It's CLOUD WAR says Larry Ellison: parachute in the sales team

Don't bring a price cut to a volume/commodity knife fight

Internet Security Threat Report 2014

Larry Ellison has promised to bring holy price down upon the heads of cloud computing infidels.

Microsoft, Amazon, Rackspace and Salesforce are all on notice: Ellison’s database giant will take them on, in infrastructure, platform and on apps.

Ellison told Wall St on Wednesday he will be “price competitive” with Amazon’s AWS, Microsoft’s Windows Azure and Rackspace.

“At the infrastructure level, we intend to be price competitive with Amazon and Microsoft Azure and Rackspace,” Ellison said on his company’s Q2 analyst call.

“We intend to compete aggressively in, what I will call, commodity not being a bad word, the commodity infrastructure as a service market place.”

Put bluntly, Oracle intends to be: "A player in all three levels of the cloud," Ellison said.

Oracle as always been aggressive on price, so don’t underestimate the rhetoric - setting them high and willing to discount for the customer who’s willing to haggle.

And Ellison has assets in place to throw into war on all levels – infrastructure and platform as a service and on market places.

He’s acting as both arms dealer and service provider: on the former two, Oracle is bundling its hardware and software and selling them as components to let you build infrastructure and platform as a service offerings. Public or private, Larry doesn’t care.

But there’re also Oracle’s own database and Java as cloud for developers and it offers its own iTunes/AppStore-like Oracle Cloud Marketplace.

But that said, this is rhetoric: Larry is coming from a long way behind those he’s throwing stones at. Even against Microsoft – a relative weakling in the field of cloud compared to Amazon and Salesforce – the company has a long way to go.

Mention “Oracle”, and one’s thoughts turn to expensive, on-premises versions of its applications and middleware. Or, possibly, huge and expensive systems. But not cloud.

Amazon is the market share leader by volume of data held in cloud; Salesforce a mind-share leader. Both are growing – Amazon by volume Salesforce by revenue.

Looking at Oracle’s results this week, it’s pretty clear where Oracle’s business is come from: milking the existing customer base for upgrades and support.

Nearly half is from upgrades and support – 49 per cent, and that business grew six percent during the last three months. That was Oracle’s only growth.

New licenses sales and cloud sales – around a quarter of the Oracle business - were flat while Larry’s prestige hardware systems sales were down by three percent.

Oracle is a legacy maintenance business. Full stop.

But, don’t write Oracle and Larry off: while Oracle is a legacy maintenance business, Larry knows this and has put in place a transition plan.

There’s a big myth about the cloud in the enterprise, the segment of the cloud that Oracle is targeting. That myth is that services are bought and consumed by individuals swiping or entering their credit-card’s details. While that was true for initial uptake, and it certainly helped get Salesforce a foot in the door, if you want real volume inside an enterprise customer as opposed to pockets of users then you need to hire sales people to engage with the customer’s enterprise purchasing people. This is, after all, the enterprise, and this is how enterprise sales cycles work.

Salesforce went through his transition during the mid 2000s – from pugnacious start up it began sucking in sales and marketing people from the likes BEA Systems.

That’s where Oracle is right now – in hiring mode. Only it’s jumping straight to phase two of the plan: rather than seed the ground then ramp by hiring, it’s using sales people to seed the ground. Oracle Chief financial officer Safra Catz said Wednesday Oracle has been hiring sales people in the last year. “We expect that to pay off,” she said.

“We decided that we were really going to lean in to the cloud to get market share and we were going to be able to do it unlike all those cloud companies,” Catz added. “We were actually, still as a company, going to make a large amount of money and so we have ramped up the sales organization and we are at full strength and it takes time for that to pay off but at that point your expenses are at one level and now the revenues come in.”

There were no numbers on how many, but sales and marketing expenses did grow by 12 per cent in Q2 compared to the same time last year.

Those hires have all been in cloud and increased bookings – but not actual revenue – by 35 per cent, according to Catz’s colleague, president Mark Hurd. Note: bookings, not actual revenue.

Sales has been re-organized too: a Workday unit has been established within Oracle sales, a team dedicated to attack the cloud human capital management (HCM) specialist – payroll, HR and personnel related aspects of the ERP pie.

“A while ago though, we decided, we had to line-up an HCM sales force directly against workday. That's all they think about. Every day is competing against every workday prospect and going out there competing against Workday,” Ellison said.

Oracle has similar units set up against Salesforce and SAP, so Workday should feel that it's arrived, now it's considered such a threat to Oracle’s online business.

When’s the pay off? One hopeful Wall Streeter whether the new sales hires would “reach full productivity this year or is it sometime in the next year” Hurd gave a firm: “No.”

“You have got a period of time for those people to get productive and get revenue, and again, it starts all with what we announced today. It starts with bookings and then you drive that booking over a period of time and you build a subscription base,” Hurd said.

“Normally speaking, you would think it would take you a couple to three years to get to that full productivity of the equivalent of a recurring stream of revenue to what you would have typically seen in license,” he added.

Coming back to the beginning: Oracle is a long way behind those it would take on in a Holy price war.

And, the lesson from price wars against commodity players is they are a fruitless exercise: Microsoft tried to undercut Amazon AWS in establishing Windows Azure. Amazon, the king of high-volume and low price, responded by cutting its prices further and also by adding more features to AWS.

Microsoft has had to take the long-road to growth instead: adding a rich mix of features, having its sales people engage with existing Windows customers.

The same will ring true for Oracle. What it must bring to the game is a more complex and sophisticated sell: it must give a reason for enterprises, entities that prize value-added services, service levels agreements and water-tight security, a reason for abandoning the controlled world of software running on their own servers in their own data centers and to trust a cloud service provider.

Winning that argument is not just about adding new technology features or cutting prices, it’s about convincing people. It is: a sales pitch.®

Choosing a cloud hosting partner with confidence

More from The Register

next story
NSA SOURCE CODE LEAK: Information slurp tools to appear online
Now you can run your own intelligence agency
Fat fingered geo-block kept Aussies in the dark
Yahoo! blames! MONSTER! email! OUTAGE! on! CUT! CABLE! bungle!
Weekend woe for BT as telco struggles to restore service
Cloud unicorns are extinct so DiData cloud mess was YOUR fault
Applications need to be built to handle TITSUP incidents
Stop the IoT revolution! We need to figure out packet sizes first
Researchers test 802.15.4 and find we know nuh-think! about large scale sensor network ops
Turnbull should spare us all airline-magazine-grade cloud hype
Box-hugger is not a dirty word, Minister. Box-huggers make the cloud WORK
SanDisk vows: We'll have a 16TB SSD WHOPPER by 2016
Flash WORM has a serious use for archived photos and videos
Astro-boffins start opening universe simulation data
Got a supercomputer? Want to simulate a universe? Here you go
Do you spend ages wasting time because of a bulging rack?
No more cloud-latency tea breaks for you, users! Get a load of THIS
prev story


Free virtual appliance for wire data analytics
The ExtraHop Discovery Edition is a free virtual appliance will help you to discover the performance of your applications across the network, web, VDI, database, and storage tiers.
Getting started with customer-focused identity management
Learn why identity is a fundamental requirement to digital growth, and how without it there is no way to identify and engage customers in a meaningful way.
The total economic impact of Druva inSync
Examining the ROI enterprises may realize by implementing inSync, as they look to improve backup and recovery of endpoint data in a cost-effective manner.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
Website security in corporate America
Find out how you rank among other IT managers testing your website's vulnerabilities.