Leader and One Culture
Granted, Oracle is trying to do this with Fusion, but it has not gone smoothly at all. Applications lack functionality, the user interfaces and experience leave much to be desired, and there is no innovation. Oracle is simply re-writing the on-premise application code for the cloud. The only innovation comes from the technology side of the business by running the cloud applications on the Autonomous Database and Oracle’s Cloud Infrastructure (OCI). Larry Ellison is also adamant about Oracle’s cloud applications being closed looped and only operating on OCI. This was one of the key disputes that severed the relationship with Thomas Kurian, who is now CEO of Google Cloud.
Our recommendation is for Oracle to hire a true cloud application innovation leader and give that individual free reign to develop Oracle’s cloud application solutions with the sole focus being on how to create customer value realization. The mandate of having to operate only on OCI should also be lifted to appeal to a larger audience. If the Autonomous Database and OCI truly provide the best technology value to operate cloud applications, then the market will reflect this naturally. There is no need to force feed it.
But this all must start with finding a true application visionary leader and allowing them to develop a culture that lives and breathes innovation to attract the required top-level talent. Once the leader, culture, and talent are in place, give them the space to flourish. Lawrence Taylor of the NY Giants said that one of the reasons he loved Bill Parcells as his coach is that he let his players play. Coach Parcells provided a framework but then let his players do what they do best. If Mr. Ellison and Ms. Catz can allow themselves to relinquish this need to control and just focus their energies on drafting talent, the sky is the limit for Oracle in the cloud business application space.
2. Pricing Transparency and Removal of the Cloud Pillars
This one is very frustrating for customers. Oracle provides price books with list pricing for some product families and for others they do not. This makes no sense, whatsoever. Besides, it lends itself to the question, what is Oracle trying to hide? How much they are gouging their customers? I’m sure this is not Oracle’s intent, but the optics leave customers with this impression.
The same goes for the cloud pillars. If Oracle is truly a one-stop-shop business application solution company, then they should not punish customers with different discounting for products with different spend levels in different cloud pillars. If a customer is buying Fusion ERP, the discounting should be the same for the ERP/EPM products as well as HCM products, and if they are also purchasing a few CX products to get started with customer experience, that discounting should also be the same.
The only fathomable reason for these cloud pillars is Oracle’s backwards thinking that these policies will incentivize customers to buy more within each pillar to get a better deal. Again, the focus is on Oracle’s business growth objectives, not delivering customer value realization. If Oracle could only see the frustration (and sometimes anger) this creates with customers and prospects, they would quickly abandon it. These policies push customers away from Oracle. This is why a significant percentage of Oracle’s cloud solutions are having to be sold/adopted by force through audits and policies that will not allow the sale of on-premise solutions without cloud also being purchased. If Oracle’s solutions are so good, then customers will eventually adopt them, it just might not be on Oracle’s timeline.
3. Stand Behind Your Cloud Services and Data Security Protection
Oracle’s template Cloud Services Agreement does not include much in the way of warranties or Oracle taking responsibility for data breaches. If anything, customers who are receiving and paying for the cloud services have more obligations to Oracle than Oracle provides to their customers. This makes absolutely no sense and has proven troubling for customers’ legal counsels.
Their services warranty is limited to Oracle using commercially reasonable care and skill in all material respects as described in the services specifications. Further, Oracle does not provide any warranty with respect to breaches of their cloud services. The exclusive warranty remedy for customers is for Oracle to correct any deficient services and if they are unable to do so in a commercially reasonable manner, then customers may terminate and receive a refund of any prepaid services fees. How is a customer supposed to terminate Fusion ERP or their cloud infrastructure and platform services when those services are now core to operating a customer’s business?
Oracle also includes a ‘limitation of liability’ clause that disclaims liability for various types of losses and caps Oracle’s aggregate liability to the prior 12 month’s services fees actually paid for the services that give rise to the liability. There are no carve-outs or exceptions to these clauses whatsoever. Mr. Ellison has trumpeted how Oracle’s cloud was entirely built with security in mind and that the Autonomous Database and OCI provide the best security in the market. Since Oracle built and controls all of its cloud services and operating infrastructure, one would expect them to provide a far greater commitment to security and more substantial customer remedies in the event of a security breach. Instead, Oracle has a significant amount of language not only disclaiming liability, but imposing liability on customers for their content and use of the services.
