friendship_insideThings in Oracle-land got curiouser and curiouser this week. On Monday, Oracle announced a deal with Microsoft, on Tuesday with Salesforce, on Wednesday with NetSuite. On Thursday, Oracle CEO Larry Ellison and Salesforce CEO Marc Benioff hugged it out.

And on Friday, they rested. So far. But it’s only noon. Perhaps they’ll announce a deal with IBM by one.

If the frequency of these deals weren’t arresting, the bedfellows were, at least at first. But Oracle has always been as pragmatic as it has been combative. The company will win with cooperation just as aggressively as it will with predation.

For those who don’t follow enterprise software, closely taken together, these deals were about Oracle making sure its databases are still core to the cloud — even if its applications may not YET be. Its $20 billion spending spree into applications in the last decade aside, Oracle has always been a company that leverages off its core in databases. And that appears to be its strategy for staying relevant in a world where the cloud, on demand software, SaaS or whatever you wanna call it is finally — FINALLY– becoming mainstream.

Specifically, in its deals with Microsoft and Salesforce, Oracle likely stabilized the long-term prospects of its dominant database, especially in the cloud where it will matter most in the years ahead. With all three partnerships, Oracle underscored its seriousness about the cloud, and this time not just its own cloud. It seems to have become less important to Oracle where its applications run as long as license revenue climbs, particularly as customers continue to shift more business processes to the cloud, and the smaller, nimbler companies that run them.

In some ways, this was also about Oracle battening down the hatches. Surely the success of companies like Workday and NetSuite — which took years to achieve, will continue to plague them at every turn, and will give rise to an even quicker wave of new enterprise startups — witness the growing success of companies like ERP startup Kenandy (which runs on the Salesforce Force.com platform), Cloudera (big data), Marketo (marketing automation), and others.

The fascinating part is the extent to which these companies must need each other. Enterprise technology providers have always cautiously partnered with competitors, but given the public displays of acrimony lately between Benioff and Ellison, not to mention that Microsoft and Oracle compete on databases and applications — Microsoft’s Dynamics applications have made solid inroads, and like Oracle Fusion applications, can run on premise, in the cloud, or in a hybrid mode — these deals leave plenty of room for adventure.

Thankfully both Benioff and Ellison promised it wasn’t the end of the potshots and drama: “I’m sure we’ll try to continue to be entertaining,” Ellison said, “while making sure the entertaining never distracts from working together.” Benioff admitted things had gotten a bit rough between Oracle and Salesforce lately. Maybe they’ll start a reality television show called “Oracle OpenWound.”

Looking at five-day trends, Oracle’s shares, which traded down sharply following last week’s earnings news, were up modestly Thursday and Friday. Salesforce shares were also up slightly.

Here’s your primer to everything Oracle did this week, why it matters, and who wins in each deal.

How Oracle got here

For the past few years, Oracle has been digesting its acquisition of Sun Microsystems, finishing up Fusion, its everlasting gobbstopper (a complete re-write of its core business applications, several years in the making), and suing the ever-living-shit out of SAP and Google, among others.

Meanwhile, companies like Workday, Salesforce.com and NetSuite (started and funded by Ellison) changed the game, creating more efficient, cost effective ways of delivering applications. It was cute for a while as these companies racked up mom-and-pop shops in every Podunk town in the country, but before Oracle knew it those companies grew up and, with the exception of NetSuite, became threatening nemeses on a global basis. History will show that when Ellison calls out a competitor by name (see: Workday), it’s a good sign that company has made its mark.

The threat wasn’t just coming from the cloud as a software delivery model. Oracle began to see the rise of software niches, like talent management, social monitoring and analysis, and marketing automation. Oracle, SAP, and Salesforce all rushed in, flash mob-style, seemingly buying startups in synchronicity: SuccessFactors, Taleo, Radian6, Ariba, Buddy Media, Collective Intellect, Vitrue, Eloqua, and Exact Target.

Oracle had created the ultimate enterprise stack, from the underlying hardware (high performance machines like Exadata and Sun Sparc servers), to the underlying software infrastructure (Java, Database), to the applications (Fusion and legacy Oracle applications), and promised to run that stack on premise or in the cloud, or some of both. While that stack has always been the holy grail, even as far back as 2011 Oracle President Mark Hurd had some prescient Oracle self-awareness, telling me that his customers frequently make other choices, and that Oracle had to also be the market leader at each layer of the architecture.

