Infrastructure as an Anchor

Oracle’s race to the cloud has offered multiple successes to its investors and some disappointment as well. No transition of this magnitude can be expected to run like clockwork, but the difference between revenues for Oracle’s Software as a Service apps for last quarter, US$1.1 billion, and those for its Infrastructure as a Service apps, at $396 million, should at least get you thinking.

There’s a good explanation for this, and it’s surprising that the company hasn’t done more to provide guidance to its financial analysts — but then again, the purpose of reporting your finances is just that. There’s no room for anything that can look like an excuse. That’s too bad, because it can lead people to wrong conclusions.

I spent a day at Oracle last week receiving a briefing on the company’s road map for the year ahead. While some of the information was presented under nondisclosure, I can say that the briefing ran the gamut and went into areas that I am not expert at, such as serverless apps, bare metal servers and the new autonomous database — but I am coming up to speed as fast as I can.

Information Utility

The company’s cloud architecture and IaaS offering gave me one surprise: Oracle intends to roll out 13 distinct regions for IaaS connected by a very high-speed backbone. Each region is highly modularized with triple redundancy and easily can scale as demand increases. All of this is very important, I believe, because this is not simply about cloud computing but about another disruptive innovation we all will face in the next few years.

The disruption is the formation of an information utility, and it’s all but certain that no single corporate entity will own all of it. As big as Oracle’s plans are, Salesforce has similar ideas, and so do Microsoft, IBM, SAP, Amazon, and hosting services too numerous to mention. Yes, there will be consolidation, and those too-numerous vendors likely will be scooped up first.

But back to Oracle — $396 million is a lot of money but small change compared to its SaaS number and small compared with the company’s aspirations. The logical conclusion that many finance people have drawn from that number is that Oracle has a “problem,” or that it’s not executing well in PaaS and IaaS, but really? Not exactly.

Only three of the 13 regions have been deployed so far, according to Oracle President of Product Development Thomas Kurian, who led off the analyst briefing. More will hit their markets this year — but the rollout takes time, and we’ll still be talking about it next year.

Not having the regions up and running means that in some strategic places, the company doesn’t have IaaS to sell. So the $396 million is a look into a still very much expanding world.

Just for fun, you could say that three of 13 is just under a quarter of the deployment. If the other regions were running as well as the three in place, the IaaS and PaaS numbers easily might be four times the reported revenue number. It’s unclear if that’s good or not since we don’t know a lot, such as capacity and utilization of the existing regions, but still…

So for now, the revenue picture remains lumpy, but now we have more explanation and color for the results. Hopefully this also gives financial analysts something to consider as they try to figure out what the numbers mean to investors. The rest of the market seems to expect a bright future for Oracle as its stock continues to do well despite the lumpy earnings.

More Co-opetition Ahead

There’s also discussion about renewed competition in the database market circulating after a story in The Information suggested that companies like Amazon and Salesforce were building competitive database products and would depart Oracle in the near future.

I don’t agree. If for nothing else, building a database is a big effort and one that detracts mightily from a company’s primary business interests. It is dilutive of effort and cannibalistic of resources. For these reasons, it should be taken on only as a last resort. That’s the way any business should look at any effort to self-source rather than go to the marketplace for needed resources.

On top of that, I recently spoke with Parker Harris, CTO and cofounder of Salesforce, and when asked about the story he said, “We have a good relationship with Oracle and we use a ton of it. We are not getting rid of the Oracle database. We are working on technologies that add capabilities around the edges, like sandboxes. We will have SQL Server and Oracle for a long time.”

No surprises there. It’s been true for a long time that in these big markets, sometimes we compete and sometimes we cooperate. In the era of the information utility, I expect a lot more co-opetition.