Oracle will be weak in cloud computing era

Oracle has been indifferent to cloud computing, and the industry's gossip seems irrelevant. Big companies still buy big-name software systems. But this winter, things changed.

Oracle has been indifferent to cloud computing for years. Ellison (Larry Ellison) first expressed disdain and then started peddling-at least his version of cloud computing. But Oracle's growth has been good, and the industry's gossip seems irrelevant. Big companies still buy big-name software systems.

But this winter, things changed.

Oracle's software-licensed sales revenue barely floated 2% in December, blamed on client budget cuts and worries over the European debt crisis. Sales in Europe, Africa and the Middle East account for One-third of Oracle's revenues. Shares plunged 8% per cent, but perhaps more to the point, Oracle shares have fallen by 22% since reaching their highs in May 2011. The signals from investors seem to suggest that Oracle's recent woes do not seem to stem from the mere meanness of consumers. Is it because the big, bulky IT organizations are changing their purchasing habits?

Patrick Walravens, a veteran software industry analyst at JMP Securities (JMP Nomura), believes it. He has just downgraded Oracle's rating to "market performance" and pro customers to cloud computing is the main reason.

Even the largest companies are willing to buy cloud services from Salesforce.com (which is expected), as well as from suppliers such as private holding and upcoming workway, according to Vallafins's survey. Vallafins recently found that Salesforce won a deal involving 40,000 seats from Oracle. He believes it is not the largest. Salesforce will issue a profit report in Thursday. As long as it is possible, CEO Benioff (Marc Benioff) will doubtless mention these successes. Workday also got a few 50,000 seats and more big deals.

These two companies are much smaller than Oracle, but pose a bigger and longer-term threat to Oracle. Salesforce's goal is to become a technology platform for selling all kinds of commercial software. Sales of Workday's staff management software have grown rapidly, but they have also targeted the financial sector.

At the same time, in Vallafins's view, Oracle's efforts in cloud computing are simply mess. The company does buy two large web software companies: RightNow Marvell and Taleo. But the effect will take some time to appear. In fact, Oracle now has some "public" clouds. In its vast array of software products, there are nine of this kind of products. In March, Oracle will hold several announcements to advertise. But these technologies and "real-time" requirements are far from good. Vallafins tried to log in to one of the public clouds, but got the following hint: "When you submit this form, your information will be added to the queue to access the restricted services." We will be configuring Java and database services in batches over the next few months. Our Fusion Application service will be available in the near future. When your account is ready, you will receive an email notification. ”

Mr. Ellison's vision for success through industry consolidation is in jeopardy. He has always thought of acquiring a large branch of the industry, increasing its efficiency, recommending to its clients other applications of Oracle and the hardware that runs them, and then gradually collecting maintenance costs. Oracle's technology may be outdated, but it is sticky. Customers cannot easily get rid of it, so they will continue to pay maintenance costs, maintain system operations, and purchase Oracle's corresponding hardware to make the operation smoother. This protects Oracle's lucrative cash inflows in the future.

But Vallafins's modeling shows the opposite result. He predicts that Oracle's software maintenance revenues rose to only 6% per cent year-on-year in the quarter up to May this year. Last year, the revenue jumped 15% from the same time before. This gap is staggering. Oracle's new software sales will also be limited, according to Vallafins's forecasts, and the hardware business will shrink as fewer customers are pulled from the software. His figures show that, looking at the overall picture, Oracle's revenue growth will be 4.2% per cent year-on-year in the 2012 fiscal year.

Of course, it's just a prediction, but with a little bit of accuracy, that means that the business model that Oracle has been thriving on is facing severe challenges. (Ding)

(Responsible editor: The good of the Legacy)