Does The Oracle And TikTok Deal Have Your Attention? Mine Too. Here’s Why
29th Sep 2020
If TikTok has you paying attention to Oracle—and you or someone you know is paying for Oracle software—then keep reading
I hinted in a recent post on acquiring TikTok that Oracle is in no hurry to seriously compete in the general-purpose cloud computing market. How is that possible?!
First, two key reminders
Oracle remains the second largest enterprise software company on the planet. It is dwarfed by Microsoft, but $10B ahead of SAP as of 2019.
Oracle’s long-standing dominance is the result of its ability to lock customers into paying high-profit annual support, especially on unused or poorly discounted software.
These facts are remarkable considering Oracle’s revenue has been stagnating since about 2011, after a decade-long acquisition spree, ending with Sun Microsystems. Meanwhile, AWS, Microsoft, and Google seem to be running away with cloud technology. AWS, specifically, has seen exponential growth making Larry Ellison’s competitive barbs seem absurd. Not so fast.
No one is accurately reporting on Oracle and the cloud technology market it is criticized for lagging behind in.
Creating commodities has never been Oracle’s goal. Jeff Bezos, on the other hand, has mastered it. A recent Motley Fool article described Amazon’s shift for its servers from three-year financial depreciation to four. Of course, Amazon claims its servers are lasting longer than expected. This is a bit misleading since servers can last two to three times their depreciation schedule.
No, Amazon knows its top-line growth will eventually slow and operational improvements will become the requirement to compete. This is an inevitable race to the bottom among cloud computing providers. This dynamic is an irrefutable fact among most industries, ever.
Don’t get me wrong: AWS’s growth is staggering, but it’s not producing sustainable cash the same way Oracle’s legacy software support has been for decades.
The $20B of annual revenue from database and other product categories similarly printing money (e.g., E-Business Suite, PeopleSoft, WebLogic, Argus, etc.) results in over $18B of secure, long-standing profit to Oracle.
Meanwhile, the cloud market, in general, is commoditizing compute and this means software installations may be migrated from AWS to Azure to GCP and back, depending on fractions of a penny in savings.
Oracle has successfully de-commoditized the use of its software since the inception of its active-active clustering solution (aka, RAC) over 20 years ago. Moreover, spending less on Oracle is nearly impossible for both technical and policy-driven reasons. In other words, you can’t check out or leave from Hotel Oracle!
Oracle knows better than to invest in its cloud as a commodity service, quite the opposite
Oracle Cloud Infrastructure (OCI)—both IaaS and PaaS—comes at a premium compared to other clouds because the infrastructure is an extension of the aforementioned and over-engineered RAC technology, combined with other premium database features. Initial reports are that Oracle’s partnership with VMware results in premium pricing as well.
The bottom line in this: if you run Oracle database software, then you will eventually be running it in Oracle’s cloud. Unless you work with someone like Remend, you can take whatever you spend today with Oracle and count on spending three to five times that in the future. From Oracle’s corporate perspective, its position among Azure, AWS, and Google is a feature, not a bug!
As for TikTok, my assumption is that Oracle only cares about it as an investment like flipping a house. But in this case, Oracle will preserve (i.e., continue to profit from) US-based hosting operations during the eventual divestiture.