Oracle is one of the more interesting tech companies, if you’re looking for an indicator of where markets might be heading overall. They have a broad exposure across hardware and software and also a nice combination of “offensive” and “defensive” products, meaning those that do well when confidence is high and those that are more conserving. This quarter, though, it’s a little hard to read the tea leaves.
At the company level, the numbers were good news; Oracle beat Street estimates and its stock gained in after-hours trading. It was a contrast to a disappointing report this time last year, but at the same time there were still some common elements with that sad period—hardware. Despite good order growth for their hardware appliances (database and analytics) the company’s hardware sales were again below expectations. At this point, I’d say it was clear that Oracle is not going to be able to sustain an independent server business; its hope lies only in the appliances.
To some of the media pundits, Oracle’s dependence on things like analytics seems to fly in the face of the “cloud revolution”, but that’s because these people don’t understand the difference between cloud commitment and cloud stories. Truth be told, any analytics application that’s so data-intensive as to demand fast-memory processing of the results is clearly not going to run in the cloud, where users would have to contend with data latency or storage costs. What is then responsible for the hardware dilemma? It is the cloud in a way, but not the way people think.
What vertical bought more Sun servers than any other? Hosting and carrier companies. In the hosting space, the x86 platform has been stronger for cost reasons. The cloud drive, particularly IaaS, makes it impossible for a company to rely on a non-x86 server because the machine images produced for non-x86 machines are different. The telcos, who have traditionally used the Sun platform for all manner of good stuff, have been under-investing in OSS/BSS because it’s not a profit center and in service-layer features because they lack an architecture. Oracle needed to push a vision of the service layer if they wanted to rely on their traditional carrier vertical, and they still have not done that. Oracle needed to push a vision of PaaS if they wanted a cloud model that didn’t put SPARC platforms at an inherent market disadvantage, and they didn’t do that either.
A few people have said that the problem is that Oracle isn’t in networking and rivals like Cisco and HP are. I don’t buy that either. Networking isn’t creating too many heroes on Wall Street right now. However, it is true that with a combination of servers, middleware, and network hardware you could present a pretty darn compelling data center and cloud story. The question is whether Oracle’s lack of networking is worse than, say, Cisco’s lack of software. I don’t think so. The cloud ultimately is a platform, and it’s actually pretty easy to build a good cloud-service story with middleware. Easier than building it on networking (as Juniper is proving).
So it’s not the success of the cloud that puts Oracle’s vision at risk, it’s the failure of Oracle to control a darn good cloud opportunity. There will be a transformation of IT to a cloud/services model. It will look something like PaaS today, something like SOA (today and for the last five years), and a LOT like the stuff Oracle provides. Why then do we hear so little insight from Oracle? Could it be that they understand sales too well and strategy too little? That sounds like the “Tech Company Disease”; it’s that prevalent in the space today. Well, Oracle needs a cure or the current quarter could be an aberration. You can avoid waking a sleeping giant, but a whole population of them puts the odds against a pure defensive strategy. There are too many players who have the desire and the capability to answer the cloud-service challenge.