Brightwork Research Study: The 2019 Oracle Product Research

Executive Summary

  • Oracle proposes a state of Oracle’s database and position that is not in line with reality.
  • In this study, we analyze the main leverage points of Oracle’s database product and business model.

The Study

This is our study into the current state of Oracle.

Introduction

Oracle provides information this is far less questioned or critically analyzed than it should be in the IT media market. IT media entities and Oracle consulting companies normally repeat what Oracle says. Both of these entities are aligned with SAP with IT media seeing Oracle as a customer for paid placements and advertisements, and Oracle consulting firms looking to sell Oracle projects and forming common cause with Oracle.

For these reasons, IT media and Oracle consulting companies are poor sources of information on the reality of the Oracle products.

The Research Focus

 
Research Focus
Description
1Product FocusedMuch of the coverage on Oracle, including that of the financial press is written by people without Oracle product knowledge. We specialize in software product knowledge, and we have many years of SAP and Oracle product knowledge.
2The Research DesignWe created this research to provide insights to those that have an interest in Oracle but are not would like more information on Oracle from the product perspective to help augment their decision making process in either a buying, competing or investing perspective.

We will begin this research by describing Oracle’s overall design and then evaluating each of the main areas of Oracle.

Oracle: A Tale of Two Companies

Oracle can be decomposed into two of its most important businesses. These two businesses are highly intertwined, and they are completely different than the story proposed by Oracle about how the company works.

The best way to misunderstand Oracle as a company is to listen to what Oracle says about itself. Our information about Oracle does not come from Oracle executives but from analyzing Oracle’s products, and from discussing Oracle with people with first hand Oracle experience.

Oracle has often explained as a software company that is consistently a single company, but in fact, Oracle is two companies.

  1. Oracle as a Database Company: One is a database company where the majority of the databases it has sold are over the needs of the buyers (that is some of the database functionality of Oracle is necessary, but only for a minority of the licenses that are purchased).
  2. Oracle as an Application Company: The second is essentially a Computer Associates model for its applications.

Oracle’s model is based upon control which is enabled through a combination of Oracle’s well-respected database, along with an enormous number of acquired applications.

Oracle has more than 340 products which is the most of any software vendor. Much like other mega software vendors ranging from SAP to Salesforce to IBM, Oracle does not so much develop new products as it simply acquires them.

Why Isn’t Oracle A Story of Three Companies?

When Oracle acquired Sun Microsystems, they acquired Sun’s hardware business. This business had been in decline for years as commodity hardware had been putting pressure on Sun’s server business. Larry Ellison thought that the trick would be to combine Sun’s hardware with Oracle software into “appliances.” The premier example of this being Oracle Exadata, which is a server purpose-built to run the Oracle database. However, we don’t consider Oracle’s hardware division to be the third leg of Oracle, because Oracle’s hardware strategy has failed. Every year, Oracle’s hardware division declines and their hardware becomes increasingly niche, and this looks to only continue. Our view is that Oracle’s hardware division is a distraction for Oracle, and this is supported by the revenues of Oracle’s hardware division.

Category: Oracle

Load More

The dual nature of Oracle is expressed in how development occurs differently with its database from its applications.

  1. Oracle’s Database Development: Oracle is well known for the talent in its database development group. Oracle is constantly pushing innovation in its database and every new version tends to include capabilities that other databases do not have. As we will discuss, Oracle’s RDBMS database is running out of areas it can develop where it does not add unnecessary complexity to the database and compete with functionalities that are for instance better managed in other software categories, virtualization  (VMware) being a prominent example.
  2. Oracle’s Application Development: Unlike Oracle’s database, Oracle’s applications are entirely acquired. After an application is acquired by Oracle, there is a predictable loss of talent within the acquired vendors after they transition to becoming Oracle employees. This is particularly true among the most central employees to each of the vendors. This leakage of central employees is credited as a reason why Oracle’s applications do not tend to progress very much after they are acquired. This is sometimes referred to as the Computer Associates (CA) model.

