|By Harry Trott||
|February 12, 2014 10:00 AM EST||
Oracle has sounded extremely optimistic about their future; one that is going to be dominated by the cloud. The company has reported cloud revenue growth of anywhere between 35% and 50% over the past few quarterly financial reports. Safra Catz, the Chief Financial Officer at Oracle is noted to have said that her company is focused at increasing market share on the cloud at this point “unlike all those cloud companies” like SalesForce that are focusing on profits.
So is the company seeing a paradigm shift in their revenue pie? Not really. Despite the buzz about Oracle’s focus being on the cloud, this segment only contributes to 3% of the overall revenues at the moment. According to a report by Cowen analyst Peter Goldmacher, the organic cloud growth at Oracle in the second quarter is not expected to have been more than 6%.
What this implies, is that a huge contribution to the Oracle cloud revenues come from its acquisitions over the past few years. It cost Oracle close to $5.5 billion to acquire RightNow, Taleo, Eloqua and Responsys. These businesses, according to Goldmacher, are now growing in single digits which means that by the same time next year, Oracle might not really be in a position to tout its massive cloud growth numbers. Unless they make another big ticket acquisition, that is.
However, that may not be the only ticket to a bigger pie in the cloud. In a study published last month, market research firm Gartner has claimed that traditional ERP systems could be relegated to the status of ‘legacy systems’ as early as 2016. The SaaS based ERP market itself is set to attain a share of 17% of the overall revenues by 2017, according to another report by Gartner. Besides, the latest versions of the Oracle’s JD Edwards World software come with web based clients. Given these metrics, it is very likely that a significant chunk of Oracle’s revenues from the traditional setup would migrate to the cloud over the next few years.
Herein lies the challenge and the opportunity. The opportunity is here because the world is moving towards the cloud. Cloud computing in general is geting commoditized and the overall market size could be much bigger than what the traditional ERP market has ever been. However, the challenge is from the smaller niche focused players like NetSuite and Plex that have already established themselves in the cloud ERP space. Will Oracle be preferred over these smaller players due to the brand? Or, will the size of the company weigh against Oracle when it comes to picking a service provider who can provide a more personalized value to the clients? This is a challenge that Oracle would be facing when cloud ERP goes mainstream.
Having said that, Oracle is still in a better shape given that its competence is in not just the software, but also in the hardware that goes into building cloud networks. The company is still one of the leading manufacturers of servers and networking products that are critical to building a sophisticated cloud business. Given that most of the smaller cloud players do not have the infrastructure to build their own hardware, Oracle is poised for growth in the cloud industry even without its software applications. Not only does this give Oracle the leverage to push for cloud growth, it also ensures that the company can have a more competitive pricing strategy since most of the hardware could be sourced from within the company.
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