Despite Larry Ellison's hype, this Wall Street analyst believes Oracle will have a tough time growing unless it becomes more like Amazon
Business InsiderOracle co-founder, CTO and executive chairman Larry Ellison
- Oracle has grown little in the last five years, highlighted by its most recent quarter coming in flat.
- Now, analysts say that Oracle should take notes from Amazon Web Services and Microsoft Azure by giving customers more flexibility with how they use Oracle products in the cloud.
- Right now, it's difficult for Oracle customers to run an Oracle database on other companies' clouds - a problem because customers often prefer using cloud products from multiple vendors.
- There's hope in Oracle's enterprise resource planning business, which delivered a 32% revenue growth rate from the same period last year, but growth will be slow.
Oracle has grown only about 5% over the last five years, so there was little surprise when it reported a flat quarter earlier this week. Still, CTO and co-founder Larry Ellison made another shot at the market-leading Amazon Web services cloud, saying there's "no way" anyone would ever move from an Oracle database to Amazon.
Now, at least one Wall Street analyst says that Oracle's best shot at speeding up growth would be if it takes some cues from its cloud rivals at Amazon and Microsoft - specifically, that it should open up and be more flexible about supporting technologies from other companies.
"When we talk to customers and ask them why are you using Amazon Web Services instead of the Oracle cloud, they say it's because Amazon Web Services supports tools we use and they're not supported in the Oracle cloud, or the partners we work with are in the Amazon ecosystem and not in the Oracle cloud," Pat Walravens, director of technology research and senior analyst at JMP Securities, told Business Insider.
Right now, analysts say, the issue is that Oracle wants its customers to use Oracle as a solution to everything, whether it's Oracle's cloud, databases or applications. The problem is, customers don't want to just commit to one company. On the other hand, it's difficult for customers to run an Oracle database on other companies' clouds, Walravens says. Meanwhile, Amazon and Microsoft both make it easy - or at least, easier - to run software from other vendors.
"I think it's going to be tough for them to grow because they haven't quite figured out how to succeed in a cloud world," Walravens told Business Insider. "They have a pretty strong desire to get customers to use Oracle solutions for everything and the world has really moved to more of a heterogeneous approach."
Read more: Larry Ellison says there's 'no way' anyone would move from Oracle to an Amazon database
Oracle is also in the midst of bidding for a winner-take-all $10 billion cloud contract with the Department of Defense, which analysts say will likely go to Amazon Web Services. Oracle filed a protest in federal court on Dec. 6 saying that the contract should go to multiple companies, not just one. Walravens sees this as Oracle defending its federal business, as the CIA was actually Oracle's first-ever database customer.
"The federal government is a big and very important client of Oracle," Walravens said. "They don't like the Department of Defense awarding it to a rival cloud provider at all. To me this is a defensive move."
Not all hope is lost for Oracle though, and analysts say it's possible for the company to return to growth. For one, its enterprise resource planning businesses, Fusion ERP and NetSuite ERP, delivered 32% revenue growth rate from the same period last year. Still, ERP only represents a quarter of Oracle's overall cloud software business.
"In theory over time, that [32% statistic] will be a higher proportion and that should help on the growth but it will be slow progress," Raimo Lenschow, managing director at Barclays, told Business Insider. "Over time it should work. Over time it will improve, but it will be slow improvement."
As for Oracle's autonomous database, something that co-founder and CTO Larry Ellison has hyped up a lot over the last several months, it remains to be seen on whether it will drive growth. Oracle also announced its Generation 2 Cloud offering, which Lenschow says is much-hyped, but needs to prove itself out in the market.
"You don't want to bet against Larry Ellison," Walravens said. "It will be interesting to see what Oracle does with its strategy over the next few years. In particular, how their next generation cloud infrastructure does and whether they make a decision to open that up and to create more of an open ecosystem like you have at Amazon and Azure. That's the thing to watch."
Others are bullish, too. In a note to clients, Scott Kessler, director of equity research at CFRA Research, writes that "[Oracle] is still trying to catch up to cloud competitors, but we see opportunity and a compelling valuation."