It’s no secret that Oracle has not performed well in the cloud marketplace and many analysts feel Oracle missed its opportunity and has fallen too far behind cloud leaders AWS, Microsoft, and Salesforce to catch up. But Oracle has been a database market leader for decades, has acquired dozens of applications over the years, and has a vast amount of resources at its disposal. They cannot be so easily counted out. So, what is holding Oracle back from becoming a cloud leader? Innovative leadership.
With no disrespect to Larry Ellison who has led Oracle for 40 years to unimaginable heights, at 75 years old, one has to wonder how much longer he is willing and able to lead. The sudden passing of co-CEO Mark Hurd was very sad news and leaves a leadership void at Oracle. Co-CEO Safra Catz is more of an operational executive, having previously served as CFO for many years and is not someone that would be categorized as a technology visionary. Thomas Kurian, who left Oracle last year resulting from a strategic disagreement with Larry Ellison, is now at Google and was someone who was viewed as a potential next visionary leader. But even with both Hurd and Kurian, Oracle was losing the cloud war.
What are Oracle’s Biggest Challenges?
One would be the performance of Fusion, or rather its lack of complete functionality. Oracle customers that were previously running PeopleSoft, JDE, etc., are quickly finding out that Fusion does not have the same functionality. Oracle has been rolling out Fusion functionality over time, but from what we are hearing from disheartened customers is that functionality gaps and poor performance still exist.
Fusion has been in development since the mid-2000’s, first as an on-premise solution and later re-written as a SaaS solution. Oracle is not a true application company, though, as all of their application solutions came via acquisition. Oracle initially saw all the business application vendors as resellers of its relational database and realized the opportunity some 20 years ago. Instead of developing applications in-house which would take years and miss out on the market opportunity, Oracle chose to use its considerable database war chest to acquire application companies, in essence, buying market share.
Oracle would then substantially reduce the redundant infrastructure of the acquired software, such as HR, FI, Legal, etc., and look to increase sales through Oracle’s well-established global sales channels, while also levying annual support fee increases. This resulted in increased margins and made investors and analysts happy. However, Oracle never adopted an innovative application development culture, and the innovative leaders of the acquired companies eventually moved on. This would explain the functionality and performance struggles Oracle has had with Fusion. This analysis does not apply to NetSuite which was developed as a cloud ERP solution from the beginning.
On the IaaS and PaaS side, Oracle was late to market and customers have grown accustomed to AWS, Microsoft, and other cloud services providers. As for the databases required to provide these cloud services, AWS just recently announced that it has completely transitioned all of their services off Oracle databases and onto AWS. SAP is moving everyone to S4/HANA which eliminates the need for Oracle databases. So while Oracle is ramping up its IaaS and PaaS offerings and enabling customers to migrate to the cloud with its BYOL (bring your own database license), its market share is also eroding from the application and service providers. Then you have upstarts like MongoDB that developers seem to prefer.
Oracle is trying its best with the autonomous database and its Gen 2 cloud infrastructure which Oracle claims provides them with a tremendous technological advantage over the competition, yet thus far, it has not generated the results Oracle has proclaimed it would while its competitors continue to experience consistently high growth rates. Oracle has always been a database technology company, so why is it failing to win in an area where it has had a historical and now self-proclaimed current technological advantage?
This leads to Oracle’s biggest challenge – customer relationships. This includes not only how Oracle has treated its customers in the past, but also the transactional and siloed approach Oracle has taken to its SaaS business.
Customers remember how Oracle took advantage of them through annual support increases, confusing licensing rules and access to unlicensed functionality that easily created out-of-compliance situations uncovered during painful audits. There was tremendous discounting disparity based on negotiation leverage on a transactional basis and lack of investment or interest from Oracle in their customer’s implementation success and value realization. Almost all Oracle customers I have spoken with find Oracle extremely difficult to do business with and say they only hear from their account executive when they need to sell something.
Many love the technology, whether that’s Oracle’s database or engineered products such as Exadata, and most are loyal to their applications, like JDE, Peoplesoft, Siebel, etc., but they cringe at the thought of working with Oracle. Years of heavy-handed audits and negotiations have left a bitter taste with its customer base. Customers are worried about giving Oracle even greater leverage by adopting their cloud solutions, where come renewal time, Oracle always has a nuclear option of not renewing and terminating the service, leaving customers no viable alternative due to the time and cost of transitioning to a competitor. Oracle knows customers will take the renewal deal in front of them, even if they loathe it, because it is better than their alternatives.
The IBM or Microsoft Model?
Oracle has a choice to make, do they want to become like IBM or Microsoft? So far, they have taken the IBM approach, increasing their EPS through labor force restructuring, stock buybacks, annual support fee increases, and other administrative and financial tactics. But they are losing the future market, which is cloud-driven. IBM implemented the same approach about 10 years ago in an attempt to offset shrinking revenue virtually every quarter, with a current string of 22 consecutive quarters of sales decline.
Microsoft went through its own lost decade, as it were, during Steve Ballmer’s tenure, and deployed similar heavy-handed practices with its customer base. But Microsoft had no real challengers to its desktop dominance during this time and was able to maintain its market position without any significant organic growth. They promoted Satya Nadella to CEO in 2014, who was previously executive vice-president of Microsoft’s cloud and enterprise group. Mr. Nadella is someone with an engineering and computer science background, who not only understands the current market but has a vision for the future. He quickly started restructuring Microsoft’s management structure, while also opening up to working with previous competitors. We have noticed a marked difference in Microsoft’s customer approach ever since, knowing that they need to be more customer focused and flexible if they are to compete and win the cloud wars. Having a visionary leader has made Microsoft as innovative as it’s ever been, even with the many acquisitions they have made. Employees hold Nadella in high regard and want to work for him, improving overall morale. One cannot say that morale has been very high at Oracle or IBM the past decade.
Oracle is at a key inflection point in its history. When Larry Ellison ever decides to step down it will represent the first time Oracle will undergo true leadership change. Will they continue with the old dynamic and permanently name Safra Catz as sole CEO, or will they promote from within or hire from the outside? A new dynamic and visionary leader that has the ability to meaningfully transform Oracle into an innovative company, with a ‘customer first’ focus, would be outstanding — not only with its solutions offerings but in how they treat and work with their customers.