In fact, outside of its database, Oracle has had demonstrated a great difficulty in developing either new applications or further significantly developing applications that it acquires. Large software vendors run into diseconomies of scale in managing large software portfolios. The advantage to size is found in the marketing and account control of these vendors.

Category: Oracle

Load More

In each case, Oracle combines account control with the strategy of pushing the broadest number of software products into their enormous customer base.

  1. Gaining Database Growth: When Oracle acquires an application, it begins to sell it into its account base, but more than this, Oracle requires an Oracle database license to be sold with the application. Customers can use a different database other than Oracle, but they still need to pay for the Oracle license. As a consequence, this naturally drives Oracle database sales. In effect, Oracle takes away the database choice from customers when they acquire an application.
  2. Comprehensive Software BOMs: By owning so many applications, Oracle can sell very large BOMs to companies, and this allows it to discount some products in the BOM when facing off against a point solution. Even when that point solution is preferred by the business, Oracle’s pricing flexibility can make the acquisition of a point solution look like an extravagance.

Oracle’s application acquisition strategy is designed to give it more account control over its customers and allows it to defend almost any software category against another vendor. This is a very effective short to medium term strategy but runs into complications due to the longer term limitations in forward development of the acquired Oracle applications.

Category: Oracle

Load More

 

Undeclared Realities Around the Oracle’s Database

The Oracle database is well known as the core of Oracle’s business and what has allowed Oracle the cash flow to both make their large number of acquisitions as well as provided them with their account control.

  1. Oracle quite frequently makes inaccurate assertions around the Oracle database to customers, IT analysts, IT media entities and to investors.
  2. We will fact check Oracle’s assertions and what it means for Oracle’s longer-term business model and for Oracle customers.

The Typical Oracle Database Version of Oracle Database in Use

This research document uses expansion sections extensively in order to control the size of the document and make navigation easier. When the eye is closed the section is compressed when selected the eye will open. Just select again to close the section.

The data for this chart was acquired from HG Insights.

This data was pulled from their website on June 1, 2019.

  • HG Insights, and firms like them, verifies the usage of applications and databases, but not all data is verified to the most recent month.
  • The verifications are performed in a cycle, and this is how these verification services work.
  • These services tend to overestimate the usage of databases and applications because they only seek to validate if the database or applications is in use. However, for our purposes of determining the percentage of each database type, we do not have to adjust the data.

By taking the counts for each Oracle database version, we were able to construct the following pie chart.

Overall, roughly an insignificant 6% of Oracle customers have migrated to the most recent version of the Oracle DB.

The question is why.

Our observation is that the Oracle database has become overly bloated in its most recent versions, and most companies do not need the extra functionality or the extra bloat and expense involved with Oracle 12c. For example, Oracle 12c adds a column store, which was put in place to combat SAP HANA, but which there is little use for in the database as we covered in the article How Accurate with Bloor Research on Oracle In Memory?

Category: Oracle

Load More

The evidence is that a minority of customers have shown any interest in migrating to Oracle 12c, even though it was released in 2013. It also means that each successive release of the Oracle database is less capable of migrating the customers on the previous versions to the latest versions of the database.

This puts Oracle in the position of discussing features of its database at conferences and in the IT media that their installed base largely does not see.

This has several important implications. They are as follows:

  • The usage of open source databases
  • The Oracle support question

We will cover each of these topics in detail further on in this research.

Category: Oracle

Load More

 

Oracle Versus Virtualization

Virtualization allows the software to be far more efficiently managed, and for hardware to be better utilization.

Virtualization is what has allowed the cloud service providers to rise to what they have become. Without virtualization, there is no modern-day AWS or Google Cloud. Virtualization can be run either in the cloud or on on-premises servers.

Activating Functionality in the Database Layer or the Virtualization Layer?

Oracle is very clearly stuffing their database with functionality that in the vast majority of cases do not belong in the database. Furthermore, they interfere with customers deploying virtualization technology, for the only reason that it cuts down on Oracle’s license revenues. Oracle only supports virtualization if it is performed with Oracle VM, which is not considered a minimally viable product when compared to a product like VMware or actually any of the competitive virtualization products.

The alternatives given to customers are to either follow Oracle’s advice or run an efficient server environment. Open source databases give none of these headaches with virtualization. They have nothing to say on the matter.

