Oracle will enter the cloud when Larry’s good and ready. Uh oh, he’s ready

By Michael Carney , written on June 24, 2014

From The News Desk

For years, Oracle has slow-played “the cloud,” focusing on selling traditional "on-premise" solutions and failing to deliver forward-looking products in many key categories. This pattern has lead many observers and critics to claim that Larry Ellison simply doesn’t get the cloud or that Oracle’s age of enterprise dominance was coming to a close.

How wrong they were. If history has proven anything, it’s that you don’t bet against Ellison.

Late last week, as part of its quarterly earnings call, Oracle announced – quite braggadociously – that it is now the world’s second largest cloud SaaS (software-as-a-service) company at a $2 billion annual revenue run rate, trailing only Salesforce’s $5 billion plus uptake. The company then looked ahead, with typical Ellisonian aggression, and predicted that it would soon be number one in both SaaS and PaaS (platform-as-a-service) in the not too distant future.

In a press release on the matter, Ellison said:

Oracle is now the second largest SaaS company in the world. In SaaS, we’re in front of everybody but In IaaS we’re larger and more profitable than Rackspace. We have by far the most complete portfolio of modern SaaS and PaaS products in the industry: CRM: Sales, Service & Marketing; HCM: HR, Payroll & Talent; ERP: Accounting, Procurement, Supply Chain & more. All these SaaS products run on the world’s most powerful PaaS: the Oracle in-memory multitenant database and Java. We plan to increase our focus on the Cloud and become number one in both the SaaS and the PaaS businesses.
So there.

For anyone who’s been watching Oracle for the last three-plus decades, the apparent about face should come as no shock. Ellison is a walking personification Sun Tzu’s Art of War. He wasn’t about to emphasize the cloud, and thereby give the next-generation computing paradigm any added validity, until Oracle was ready to dominate.

One enterprise analyst speaking to Pando on the condition of anonymity said of the posturing:

The narrative of ‘does Larry get the cloud?’ has always been hilarious. Talk to [Netsuite founders, CTO] Evan [Goldberg] and [CEO] Zack [Nelson*] and it’s not like he didn’t believe in this stuff 15 years ago. Why wasn’t that more clear publicly? Because they didn’t have the product suite to go to battle. They rewrote their entire product stack and it took seven years – it took longer than they expected.
Add to this the fact that the enterprise market wasn’t ready to fully embrace the cloud. CIOs are only now getting serious and committing fully to migrating away from on-premise solutions – many of which represent several million dollars in capital investment and at times offer increased control and security. While it’s ill-advised to be early to a category in the consumer space, it’s certain death to be ahead of your time in the slow-moving and capital intensive enterprise market. Ellison has created billions in shareholder value by being late to markets and relying on its sheer scale to close the gap.

But while Oracle has taken longer than many would have expected to make the transition to the cloud, it’s on-premise contemporary SAP has failed to do so entirely, proving that it’s a metamorphosis far easier said than done. Ellison has appeared all too happy to let SAP thrash it out with failed acquisitions and underwhelming product launches – all while the market remained premature – before wading in himself to seize the still unclaimed ground. By this perspective, and given Oracle’s rapid ascent in the still early SaaS sector, it’s hard to fault Ellison’s patient, "show, don’t tell" strategy.

As one industry exec told me recently, “SAP said [at it’s recent Saphire conference,] ‘Our big mantra is simplicity.’ Well my big mantra is to dunk a basketball and have a full head of hair, but I can’t just wake up one day and make it so. You can’t just decide in 2014 that we’re gonna have simple cloud products.”

Ellison has a history of using his uber-alpha, billionaire status to talk down individual companies (and whole categories), and then subsequently moving in to acquire them at depressed prices (see Sun Microsystems) or throwing massive amounts of money at outcompeting them. In this context, his derisive mention of Rackspace should raise a few eyebrows and beg the question of whether the cloud hosting company is on its list of near-term marks.

This is just one of a number of targets that would make sense according to the numerous analysts Pando spoke with. Sure Oracle has seemed to emphasize organic growth of late and may not be buying companies at the mid-2000s rate of several dozen deals per year, but it’s not like the company’s corp. dev. team has been sitting on its thumbs. In the last week, Oracle has acquired legacy hospitality and (decidedly non-cloud) retail applications purveyor Micros Systems for $5.3 billion and visual collaboration platform LiveLook for an undisclosed sum, marking its fifth and sixth deals respectively this year (following eight deals in 2013).

Of course, Ellison personally owns 60 percent of Netsuite, leading many in the industry to believe that he’s just biding his time until the company’s products mature fully before absorbing that into the Oracle borg. (Obvious conflict of interest concerns would be muted, in part, by the fact that Ellison also owns 25 percent of Oracle.) If nothing else, this controlling stake in the company should allow Ellison to keep the company out of competitors’ hands. He's also an early investor in Salesforce, proving that, at least personally, he was well aware of the cloud opportunity from its earliest days.

Other businesses that may be additive to Oracle’s cloud ambitions include Concur and Red Hat. Some have suggested that Box – which has seen its IPO hopes erode in the face of difficult market conditions and a sub-par response to its S-1 filing – may be a target, but collaboration and storage doesn’t seem mission critical to Oracle. And, while Ellison would likely be interested in buying Workday – though not at a premium to its now $16 billion market cap – it’s unlikely that co-founder and CEO Aneel Bhusri, a former Oracler via his SVP role at PeopleSoft, would take kindly to such a deal, let alone Wall Street.

So a full decade after the cloud revolution, it's less that Oracle has finally asserted itself as a force to be reckoned with, and more that Ellison been a quiet force since the beginning. With a $182 billion market cap and a CEO that’s the number three richest man in the world – not to mention the inspiration for a Hollywood superhero – it’s not important that you’re first to a hot new category. What’s important, is that when the dust settles, you’re the last one standing. Look for Ellison and Oracle to cast a long shadow on the cloud sector for years to come.

[*Disclosure: Netsuite’s Zach Nelson is an investor in Pando. Feature illustration by Brad Jonas for Pando]