Because Oracle is one of the most important players in enterprise software, I asked three top industry analysts to join me on Episode 261 of the CXOTalk series of conversations with innovators. Read on to learn how these analysts view Oracle, its position in the market, and its relationship to customers.
Oracle is a 40-year old company with almost $40 billion in annual revenue. Having survived and prospered over the course of this lengthy period, Oracle has certainly proven its ability to adapt and evolve. The company built its reputation as the world’s premier database, eventually becoming an enterprise applications powerhouse. Today, Oracle is undertaking one of the most important transitions in its history: moving its product lines to the cloud.
As part of an all-out push to the cloud, which has created rapid growth and high margins for that part of the business, Oracle is rewriting its software to be a complete suite of cloud-ready products. This includes enterprise applications such as ERP and CRM, infrastructure-as-a-service in direct competition with Amazon Web Services, and the new Oracle autonomous database.
Becoming more responsive to customer relationships is a key part of this move to the cloud, however, the company’s history has not been all sweetness and light.
Just as cloud computing really began to take off, in 2009, Oracle’s founder, Larry Ellison, famously dismissed the cloud as “water vapor” (despite his being an early investor in NetSuite). Oracle also became known for using attack dog-style tactics during customer audits. As a result, Oracle’s reputation suffered among some analysts and customers.
Today, two primary factors help explain the renewed focus on customers that seems to be part of Oracle’s cloud strategy.
First, the impact of Mark Hurd as CEO. Hurd is a sales guy, which means he really does care about meeting customer needs. Even back in 2014, during a video interview, I speculated that Mark Hurd might create a “warmer, friendlier, happier Oracle.”
Second, and even more important, the cloud-based subscription business model forces software vendors to create a culture oriented toward customer satisfaction. Unlike the on-premises software model, cloud customers usually pay for usage over time, making customer adoption and retention core imperatives for any cloud company. Successful cloud vendors monitor a variety of metrics to ensure customers are happy with the software and therefore use it to the fullest extent possible.
The great panel for this CXOTalk episode discusses all these issues and much more. The group consists of:
- Mike Fauscette, Chief Research Officer at G2 Crowd and previously Group Vice President at IDC
- Liz Herbert, VP and Principal Analyst Serving Application Development & Delivery Professionals, at Forrester Research
- Neil Ward-Dutton, co-founder and Research Director at MWD Associates, where he covers digital transformation, IT infrastructure, and related topics
You can watch our entire conversation in the video embedded above and see an edited summary below. You should also read the full transcript.
Where does Oracle fit in the technology industry today?
Mike Fauscette: The industry itself has changed quite a bit over the last 20 years. In the 2000s, when we started to see a lot of consolidation, Oracle was one of the companies that led that charge of bringing other application companies in and expanding their application portfolio so that it became quite broad. Then, at some point, they started on this transition path building out solutions that would work in the cloud, all the way from the infrastructure and up the stack, all the way to applications.
For the last several years, they have focused on changing the relationship, changing the way they do business, in this ongoing subscription-based business around almost all the product lines that they sell.
Certainly, they still have a lot of legacy customers who have older applications that are still on-premises still, but the bulk of what they’re selling new now is cloud-based, from the database up through the application layer. It was definitely a company in transition, and they are pretty far down the path now.
Liz Herbert: They’re one of the largest technology suppliers, which sometimes means they’re not the fastest. They don’t necessarily take risks the way that some smaller and more startup-type companies do. For example, it’s well known that Oracle was a bit late to the overall cloud competition that we see looming large in today’s applications market, as well as platforms and infrastructure.
That said, when they invest, they go big. Something notable about Oracle is that, where they jump into a new area of customer demand, they put a significant amount of investment behind it. In fact, there’s something very unique about the company, which we haven’t talked much about yet. Because Larry Ellison owns such a substantial part of the overall company, they’re able to take decisions in a way that many other public companies of their size would not be able to. That’s had a strong influence on where they invest.
Cloud is an area where, though they were a bit late; they’re making significant investments. You can see that in the way they treat their salespeople, in the evolution of roles like customer success, as well as, of course, in the products showing where those investments are heading.
Then, similarly, we all see another wave of technology looming. Digital technologies like artificial intelligence and machine learning, automation, and Internet of Things. Oracle has been investing in that wave. Again, they weren’t the first, but they’ve certainly got deep pockets, and we see them put a lot of muscle behind that now.
