Why the Cloud Is Dominating Oracle’s Fiscal 3Q17 Earnings

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Part 4
Why the Cloud Is Dominating Oracle’s Fiscal 3Q17 Earnings PART 4 OF 18

Why IaaS Could Be a Key Theme of Oracle’s Cloud Strategy

IaaS is a key highlight of Oracle’s cloud strategy

Earlier in this series, we looked at Oracle’s (ORCL) SaaS1 and PaaS2 revenue growth and their increased contribution in better-than-expected fiscal 3Q17 earnings.

With respect to the growing contribution of IaaS3 to the company’s revenues, Larry Ellison, Oracle’s co-founder and chief technology officer, said, “Both our SaaS and PaaS business are doing great, I’m even more excited about our second generation IaaS business.”

Not one to shy away from publicly naming Oracle’s competitors, Ellison added, “Our new Gen2 IaaS is both faster and lower cost than Amazon Web Services.”

Why IaaS Could Be a Key Theme of Oracle’s Cloud Strategy

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Great expectations

Oracle has huge expectations from its IaaS offering, which is apparent from Ellison’s statement. Ellison noted that although SaaS and PaaS were instrumental in pushing its Cloud revenues to $1.2 billion, he believes that “soon infrastructure-as-a-service will be growing even faster and before long, infrastructure-as-a-service will become Oracle’s largest cloud business.”

Let’s look at Oracle’s increased push toward the cloud. Oracle is investing heavily in IaaS, as Amazon has tried to solve its customers’ vendor lock-in dilemma by launching Aurora. Oracle would be the hardest hit as it leads the database space. VMware (VMW), SAP (SAP), Microsoft (MSFT), and IBM (IBM) are other key vendors in the database space.

Aurora is a database migration tool that automates the migration of on-premises Oracle SQL or Microsoft server databases to Amazon Web Services. In 2016, Amazon launched its own managed version of PostgreSQL, which is an enterprise-oriented open-source database.

Oracle offered enhanced IaaS offering to keep tight hold on its customer base

Amazon and Microsoft are the top two leading players in the cloud space and as a result, customers seem to prefer them over Oracle for moving their workloads to former IaaS vendors. If Oracle doesn’t offer an improved IaaS, its PaaS and SaaS offerings could also suffer because companies often prefer to obtain all cloud services from one vendor. SaaS is believed to be the most highly deployed global service.

By focusing on IaaS, Oracle can attract its customers to its bundle of cloud offerings. Apart from offering stronger capabilities than its competitors, as the chart above shows, Oracle lowered the cost of its IaaS offerings to compete with its peers, especially Amazon. However, it is a debatable point as to how long these players can engage in price wars.

  1. software-as-a-service
  2. platform-as-a-service
  3. infrastructure-as-a-service

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