Oracle’s Virtualization Product

Oracle does not have effective virtualization technology. Oracle VM is very poorly thought of and very infrequently used, and Oracle has a conflict of interest in providing virtualization in any case as it allows companies to reduce the commercial database licenses required. Virtualization is a primary strategy deployed to reduce the number of CPUs necessary to run the same number of database licenses, and therefore as Oracle prices their databases per CPU, they have a built-in financial incentive to push CPU utilization down, not up.

In part because of this, most of what Oracle has done to their customers is provide inaccurate information about virtualization, even questioning the legal right of companies to perform software partitioning full stop (using a non-Oracle VM virtualization technology), when there is nothing in any of Oracle’s contracts that denies this right.

Category: Oracle

Load More

 

The Rise of Open Source Databases and What it Means for Oracle

  • The rapid development and improved distribution of open source databases is an important component to the Oracle story, and to Oracle’s future.
  • As open source databases increase in popularity and prominence, there is a corresponding decline in Oracle’s centrality as a software vendor.
  • One open source database, in particular, PostgreSQL is now known for being able to very effectively replace Oracle.
  • The success of open source databases is calling into question many of the things that Oracle declares about their database. For years Oracle proposed that open source databases were not enterprise ready. Now, with extremely large and high performing applications and data warehouses on open source databases, this contention is less frequently accepted.

When Oracle discusses their database, they nearly always discuss the most recent version. The standard Oracle sales tactic is to state that only the Oracle DB has (insert in the ____ ) functionality. This is often stated by Oracle about HA (High Availability) or RAC (Clustering), even though these functionalities are in most cases better and more efficiently deployed from the virtual machine instead of the database layer.

Declining Importance of Database Functionality from More Recent Versions of the Oracle Database

Other areas of functionality have a low overlap with the primary Oracle customer market.

Newer Oracle Database Functionality

 
Oracle Database Functionality
Description
1MultitenancyOracle 12c offers multitenancy (the ability to serve multiple customers from a single database instance) as a main new area of functionality. However, multitenancy is primarily used by SaaS vendors, that are less likely to be customers than companies that use the Oracle database internally.
2In Memory / Column StoreIn Memory / Column Store functionality was also added in Oracle 12c. However, there is little evidence that this was necessary, and it added expense and complexity to the database. In fact, this was most likely only done to combat SAP's HANA in memory database, which turned out to not be anything like what was advertised.

Diverging Views on the Part of Oracle Versus their Customers on How to Use the Oracle Database

Beyond these topics, the majority of customers do not agree with Oracle that they need the most up to date features that the more recent databases provide.

Oracle representatives state that they know their customers very well and that they have the best RDBMS in the world, and that they know how to develop their RDBMS to meet the needs of customers. Given the fact that the vast majority of Oracle DB customers are not running anywhere near the more recent versions of the Oracle database indicates one or several of these assertions are not true.

To determine the extent to which a high percentage of Oracle customers are using versions from years ago we have compiled the following table.

 
Database Version
Year of Introduction/Stable Release
1Oracle 192019 (not enough customers to track)
2Oracle 182018 (not enough customers to track)
3Oracle 12c2013
4Oracle 11g2007
5Oracle 10g2003
6Oracle9i2001
7Oracle 8i1998

What is the Proper Comparison of Open Source Databases to Oracle?

Open source databases are easy to upgrade and have no license or support liability. This means that when customers compare open source options, the comparison most of them would need to is to compare say the 2003 version of the Oracle DB (10g) to the 2019 version of PostgreSQL or MariaDB.

Why is this the proper comparison?

Because this is the version that the customers of the Oracle DB are most often using (i.e. not Oracle 12, Oracle 18 or Oracle 19). However, this framework is nearly never used when discussing the Oracle database. Invariably the discussion switches back to the most recent Oracle database version.

Secondly, Oracle’s newer or more advanced database functionality is increasingly in direct competition with virtualization technology (that is the server technology that made VMware well known).