Neil Ward-Dutton: On the platform side, Oracle’s strategy is defensive, but that’s not necessarily bad nor is it surprising. Its position and its strategy are fundamentally about realizing that the center of gravity for new investments, in the near future, is going to be cloud.
It’s all about being there when customers want them to be there, to minimize opportunities for customers to go anywhere else; to make sure they always have something that they can offer customers.
[Although] a defensive strategy, it makes sense when you consider that Oracle has 400,000 or 500,000 customers. It can do very a healthy business by just making sure that it takes its customers on the journey to the cloud and provides the services they need as they take that journey.
Also, Oracle has, for a long time, been pitching to mainstream, slightly conservative buyers. When Oracle talks about 6 Journeys to the Cloud, it’s really saying, “No matter how fast or how slow you want to go, we’ll be there for you, and we’ll hold your hand.” It is a trust and a safety message.
How has Oracle’s reputation among customers evolved?
Liz Herbert: I noticed a big shift this year at the Oracle OpenWorld event, putting that customer success story front and center, which is notable.
The shift to cloud means strategic partnering because, when you buy cloud, you’re not really buying features and functions. You’re buying a long-term partnership, in which you trust the vendor to invest in the features and functions you’re going to need in two years, three years, or four years. That’s a big shift from [on-premises software], when you would buy a large packaged software and use it for the next number of years, maybe doing upgrades here and there.
They’ve done a good job starting to change from a culture that made a lot of money selling software packages, that may cost tens of millions of dollars, to subscription-based or pay-as-you-go pricing, depending on what product you’re talking about. To do that, you need to renew deals, and you’re not going to do that if you’re not a [real] partner. That’s a market shift in their culture and in the types of roles that they’re prioritizing.
Neil Ward-Dutton: Oracle is changing its culture to focus on customer relationships and maintain those close relationships. Unless you have high renewal rates, you’re going to hurt yourself in the long-term.
We see a new wave of technologies enter people’s consciousness in leadership positions around AI, around robotics, around machine learning; all those things. Certainly, when you look at what it’s doing around chatbot-based channels, AI frameworks, machine learning, and even blockchain, it’s not just putting stickers on bits of paper. It’s pursuing these quite seriously and with quite a lot of thought. That’s an encouraging sign.
In the context of the platform business at OpenWorld, Oracle was not holding back. Oracle is pushing to go further than just good enough.I do think there’s a lot to be positive about.
Mike Fauscette: Technology in business [has become] much more of a competitive differentiator, a competitive advantage. Companies can leapfrog the competition by using technology and people in the right combinations.
We mentioned artificial intelligence, IoT, and blockchain. Those technologies are out there, and companies are starting to use them, but they don’t stand by themselves. They’re embedded in the digital infrastructure and platform and fiber of the company as it moves forward.
Having that [platform] is important. Customers may not use it yet, completely. They may not go there all the way yet, but they need to see that Oracle, Salesforce, or the others are a partner that is investing now and will continue to invest and evolve because technology and the use of that technology will evolve.
Digital business is a long journey, and businesses want a partner for that. I heard more this year than ever, from Oracle customers, that Oracle is stepping up to be that technology partner, as a part of the cultural and technical shift through which these customers are going.
Liz, say a few words about suite vs. best-of-breed software?
Liz Herbert: Oracle has made a significant investment towards cloud. Most of the core applications, like ERP, HCM, and CRM, supply chain, and other areas, they are now available in the cloud.
What’s notable about Oracle’s strategy as it relates to the applications moving to the cloud is they are a very comprehensive portfolio. While we might talk about giants in the cloud space, particularly pure plays, Oracle offers a very comprehensive suite available on the cloud.
A lot of the clients that I’m working with prefer fewer providers. Best-of-breed is certainly in fashion right now, but too much best-of-breed is a bad thing. There’s a cost of doing that regarding vendor management, overhead, and not getting great discounts because you’re buying small chunks of software from everybody.
CXOTalk brings together the most world’s top business and government leaders for in-depth conversations on digital disruption, AI, innovation, and related topics. Be sure to watch our many episodes! Disclosure: Oracle is consulting client.
(Cross-posted @ ZDNet | Beyond IT Failure Blog)