Oracle can address this by providing warranties against data breaches or at least providing a multi-million-dollar liability cap for any data breaches that are not caused by customer data or customer unauthorized use of the services. Insurance can be purchased by Oracle to cover security breaches. Besides, between Oracle and its customers, isn’t it fair and reasonable for the party that operates and controls the services and all of the data protection to bear this risk? Oracle would then not only be providing customers with what they claim is the best security in the market, but they will also be offering the most contractual protections to customers in the market. This would be a bold statement as to the confidence Oracle has in its services and security, and something their competitors do not provide.
Next, we start to get a bit more creative.
4. Implement True Cloud Incentives – First Year Free and No Price Increases for 10 Years
Customers hate paying for solutions that are not in production. While it is understood that Oracle would be incurring costs for providing the cloud environment during development as well as quarterly functionality enhancements, Oracle would do better longer-term by providing this initial investment. The cloud application enhancements are already being funded through current subscription revenue streams, plus Oracle has already funded the infrastructure investment as a capital expenditure.
Allowing customers a full year at no charge provides the kind of optics that resonate with customers. It addresses a key customer value concern, demonstrates understanding and support of customer needs, and greatly increases the likelihood of deployment in a production environment and user adoption. The long-term benefits Oracle will receive far outweigh the initial cost.
Then, along with the pricing transparency and discounting consistency mentioned above, remove the fear of price hikes with ten years of price protection. It’s just like fishing, where you need to not only get the initial bite, but you need to sink the hook to reel them in. Oracle’s goal here should be incentivizing customers to fully deploy and adopt their cloud solutions, get quantifiable value realization, and have the business processes and the Oracle solutions become one in the same in the minds of users. Additionally, these price protections will incentivize footprint expansion into other cloud applications.
The advantage for Oracle is that they have the war chest to bear these costs, which are minimal, and cloud infrastructure costs are expected to go down over the next ten years. Oracle’s competitors do not have the financial wherewithal, or in some cases cloud development and infrastructure maturity, to compete at this level.
5. The Larry Ellison Implementation Fund – Giving Back to the Customer and the Gift of Giving
This idea could pose some legal challenges, but it could also be a complete game changer. Since customers are the ones that have made Mr. Ellison one of the wealthiest people in the world, why not show that appreciation by giving back to those same customers? This is similar to when Oprah gave away free cars to her entire studio audience.
The fund would be set-up by Mr. Ellison, himself, with his money (not Oracle’s money). Depending on a customer’s prior investment with Oracle – from a spend level, duration, and footprint perspective, factoring in all three categories – customers would receive a grant of money to help cover the cost of cloud implementation. This would be the ‘giving back to the customer’ part.
The ‘gift of giving’ comes in by requiring customers to make a matching donation to their favorite charity or charities. This allows customers to receive the write-off for the charitable donation while helping out local charities.
Mr. Ellison, if you happen to read this, here is the part I think you’ll like most. While charitable funds like the Gates Foundation give back substantial amounts to great causes that benefit the community, the Gates’ are the ones who select the charities and the Gates’ are the ones who receive the joy of giving. This fund will enable your customers who provided you with this great wealth to experience the gift of giving and to select the charities near and dear to them.
There are so many wonderful and worthy charities out there that it is probably nearly impossible to find them all. So instead, let your customers find them for you. Make it about your customers and not Oracle or yourself. The exponential and lasting impact this could have would be immeasurable. You would be setting up a charitable foundation operating model unlike any other and providing more rewarding opportunities than any other. In return, the goodwill you and Oracle will receive will also be immeasurable and it would go a long way in enhancing the Oracle brand. Plus, you will be the trailblazer that raised the stakes for all charitable foundations.
In conclusion, I realize these recommendations are much easier said than done. But if Oracle is willing and able to implement them, coupled with the database technology advantage they already enjoy, they would greatly enhance their ability to dominate the cloud ERP and database markets, while also being in a position to seriously challenge other competitors like Salesforce, Microsoft, and AWS in certain business segments over the long-term.
What to Read Next:
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