Oracle’s Cloudy Cloud Position

Oracle reported their quarterly numbers, and they’re always a good player to analyze to understand market trends and issues.  Oracle is like IBM in that both companies are respected incumbents with a very strong sales-versus-marketing bias in their way of doing business.  They’re unlike IBM in that they have a much stronger software bend and arguably are more focused on the cloud revenue model (despite the comments years ago by Larry Ellison).  This IBM-likeness opens some other avenues for comment, as it happens.

The quarterly numbers yelled “transition” and not “success”.  License revenue missed expectations but cloud revenue growth was impressive.  Hardware sales were up for the second quarter in a row, but that space still doesn’t command respect on Wall Street.  Oracle shows that even in the software age, a software company isn’t an automatic win.

The thing that stands out in Oracle’s earnings call is their focus on the cloud.  It’s clear that Oracle believes that its SaaS and emerging PaaS businesses are transformational to their own revenue model for the obvious reason that it substitutes spread-out services revenue for up-front license revenue.  We all knew that one cloud benefit on the user side was the service-versus-capital/license shift so it’s not surprising that vendors see the other side of it.  What Oracle shows is that it creates the potential for short-term pain for longer-term gain, and the Street isn’t into that kind of tradeoff.  You can see that by the fact that Oracle is off nearly 7% pre-market today.

The cloud is also a strong driver for the transformation of Oracle’s hardware business to their “engineered systems” or appliance model.  There is a general industry trend toward packaged functionality because buyers don’t have the staff to perform complex integration tasks and because the cloud encourages function-as-a-service deployment, which appliances are truly good at providing.  In fact, I think that Oracle has a good thing going for it in “FaaS” as a bridge between traditional platform as a service and what I’ve been calling “platform services”, the web services that augment applications by exposing valuable features as URLs.

Oracle’s PaaS seems to be coalescing into a platform services collection; only their Java Cloud Service could be considered PaaS in the strict old sense of Microsoft’s Azure.  Since I think that platform services are the best approach to the cloud (it’s too late for old-line OS-and-middleware PaaS), I think that this positions Oracle better than anyone other than Amazon in the cloud services space, and Amazon isn’t making private cloud software available, which Oracle is.  Oracle may have waited a long time for their cloud model, but it seems to be a very good one, but it’s not perfect and that’s where the risks (and similarity to IBM) come in.

My modeling has long shown that the largest potential source of new data centers in this decade is the carrier cloud, which would make service providers the most important vertical.  Oracle’s website treats the service provider as a kind of “horizontal vertical” under “Communications” so this most important industry of all has to dig through a couple of layers to find specific product detail aimed at its needs.  Worse yet, the detail Oracle provides for operators focuses on fairly pedestrian (though recognized) issues like customer experience management and billing.

We are embarking on a revolution in operations created by virtualization and the cloud—yes, that very cloud Oracle is making into a focus.  Taken from Oracle’s perspective, the carrier cloud should be their hottest target because it’s middleware-centric (Oracle is a big middleware player), it favors large credible vendors (which Oracle is), and it favors companies who can invest some R&D with delayed gratification (Oracle’s cloud drive commits them to this anyway).  Oracle needs to be taking the lead in carrier cloud, which is mostly about what I’ve called “universal MANO”, the management and orchestration of hosted components of services or applications.

Oracle has great credentials in VoIP evolution, but that’s not something operators want as much as something that’s being forced on them.  Many tell me there are serious questions in their minds on whether explicit voice services are even a good idea; letting Skype win is credible to them if voice ROI will be very low.  They have great signaling credentials, but other than IMS it’s hard to identify evolutionary service trends that demand conventional signaling (Diameter) at all.  Why not develop some credentials in MANO?  Their top NFV offering isn’t MANO, it’s session control and VoIP, which arguably are only hostable functions and not NFV at all, absent a focused MANO companion element.  On their call, Oracle never mentioned networking, much less SDN or NFV.

What Oracle has said in formal presentations about NFV seems to focus its aspirations on making NFV into a new agile IMS platform.  NFV, which talks about agile and manageable function hosting, is most valuable when it’s applied to dynamic service elements.  IMS is a long-term multi-tenant application that arguably doesn’t even need the cloud much less NFV.  Further, IMS is something that RAN providers from the network equipment side have an advantage in; they’ve got to be in the deal because you need radios to make mobile services work.  It’s not clear you need all of IMS, and Metaswitch’s Project Clearwater offers all that you’d likely need other than registration.  It’s open source, so it’s a tough competitor.

Where does IBM come in?  I’m getting there.  If Oracle wants its PaaS to be optimal it has to recognize that platform services tend to be market-target-specific, and that those for the carrier cloud space (the biggest opportunity) demand MANO, SDN management, and other things that are at least being stimulated out of NFV.  It also has to position its assets while there’s still time.  Carriers have a long sales cycle but a good concept can get entrenched there and make a boatload of cash for those who provide it.  The MANO opportunity is addressable now and highly differentiable relative to competitors.  To make it Oracle’s own, though, Oracle has to focus its marketing collateral and website on that space.  Obviously, it also has to cover the space adequately.

IBM is also the most significant possible entrant into the NFV/MANO space.  They have all the tools needed, and their model for orchestration appears to be very similar to the one I believe is the optimum one (in fact it seems rooted in the same standards my ExperiaSphere initiative is based on, at least in modeling services).  IBM Research, the source of most of IBM’s insight in the space, is now a contributor to an ETSI PoC.  Suppose IBM gets this right, very right?  That would make future earnings calls for Oracle a lot more problematic.