Category: Oracle

Load More

Oracle has been losing some of the hosting of its database market to AWS. This hosting has moved primarily from on-premises to the AWS’s cloud. AWS offers several different services for hosting the Oracle database.

The Oracle Database on AWS RDS

One is RDS, which is a managed database service that allows multiple customers to be held in the same database while providing full security encryption. This is appealing for customers with less differentiated requirements and because of its inherent efficiency is low in cost.

The Oracle Database on AWS EC2

The second service is placing the database on EC2 or AWS’s compute cloud. This is for customers that desire more flexibility than RDS has to offer.

This video just provides background information on how AWS allows Oracle customers to move to managed databases. 

Oracle does not want customers to migrate their databases to AWS for the following reasons.

Problems for Oracle with AWS Migration

 
The Issue
Issue Description
1
Database Licensing Processors
AWS allows for more efficient management of processors, and Oracle's database is priced per processor. (this means a loss of database license revenues) 
2
Opening Up Open Source Alternatives
A migration to AWS, can mean another migration from Oracle to an open source database alternative. AWS RDS offers 3 different open source options (MariaDB, MySQL, and PostgreSQL) This can again mean the loss of database license revenue.
3
Loss of Power in the Account
Migration to AWS can mean the loss of those that administer the database (called database administrators or DBA's). Oracle relies upon the in house DBAs to continue to promote the superiority of the Oracle Database. 

Much to Oracle’s consternation, AWS has been quite successful in appealing to Oracle customers to migrated Oracle databases to AWS. And we believe they will continue to be successful as the value and reduction in Oracle cost is quite high.

This leads directly to a topic we will address in several sections, which is the Oracle Autonomous Database.

Category: Oracle

Load More

Activating Functionality in the Database Layer or the Virtualization Layer?

Oracle is very clearly stuffing their database with functionality that in the vast majority of cases do not belong in the database. Furthermore, they interfere with customers deploying virtualization technology, for the only reason that it cuts down on Oracle’s license revenues. Oracle only supports virtualization if it is performed with Oracle VM, which is not considered a minimally viable product when compared to a product like VMware or actually any of the competitive virtualization products.

The alternatives given to customers are to either follow Oracle’s advice or run an efficient server environment. Open source databases give none of these headaches with virtualization. They have nothing to say on the matter.

Oracle’s Virtualization Product

Oracle does not have effective virtualization technology. Oracle VM is very poorly thought of and very infrequently used, and Oracle has a conflict of interest in providing virtualization in any case as it allows companies to reduce the commercial database licenses required. Virtualization is a primary strategy deployed to reduce the number of CPUs necessary to run the same number of database licenses, and therefore as Oracle prices their databases per CPU, they have a built-in financial incentive to push CPU utilization down, not up.

In part because of this, most of what Oracle has done to their customers is provide inaccurate information about virtualization, even questioning the legal right of companies to perform software partitioning full stop (using a non-Oracle VM virtualization technology), when there is nothing in any of Oracle’s contracts that denies this right.

Category: Oracle

Load More

 

Oracle’s Autonomous Database

Oracle has proposed that it created a massively new innovative and disruptive adjustment to their database. This combines AI with the database so that the database runs itself or is “self-driving.” While many without Oracle product exposure appear to find the claims made by Oracle quite reasonable, the view by those with Oracle database product exposure, and with the freedom to speak their mind, is very different.

Larry Ellison has a low accuracy when he delivers statements. And in this video, he delivers some quite preposterous quotes in his explanation of the Oracle Automated Database.

Let us review some of Oracle’s claims.

AWS Costs More Than Oracle Cloud to Run the Oracle Database?

“On an Oracle database running at Amazon, will cost you 5 times what it costs you to run in the Oracle Cloud because it will take you 5 times the amount of computer to do the exact same thing. A Redshift database will cost 10 times more to do the same thing at Oracle Cloud.  And that is not counting the automation of the database function. That is not counting the downtime as Oracle Cloud has virtually no downtime.” 