The problem is Oracle’s strategy has yet to show through in the company’s earnings. Its hardware business isn’t growing. In fact, it was down 20 percent in its recently-ended fiscal year. Despite Ellison’s quarterly insistence that the company is weaning itself from the low-end, commodity hardware sales that plagued Sun Microsystems, and that growth is right around the corner, the refrain has become a bit hollow. Oracle even recently introduced lower-end versions of Exadata, for example, presumably to jump-start customers. Oracle also partnered with Dell, the king of low-cost servers. (During Oracle’s most recent earnings call last week, Hurd pointed to a 45 percent gain in engineered systems revenue.)

While software license revenue was up substantially in the first half of the year Oracle’s 2013 fiscal year, Q3 took a rough hit (down almost 2 percent), and Q4 was only moderately better (up 1 percent).

Many companies are making the move off Oracle/PeopleSoft (Oracle’s legacy HR software), according to R “Ray” Wang, CEO and Principal Analyst at Constellation Research, and as those customers consider Oracle HCM (Human Capital Management), which Hurd characterized as being “at the forefront of development projects” for Oracle, they’re also considering Workday and SAP SuccessFactors.

Hurd has said that the company gained a substantial number of Fusion HCM customers in Q4 alone. But Workday is also having tremendous success. Its pipeline of new customers is incredibly full, Wang said. Many CIOs I talk to have already switched to Workday, and many more tell me they’re very seriously considering doing the same.

In other words, Oracle needed to accelerate its pace.

What the announcements mean

1.) Oracle and Microsoft:

Maintenance fees on software are Oracle’s biggest source of revenue — some 45 percent of revenue comes from “updates and support,” not including hardware support or services. Software licenses (including cloud-based licenses) are the second biggest source of revenue.

Since Oracle has always seen its interests served by certifying its database, middleware and applications on third-party server hardware, its new partnership with Microsoft, where Oracle has certified its applications, its Linux OS, and its middleware on Microsoft’s server virtualization technology (Hyper-V) and Azure cloud is consistent and smart.

While Microsoft Azure becomes another delivery mechanism for Oracle’s applications, for Microsoft it was further validation of its cloud platform and another potential source of revenue growth for Azure. Also, Microsoft SQL Server on Azure has struggled to run larger enterprise workloads, according to Constellation’s R “Ray” Wang. Having Oracle 12c potentially addresses that need: customers with larger workloads will want to run on Oracle Linux and Oracle database.

Prognosis: Both companies win. This deal doesn’t really impact Microsoft’s ability to continue to attack Oracle’s enterprise software with its Dynamics applications.

2.) Oracle and NetSuite:

This one’s even easier to understand. The companies are integrating and jointly selling Oracle HCM and NetSuite ERP applications to mid-sized enterprises — likely those above $100 million in revenue, judging by statements Oracle’s Mark Hurd made during a call with press and analysts on Wednesday. HR hasn’t been a NetSuite strength, even by CEO Zach Nelson’s estimation, but just as NetSuite has focused on transforming enterprise business processes, the company wants to “automate what I call people processes,” he said.

HCM encompasses everything from employee provisioning to succession planning, from talent management and recruiting to performance management, and more.

NetSuite has thousands of small and mid-sized customers, and that represents a significant and largely untapped channel for Oracle; meanwhile, Nelson said that “70 percent of [NetSuite's] customer engagements involve some partner products.”

Hurd outlined a few areas of obvious integration between products, saying that HR is “evolving into a more operational system,” so the notion that a company is out recruiting, or has a number of particular openings might play into financial reporting, for example. The idea, Hurd said, is to create a single view into the business and “a more holistic view of the company’s performance.” HR, he added, has been a neglected area in this regard.

The integration, Hurd and Nelson emphasized, would be iterative and will begin next quarter. “This is an alliance, a partnership,” he said, adding that Workday and SAP would love to have this distribution channel.

Prognosis: Both companies win, and Oracle will look for even more opportunities to plumb the depths of the NetSuite customer base. For NetSuite this is the right level of arms-length embrace — one that allows it to continue to thrive as the market’s longest tenured, and still growing cloud software company.

3.) Oracle and Salesforce:

The more interesting aspect of this week’s announcements was the Oracle-Salesforce combo pack. It’s easy to see what Oracle gained here. Salesforce was already using the Oracle database — no big secret there, since Ellison and company have constantly thumped their chests about that.

