Surprise! No wonder Oracle doesn't 'see' IBM or SAP in the cloud

At Oracle’s recent OpenWorld conference, Larry Ellison asserted: “We never, ever see IBM” or SAP in the cloud.

Perhaps because, according to a senior Oracle insider, Oracle still isn’t doing much in the cloud.

How much is “not much?” As InfoWorld reported in an interview with this unnamed source, in 90 per cent of Oracle’s large deals cloud is simply given away, often without the customer even knowing it was included.

Which isn’t all that surprising, really. After all, this is the same Ellison who once ridiculed cloud computing as mere “water vapour.”

But maybe he was just talking about Oracle’s cloud revenues. Giving credit where credit is due, cloud computing has posed such an existential threat to enterprise IT’s old guard that they’ve been doing complicated financial gymnastics to demonstrate just how cloudy they can be.

Hence, each of the legacy vendors can point to billions in cloud revenue of some stripe, even though they miss earnings quarter after quarter and year after year. But this isn’t to exult in their difficulties: change is hard, especially the kind that requires a completely different kind of sales force, accounting practices, etc.

The hardest cloud category to fake is Infrastructure-as-a-Service (in which Platform-as-a-Service is included), the area completely dominated by Amazon Web Services, with Microsoft Azure an increasingly strong second. Oracle, for its part, comes in third, according to analyst Forrester. The problem, however, is that it’s not at all clear we can trust that data. This isn’t because Forrester has done a bad job with the maths, but rather because Oracle seems to be selling smoke, not cloud, according to the report’s inside source.

Smoke, mirrors, and cloud

How could this happen in our highly regulated world of Generally Accepted Accounting Principles (GAAP)? Easily, according to InfoWorld’s source – a person that editor Eric Knorr reckoned is “not low-ranking” and is “well placed” to know about Oracle’s cloud sales:

What the account teams are doing is seeding cloud deals within larger deals. So if a customer does a $10 million deal, we are throwing in $500,000 in PaaS. The rep then gets his accelerator of 5X or 3X on that $500,000. I have seen this on 90 per cent of our large deals. ... It is still booked as a sale and goes through the appropriate approvals with account reps getting credit. But in reality it is being given away. Somewhat amusingly, the customer's IT staff are not even aware of the inclusion.

The industry publication is the latest to detail the extend to which Oracle is going to prime its cloud pump, further confirming The Register's findings from earlier this year. In May we blew the lid on the fact Oracle sales people were getting up to seven times their salaries in bonuses to shift Larry's wares as a service.

All of this might be difficult if Oracle were selling $100,000 deals. But it’s not. Oracle’s sales executives live on raw meat and massive deals, deals large enough to easily tuck in a relatively small $500,000 cloud line item, nabbing a fat accelerator in the bargain. Oracle gets to crow about rising cloud revenue without generating any real cloud value for its customers, and the salesperson gets to buy a mini-yacht to complement Ellison’s.

Everybody wins. Right?

Well, everyone but the customer. As this source continues: “Our announcements are always a minimum of six months ahead of the technology. This has been true of every single cloud announcement.”

In other words: “[W]e announce a new product and then start development,” with the customer left holding the receipt and an empty bank balance, but no cloud.

That yacht is sinking

Oracle (not to mention IBM, which has been guilty of its own financial engineering to appear cloudy) can’t continue forever on this vapourware cloud strategy.

Even Ellison gets this. As he stated at Oracle OpenWorld: "We are in the middle... of a generational shift in computing that is no less important than our shift to personal computing when mainframes and minicomputers dominated our industry."

Despite this profound shift, and Oracle’s relative irrelevance within it, Ellison is relaxed because "it seems like early days. The biggest cloud companies are $6bn in size; they are not $100bn, in terms of their cloud business."

He’s right, but that should be cold comfort for Oracle. After all, that eensy-weensy $6bn competitor (Amazon Web Services) is growing at a torrid 80 per cent pace, and has set its sights on Oracle’s heart and soul: the database.

AWS keeps winning because it’s delivering real cloud that companies like GE can and do use, with GE decommissioning 30 of its 34 data centres to move thousands of workloads to AWS. That’s cloud that can’t be faked. Ellison should take note. ®