Oracle Faces Tough Competition in Move to Boost Cloud Business

By Jay Greene 

SAN FRANCISCO -- Oracle Corp. is brashly moving to provide computer power and storage for other companies, but it faces an uphill climb against the market pioneer and leader, Amazon.com Inc.

"Amazon's lead is over," Larry Ellison, Oracle's executive chairman and chief technology officer, said during a Sunday night keynote speech at the Oracle OpenWorld conference. "Amazon is going to have serious competition going forward."

Now, though, Oracle barely registers in the market, where Microsoft Corp.'s Azure and Alphabet Inc.'s Google Cloud Platform also compete and have a significant head start.

Oracle said last week that in the three months ended Aug. 31, it generated $171 million in revenue from what it calls cloud infrastructure as a service. In its most recent quarter, Amazon reported revenue of $2.9 billion for its comparable Amazon Web Services unit. Neither Microsoft nor Google break out revenue figures for the market.

Oracle "must somehow alter the perception in the market that it's not able to compete effectively at the same level and scale as Amazon, Microsoft and Google," International Data Corp. analyst Al Gillen said in an email.

To persuade customers to use its offerings, Oracle must do more than create solid technology to handle cloud-based computing and storage. It also needs to build massive data centers around the globe, table stakes to compete in the rapidly growing but intensely competitive market.

Oracle isn't starting from scratch. It operates several smaller data centers to handle many existing customers. The company has spent "many billions" of dollars building its 26 data centers, Thomas Kurian, president of product development, said in an interview.

"I think people discount how much we've already spent," Mr. Kurian said.

Mr. Kurian acknowledged that Oracle's data centers are smaller than those run by Amazon. He said that allows the company to reach more markets and expand as needed.

Oracle co-CEO Mark Hurd on Monday declined to disclose how many data centers Oracle plans to build or how much it intends to spend.

IDC's Mr. Gillen said it could cost Oracle "multiple tens of billions of dollars" to build a world-wide network of cloud data centers. In its most recent annual securities filing, Oracle reported capital expenditures of $1.2 billion in the year ended May 31.

"The company does not appear to have the sheer scale it needs to effectively compete with these other providers at the moment," Mr. Gillen said. Catching up will require "a massive acceleration and a massive investment," he added.

Even so, Mr. Ellison said Oracle is in a position to challenge Amazon. Oracle said its latest infrastructure offerings are 11.5 times faster and 20% cheaper than "the fastest solution offered by the competition."

"We now have a tech advantage over Amazon in infrastructure as a service, " Mr. Ellison said during his speech.

An Amazon spokeswoman declined to comment.

Oracle is trying to shift from selling software licenses, a lucrative business that is shrinking, to web-based, subscription services. Its cloud-based business applications, known as software as a service, are growing quickly, as are its web-based tools to program and manage apps and analyze data, called platform as a service.

But as more companies shift their operations to the cloud, the infrastructure-as-a-service market is crucial for Oracle. That is because companies often rethink the software they use when they shift operations to the cloud.

Those customers can run Oracle's applications on rival offerings, such as Amazon Web Services. But Mr. Ellison believes that the company can move many of those customers to its computers and storage.

IDC's Mr. Gillen said those customers will have "more affinity" to use Oracle's services.

At OpenWorld, Oracle trotted out infrastructure customers, such as ClubCorp Holdings Inc. and SEI Investments Co., which touted the savings and security of the company's technology.

Write to Jay Greene at [e-mail]

(END) Dow Jones Newswires

September 19, 2016 18:17 ET (22:17 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.