But there was widespread speculation that Salesforce, now having gained the ire of Larry Ellison outright, might have to find another database approach, lest they be too dependent on a combatant enemy. Now Oracle has locked Salesforce in, and in addition to the database, Salesforce will be running Oracle Linux, buying some big Exadata appliances, and even running Oracle’s Java middleware platform.

Constellation’s Wang said that “everything about the deal is a cultural faux pas,” that it seems to go against Salesforce’s “cultural DNA,” adding: “It’s about the software, about thumbing your nose at on premise software.” Wang said that Salesforce customers he has talked to are scratching their heads wondering if “the betrayal of brand promise is worth the gains in the bromance.”

Ellison and Benioff addressed all of this, and then some, during their joint press conference Thursday. Benioff was particularly effusive, calling the opportunity both “magical” and “fantastical” — a far and ridiculous cry from his “false cloud” cracks of yesteryear.

But here’s why it makes sense for both companies:

– Many industry observers had been speculating that Salesforce would move off the Oracle database, either because the database wasn’t serving its needs or to wean itself from Oracle dependence. The truth is probably more likely that Salesforce couldn’t change. And as long as Oracle was using Oracle’s database, why not other parts of the Oracle infrastructure; and as long as it was using Oracle Financials internally, why not also Oracle HR software.

In other words, why not just get totally pregnant and stop worrying about the underlying architecture and get on with building a $1 billion marketing cloud business to match the CRM business. Oracle has promised that its 12c database addresses any reliability, security and scalability concerns, and Benioff said that 12c “cuts our database costs in half.”

– Oracle has said that the companies would integrate products — namely Oracle HCM and financial applications with Salesforce CRM. Ellison drove this point home, saying that Oracle and Salesforce “have got to make it [the integration] work right out of the box…they have to just start sharing data seamlessly, as if they were from one vendor.”

There’s sincere customer benefit in this, including the cost savings of building it themselves. For example, customers can map sales forecasts into manufacturing planning and forecasting models; or in HR systems, being able to provision employee access to Salesforce applications, and data access.

– See NetSuite: Oracle is hell bent on winning in HCM and Financials (and stopping Workday), and the company may also realize that the CRM battle is largely over. In fact, Benioff said, and Ellison affirmed that Oracle would begin using Salesforce’s CRM systems. Many of the companies Oracle has acquired are running the Salesforce platform, Ellison said, and they will continue to do so.

– Neither company has articulated specifically how those integrations will occur — will Oracle, for instance, write to the Force platform? If so, the bindings to Force from Java could be useful for Salesforce to expand its platform. Ellison admitted that the two companies had left a great deal unsaid on this point, but hinted that there was more to come in this regard.

To infinity and beyond

While the initial Oracle-Salesforce announcement tied the companies together for nine years, Benioff kept saying “12″ during the press conference — and what’s another three years at this point? It might as well be a lifetime. But beyond the typical fears that play out whenever partnerships take place between large technology providers, there’s little downside.

Carolyn Lawson, CIO of Oregon Health Authority and the state’s Department of Human Services — the two agencies share services and represent the biggest IT organization in Oregon, Lawson says — is implementing Oracle’s technology (some 60 products) to transform legacy systems, like the state’s insurance exchange and policy automation for its SNAP (aka food stamp) eligibility. Lawson’s shop is also a big Microsoft customer, from its Sharepoint and desktop applications, to a newly signed state price agreement for Microsoft’s cloud. She sees tremendous flexibility now that the two providers are working more closely together — whether that means having the ability to move workloads between clouds, or creating points of integration in software: “A single ecosystem feel from of a couple vendors we didn’t expect will be a game changer for us,” she said.

Many industry observers have wondered what this means for Workday. Not much, other than a reminder that Oracle is gunning for them. Workday remains independent as a pure-play HR and financials Software-as-a-Service provider. Workday declined to comment on any of the announcements.

The better question is what SAP’s reaction will be. Nothing prevents them from also partnering with Salesforce, although it may be unlikely in the short term given that Salesforce just got cozy under the covers with rival Oracle.

SAP’s software has worked with Microsoft Hyper-V since 2011, and the company is working with Microsoft to get SAP applications onto Azure, according to SAP spokesman James Dever, who said that Salesforce’s agreement with Oracle was a bit like “moving back home to live with its parents.” After all of the recent squabbles and Salesforce’s claims of independence, Dever said, this whole thing sounds “as sincere as a professional wrestling match.”

And isn’t that just fantastical?