One of the drawbacks to the Christmas season is that good stories slip by and no one covers them until much later, if at all. Such was the case with Oracle's third quarter earnings, released on December 17. By that point, not many people were paying attention (tip of the hat to Forbes for first noticing it) to anything except shopping lists, but what Oracle had to say was significant.
Oracle is pulling off a minor miracle. It is adapting to and adopting a whole new technology and business model that should, in theory, be completely contrary and contradictory to its current model. One of the subtheories of Geoffrey Moore's business bible, Crossing the Chasm, is that companies established in one old industry are often unable to change with the times when their market shifts. As a result, they are often left behind or forced to go through a painful reinvention.
On paper, that should be the case for Oracle. It's firmly wedded to on-premises software, has a decidedly 1980s-90s business model of licenses rather than subscriptions, and its leader is 70 years old in an insanely ageist industry where no one over 30 can get venture money.
Yet the company is adapting and picking up customers fast. Look at the stats disclosed by Larry Ellison and co-CEOs Mark Hurd and Safra Catz during their earnings call with financial analysts.
- Total cloud revenue reached $590 million for the quarter, a 47% increase from the third quarter of last year.
- Cloud SaaS and PaaS revenue of $364 million, up 41% from last year and more than double last year's growth.
- Cloud infrastructure as a service revenue of $155 million, up 62%, although that's due in part to the prior year being comparatively low.
- 860 new SaaS customers, 230 of which subscribe to more than one set of apps.
- Nearly 650 existing customers expanded their cloud services in the quarter.
- More than 460 new SaaS customers in Oracle’s Customer Experience (CX) business.
- 250 new SaaS customers in its ERP and Enterprise Performance Management (EPM) business.
- 230 new customers in Human Capital Management (HCM).
- Oracle’s Fusion products saw triple-digit growth in both revenue and bookings.
- 150 new customers in Oracle's four-month-old platform as a service (PaaS) business.
And in a true sign of hell freezing over, the hardware business is growing. It rose 4% year-over-year, with hardware revenue of $717 million and hardware support revenue of $690 million. Much of that came from Exalogic and Big Data appliances. For years, it looked like the old Sun business was going to wither and die on the vine, but it's coming back, too.
Oracle's cloud business is now worth $2 billion at an annualized rate, about half of Salesforce.com's annual income last year. Larry couldn't help but point this out.
"What makes this particularly interesting is that next year Oracle will sell about the same total dollar amount of new SaaS and PaaS business as cloud market leader salesforce.com," Ellison said in the earnings call. "Stay tuned, it's going to be close. We are catching up to them and we are catching up very quickly."
Considering Salesforce reported $2.2 billion in revenue in 2012, $3 billion in 2013, and $4 billion in 2014, it will likely come close to $5 billion this year. However, unlike Oracle, Salesforce is also bleeding money. It has reported significant and growing losses for the last three years. Oracle is very profitable.
Oracle's success story comes down to integration. Its software library is massive from all of its acquisitions. The Oracle database is just a fraction of the story at this point. With all of its integrated applications, from PeopleSoft to the Fusion line, Oracle simply transitioned those apps to the cloud and provided people with a complete, integrated suite. And with the Sun hardware, customers can buy a turnkey solution all in one nice package.
"It's happened in every generation of computing where the end user, the customer, doesn't want to be the integrator of 30 separate applications from 30 separate vendors. No different now, just on the cloud now," Ellison said.
There's much more to it, all detailed nicely in that Forbes story. The bottom line is Oracle is in the process of a reinvention on a scale that rarely happens in this business.