Oracle which is known as being the most expensive database to maintain short of SAP HANA (HANA’s costs are also related to its immaturity and quality problems and therefore can be viewed as a bizarre outlier), the statement by Ellison around the amount of compute power presumes that Oracle has some advantage over AWS in compute power. Oracle has the Exadata appliance, but Exadata is far more expensive in computation than AWS servers. This is in addition to Oracle being far less sophisticated in their cloud capabilities than AWS.

Other points of contradiction versus Larry Ellison’s contentions.

  • AWS is considerably more advanced than Oracle in its cloud and can run many customers in a single RDS database.
  • On Ellison’s last point, Oracle Cloud has more downtime than AWS, not less. A major reason for this is that Oracle violates all of its SLAs as they are able to blame failures on the facility locations, that they do not own. AWS cannot do this as they own all of their core data centers and only have co-location facilities at the edge of their network, which are used for hybrid cloud. This information can come from many people reporting around Oracle Cloud from the field.

The Autonomous Database Automates Data Lake and Data Preparation?

“Examples of automation Oracle said it would offer are automated data lake and data prep pipeline creation for data integration; automated data discovery and preparation, with automated analysis for key findings; and automation of identification and remediation of security issues in a developer’s code during application development.”

These are all highly suspect claims as none of these items is known to be able to be automated.

At OpenWorld in 2017, Larry Ellison claimed

“The new database uses artificial intelligence (AI) and machine learning. It’s fully autonomous, and it’s way better than AWS’s database, Ellison said.”

Our Work in Database Research

We perform extensive database research, review database benchmarks, we were the first to report how HANA differed in reality from SAP conjecture, and are in frequent discussion with database experts from around the world and in different database disciplines. And the claims around the Autonomous Database simply do not make sense.

When Oracle first announced the Autonomous Database, the Wall Street analysts, by in large, proposed that Oracle had something new and exciting on their hands. They did not seem to consider the fact that it might not be real. In our view, the reason that the Autonomous Database can only be deployed from the Oracle Cloud, and not on premises, is that the Autonomous Database is actually a managed database service, and the “AI” is actually just Oracle engineers making the changes in the background.

The Autonomous Database as an Example of Oracle Reacting to AWS

The Autonomous Database concept is simply an attempt to staunch the loss of on-premises licenses to AWS (migrating the database to AWS can improve processor and thus license efficiency). It also allows customers to reduce their renewal of Oracle support as AWS providers a managed database service, which in effect, outside of upgrades, is better support than what Oracle provides, and it is included in the price of AWS RDS.

A common advertisement from Oracle against AWS. Larry Ellison has something negative (and false) to say just about every time he speaks. 

One wonders if this Google Trend comparison of Oracle versus AWS in website searches, representing the rise and decline of interest in each company is related to Larry Ellison’s commentary. 

  • Without the success AWS has had in migrating Oracle databases to the AWS cloud, the concept of the Autonomous Database is never introduced.
  • Over the long term, Oracle will lose increasing numbers of on-premises Oracle instances to AWS migration because the value is excellent.
Category: Oracle

Load More

In addition to countering AWS RDS, the Autonomous Database is designed to keep some distance between the Oracle database and the open source databases, that have for most of the common uses, have caught up to the Oracle database, and already exceed it in terms of usability, and have a far lower initial cost as well as TCO.

The Value of the Oracle Database Versus Alternatives

Oracle’s database value vis-a-vis open source alternatives continues to decline. In effect, the rise of highly competent open source databases is commoditizing the database area, and this is true both in the category that Oracle’s database competes within as well as other categories. Larry Ellison has made the statement that the Oracle database is growing in market share as is evidenced by the following quote.

Oracle is Gaining Market Share?

“We also saw very rapid growth in sales of those database options required to run our Autonomous Database. We continue to gain overall database market share as we migrate our database users to the cloud.”

The Oracle database is not gaining market share. It has been slowly losing market share for more than five years.

The following is from DB Engines, which tracks database usage. This graph makes Oracle’s decline look larger than it is, as the base of the graph is not set to zero. However, if we look at the high point of October 2013, (which is roughly 1.625k), and use the most recent value (of 1.3k) the Oracle database has lost roughly 17% of its popularity. 

However, while Oracle’s market share is slowly eroding, Oracle keeps a great deal of its installed base of databases for the following reasons.

