7 Jul

Oracle’s Falling New License Revenue Implies Open Source Success

WRITTEN BY Anne Shields

Oracle’s new software licenses failed to grow in 4Q15

Fiscal 4Q15 marked the eighth straight quarter that Oracle’s (ORCL) new software license revenue declined. Oracle announced its fiscal 4Q15 earnings on June 17. Oracle’s new licenses made up 22% of total revenue in fiscal 2015, compared with ~25% in fiscal 2014. This implies that Oracle is increasingly counting on revenue generated from support and maintenance from existing clients, and it is finding it difficult to attract new enterprise customers.

Oracle’s Falling New License Revenue Implies Open Source Success

The above chart indicates the contribution of new software licenses toward overall revenues, which steadily declines with each passing year. Oracle claims to be a leader in the relational database management system (or RDBMS).

However, as we saw previously in this series, licensing Oracle’s database costs thousands of dollars, depending on the choice of features a client makes. The industry shift toward subscription or cloud offerings, away from licensing products and services, had already increased price competition and subdued Oracle’s revenues.

SMAC

The SMAC uprising (social, mobile, analytics, and cloud) has forced Oracle to consider the transition toward the cloud. Recently, Oracle has repeatedly stated that its focus now lies on the cloud. However, the cloud’s contribution to overall revenues is still less than 10%. The cloud revolution has led to the increased adoption of open-source technologies such as the Apache Cassandra open-source database. The technology behind Cassandra was developed by Amazon (AMZN) and Google (GOOG), and Apple (AAPL) and Netflix (NFLX) use Cassandra.

According to DataStax, it offers an “enterprise-grade NoSQL database that seamlessly and securely integrates real-time data with Apache Cassandra.” Databases built on Apache Cassandra offer more flexibility than traditional databases. Data is replicated at other data centers, securing it and making it easily accessible even in the event of natural disasters.

In Oracle’s 1Q15 earnings review, we discussed Why DataStax’s increasing presence threatens Oracle’s database.

DataStax

In July 2013, DataStax announced that dozens of companies have migrated from Oracle databases to DataStax databases. Customers cited scalability, disaster avoidance, and cost savings as the reasons for shifting databases. The rising popularity of DataStax databases challenges Oracle’s dominant position in the database market.

If you are bullish about Oracle, you can invest in the PowerShares QQQ Trust ETF (QQQ). QQQ invests about 3.08% of its holdings in Oracle.

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