The Software and Cloud segment is a key contributor to Oracle’s overall revenue

The Software and Cloud segment is an integral business to Oracle’s (ORCL) overall growth. Its contribution to the company’s overall revenues is steadily rising year-over-year, as the chart below shows. In fiscal 2014, the segment contributed 76% to the company’s overall revenues.

If Oracle continues to grow its Software and Cloud business, it will benefit ETFs such as the iShares North American Tech-Software ETF (IGV), iShares U.S. Technology ETF (IYW), and NASDAQ Technology Dividend Index Fund (TDIV). These funds have significant exposure to Oracle.

Why Software and Cloud is Oracle’s most important operating segment

Segments comprising Software and Cloud

The Software and Cloud segment consists of three operating segments:

  1. New software licenses and cloud software subscriptions
  2. Cloud IaaS
  3. Software license updates and product support

New software licenses and cloud software subscriptions contribute significantly to the segment

This segment licenses database, middleware, application software, and other software through Oracle Cloud Software-as-a-Service (or SaaS) and Oracle Cloud Platform-as-a-Service (or PaaS) offerings. Its software offerings operate on various operating systems, including Oracle Solaris, Oracle Linux, Microsoft Windows (MSFT), and third-party UNIX products.

The segment contributed 28% to the company’s total revenues in FY14. SaaS is a model where the customer agrees to use the software on an ongoing basis through a service-based approach. PaaS refers to a set of services that help developers to develop and test applications without worrying about the underlying infrastructure.

Cloud Infrastructure-as-a-Service (or IaaS)

This segment provides deployment for Oracle software, hardware, and related IT infrastructure. It provides on-demand server and storage space to businesses. Its contribution to Oracle’s total revenues is merely 1%. But, considering the rising adoption of subscription offerings coupled with Oracle’s efforts in the cloud space, this segment is expected to grow.

IaaS provides computing infrastructure, including servers, storage, network, and operating systems as an on-demand service.

Software license updates and product support

This segment provides product upgrades, maintenance releases, and technical support assistance to the customers who have bought Oracle software licenses. It contribution to total revenues has been steadily increasing. The segment contributed 47% to the company’s total revenues in fiscal 2014. It’s also Oracle’s highest-margin business.

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