Factors Working Against Oracle Losing its Database Market Share

 
Factor
Factor Description
1General Application CertificationApplications often certify just a limited number of commercial databases. Oracle is one of them. And normally commercial vendors only certify commercial databases.
2Oracle Oriented IT DepartmentsOracle IT departments often help keep Oracle solutions in place. This prevents movement away from Oracle even when it would lead to better outcomes if a change from Oracle was made.
3Control Over the Group PricingAny change which results in reduced income from Oracle is normally met by threats and revisiting the entire product or support bill of material.
4Misinformation and Legal PosturingOracle fights back against using virtualization, that allows fewer processors licenses to be used for databases by stating that using virtualization is a violation of the license agreement, when in fact it is not.
5Code Placed in the DatabaseOracle encouraged customers to place or push application code into the database. This is reduced the portability between databases of any application written on the database. Migration to a different (non-Oracle) database means removing the code from the database and placing it back in the application layer.

Our Recommendation to Oracle Customers

In addition to performing the type of research you are currently reading, we advise companies on how to get better value from their Oracle investment, and in most cases, we recommend reducing their reliance on Oracle and on using Oracle support. Once you look at the costs of Oracle, the results are obvious.

But Oracle’s database is often sticky, even in areas where it could be replaced quite easily but an open source alternative, if Oracle had not already been put into place.

The synopsis is that Oracle is keeping much of the database market share that it is, because of the lock-in of the database. But Oracle is not picking up many new customers for the Oracle database, and its market share is destined to erode over time. Oracle’s attempt to differentiate their database by adding further bells and whistles (Oracle’s long term strategy up to this point), will yield decreasing benefits in the future.

Category: Oracle

Load More

 

About Oracle’s Support

Oracle is posing as an innovative, “growth” cloud company when it is a mature and declining on-premises vendor that makes little innovative progress and is more reliant upon its legal muscle than its software.

Oracle’s margin is in its support. Oracle is happy to sell software at a cost in order to obtain a support contract which contains a 94% margin. As Oracle’s support prospects go, so goes Oracle’s company and stock prospects.

This research opened with the Oracle database because the Oracle database is central to everything else Oracle does. However, Oracle’s profits are in its support, which has historically been quite rare for Oracle customers to cancel if they continue to use Oracle software.

In fact, without Oracle’s support margins, Oracle, the Oracle financial model would fall apart.

This is explained in the following quotations from Seeking Alpha.

“Oracle derives 52% of its revenues from maintenance. Those revenues have operating margins of 94%. The cloud accounts for 8% of revenues and has gross margins (gross not operating) of 48%.

Indeed, the maintenance revenue that Oracle derives from its installed database software is by far the largest profit contributor to the company.

Investors may not realize the extent to which Oracle relies on maintenance revenues for both its top line and more important its very high level of operating margins. By one calculation, Oracle’s support operating margins constitute more than 100% of the company’s operating profit.”

Oracle’s financial health is currently centered around its ability to get its customers to hander over support renewals. This is why even the small bite taken by third-party support providers like Rimini Street is a cause for concern by Oracle.

Oracle has many similarities with the software vendor SAP, which also has a similar margin on its support.

How SAP and Oracle Use Support Margins

In both cases, the vendors only have a few good or differentiated products. For SAP this is the ERP system, and for Oracle, this is the database. For example, SAP has over 315 products, but outside of their large ERP system, there is no SAP product that can be said to actually be superior to other products. With Oracle, once outside of the Oracle database, there is no Oracle product that does not have a better competitor in that space, and in many cases, most of the competitors in the space are superior to the Oracle or SAP entry.

The limitation is that while SAP or Oracle will sometimes purchase leading applications, as time passes, those applications have fallen in relative capability as well as value as both SAP and Oracle increase the prices of those products they acquire. And neither vendor has shown the ability to improve their acquisitions. This is the strategy of non-innovative companies. It is why Oracle and SAP operate more as holding companies than technology companies.

  • The combination of high prices for the products of each company, along with the support overhead dramatically draw down the value of Oracle and SAP ownership.
  • Neither SAP nor Oracle competes on the basis of product competitiveness outside of their single products, instead, they use salesmanship and the established account relationship to push more and more products into their customers.

