Bloomberg Businessweek - USA (2019-10-14)

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THE BOTTOM LINE Oracle’s shift away from infrastructure is significant.

Despite spending millions of dollars to capture more of that market, the

company hasn’t been able to dominate the rapidly growing technology.

staidoperationsacrosstherestofOracle,andwassep-

aratefromthecontrolofCEOsMarkHurdandSafra

Catz.Itsofficesdisplayedtheexcesstypicaloftech-

nologycompanies—decoratedwithfaketreesmeantto

resembletheforestsofthePacificNorthwest,Dr.Who-

styleBritishtelephonebooths,pooltables,anda giant

chessboardonthefloor.

But,afterfiveyears,Oracle’smanagementdecided

the infrastructure division was tooexpensive and

announcedcutbacks,firstin Marchandlaterin June,that

struckattheheartofJohnson’sunit,accordingtopeople

withknowledge of the matter. All told, about 2,000 posi-

tions were eliminated. Not everybody was fired; some

employees moved into jobs elsewhere at Oracle.

The company’s cloud ambitions are now much smaller.

In June, Oracle announced a partnership with longtime

rival Microsoft to connect the two companies’ cloud net-

works, offering customers a way to link different business

services. Oracle knew it could no longer go it alone, say

analysts who observed the move. It’s begun more partner-

ships with other cloud vendors. At this year’s OpenWorld

event in September, the company unveiled cooperation

agreements with software makers VMware Inc. and Box

Inc. to connect their applications to Oracle’s cloud.

Hurd laid out a goal earlier this year for the company

to become the world’s No. 1 cloud applications company,

eyeing 50% of that market. Ellison says that doing well

in the database market and with financial applications

is enough for him. In a September call with analysts, he

said, “If we’re successful in those two markets, it should

be enough to make a living.” ——Nico Grant

computingandstoragemarketthatresearchfirm

GartnerInc.classifiesOracleasa “nicheplayer.”Oracle

willnowgiveawaya versionofitscloudinfrastructure

servicestosoftwaredevelopers,students,andothersto

encouragethemtouseit. Thecompanydeclinedtocom-

mentontheclouddivision’sperformance.

Oraclecommandsa strongerpositioninitsother

twotechnologies,especiallyplatformservices,which

includedatabasesandtoolsthatorganizationsuseto

buildapplications.It’salsoa leaderincloudsoftware

thatcompaniesusetomanagesuchtasksasmarketing

andhumanresources.

Theshiftawayfrominfrastructureis significantfor

a companythatthoughtit wouldusethepowerofits

brandtodominatea rapidlygrowingtechnology.It’sa

prudentmove,expertssay.Oraclecanmorereadily

boostprofitsfromapplications,especiallyitsaccounting

anddatabasesoftware,saysOsamaElkady,chiefexec-

utiveofficerofsoftwaremakerIncortaInc.anda former

Oracleexecutive.Andthecloudapplicationsbusiness

is morethantwicethesizeoftheinfrastructuremarket,

$80billionvs.$30.5billion.

InaninterviewwithBloombergNewslastyear,Don

Johnson,whohasday-to-day responsibilityforthe

Seattle-basedOracleCloudInfrastructureunit,said

beatingAWSisn’tthepointofitsinfrastructureefforts.

Thestoragetechnologywillcontinuetounderpinallof

Oracle’scurrentandfuturesoftware;andcustomerscan

haveaccesstoit overtheinternetwitha subscription,

ratherthanpaybigsumsupfronttoownOraclesoftware.

“Firstandforemost,we’rereallythefoundationonwhich

alltheotherstuffinOraclesits,”hesaid.

Johnsonsaidthatbytheendofnextyear,it willhave

moreglobaldatacenterhubsthanAmazon.Someofthe

existinghubsarerentedfacilitieswithinlargerserver

farmsownedbyotherbusinesses,Oracleexecutives

havesaid.Thecompanyrecentlyannouncedthatit would

hire2,000workerstosupporttheexpansion.Still,the

company’scapitalexpenditures—morethan$2billionin

thecurrentfiscalye arendingin May2020—aredwarfed

bythespendingofAmazon,Microsoft,andGoogle.

Johnson,whowashiredfromAmazonin 2014,fliesto

Oracle’sRedwoodCity,Calif.,headquarterseveryweek

formarathonmeetingswithhisbosses,includingEllison.

Heoverseesa partofthebusinessthatatonepointnum-

beredmorethan6,000people.SoonafterJohnson’s

arrival,thecompanyembarkedonaninfrastructurehir-

ingspree,luringengineerswithbigpaychecks.Midlevel

productmanagerswerebeingoffered$750,000a year;

engineerswithvicepresidenttitleswerepaidmorethan

$5million, according to people familiar with the matter who

asked not to be identified discussing internal business.

The cloud infrastructure unit was the envy of the com-

pany. It had almost limitless resources, in contrast to the

◼ SOLUTIONS Bloomberg Businessweek October 14, 2019

2018 revenue

Amazon Microsoft

IBM

2017-2018

growth

75%

50

25

0

DATA:GARTNER

Dominating theMarket

The top five infrastructure-as-serviceprovidersaccount for

almost 77% of the $32.4billion global market

$15.5b 5.0 2.5 1.3

AlibabaGoogle

577m