As we discuss other topics around Oracle’s support, there is this background from which the other items should be analyzed.

Category: Oracle

Load More

The support question regarding Oracle (that is should companies continue with Oracle support or look for other alternatives including taking support internal), and applies more to companies that use the Oracle database rather than the database along with the applications.

 
Database Version
Overpayment Multiples of Initial Net License Charge
% of Oracle DB Customers
2Oracle 12c
N/A
3Oracle 11g
2.75
31%
4Oracle 10g
3.75
29%
5Oracle9i
4.25
21%
6Oracle 8i
4.75
13%

The Multiple of the Initial License Price Paid

This table shows the multiple of the initial license price that has been estimated to be paid by customers since the software was purchased, and what percentage of the customers (roughly speaking) have paid this support money to Oracle over the years. For Oracle 10g, a typical customer would have paid 3.75 times the license cost in support if they purchased the database version around the release of the software in 2003.

There are two factors which would reduce this multiple, and this is the deployment of 3rd party support and the second being companies that bring Oracle support internal.

  • There is some leakage of support payment. “Leakage” is the loss of support revenues to Oracle through companies pulling support internal or using 3rd party support. However, even the largest 3rd party support company, Rimini Street, has revenues of less than $250 million per year. While Oracle support business is roughly $18 billion per year. Although it should be noted that as Rimini Street prices its support at either 1/2 or less than 1/2 of what Oracle charges, each dollar of Oracle support that goes to Rimini Street (or other 3rd party support providers) cuts Oracle’s support revenue by over 2x the revenue of the 3rd party provider. However, we estimate that while Rimini Street provides support for other vendors that at least 80% of its revenues are from Oracle support.
  • There are other 3rd party support companies of course, but all of them significantly smaller, it is difficult to see third-party support combined with bringing support internal reducing Oracle’s support revenue by even $1.75 billion per year.

Let us review a comparison table.

Estimated Leakage From Oracle Support

 
Support Revenue Consumer
Support Revenues
Percentage of Total
1Oracle Yearly Support Revenues
$18 Billion
91%
2Estimated Leakage to 3rd Party Support and Support Brought Internal
>$1.75 Billion
9%

If this estimate is roughly correct, then Oracle still has at least 91% of the overall support market for Oracle support. Oracle does little to improve its acquired applications, and Oracle customers are not purchasing the most recent versions of the Oracle database.

This means that every year that passes, Oracle Support becomes an increasingly wasteful proposition. (as evidenced by Oracle’s 94% support margin. That is support is being paid on items where the bulk of development is at least 10 years old.

Any software vendor would love to collect support revenues on stable old applications into perpetuity. However, customers are increasingly becoming conscious of this waste.

The graphic above is from Rimini Street, based upon a survey of Oracle customers. Rimini Street competes against Oracle, and they compete on cost as well as support quality. So one might say that Rimini Street has a bias in presenting a particular storyline. However, these results match up with our observations of Oracle customers. There is little doubt in our mind that costs are at the top of mind of Oracle customers. 

This is why AWS is so threatening to Oracle. AWS is in a sense providing better support than Oracle — for their database (that is not the Oracle applications).

Category: Oracle

Load More

  • There are a number of third-party support entities, but Rimini Street is the largest.
  • Oracle’s lawsuit has been suing Rimini Street since 2010.
  • At this point, the lawsuit on the factual arguments is over, and the judgments are now about who will pay whose legal fees.

The Intent of the Oracle Lawsuit

A primary intent of the lawsuits is to not only drain Rimini Street of its resources but to get Rimini Street declared as an illegal business model. This has caused Oracle to focus on proving that Rimini Street has been stealing Oracle’s intellectual property.

Oracle as a law firm? 

Oracle has a long term pattern of weaponizing the US legal system.

Oracle is so litigious that it will write legal letters to customers that declare an intent to drop Oracle support, even though the dropping of support is not a legal matter. These letters have no legal basis and are simply an attempt to scare the account into staying with Oracle support.

Because of Oracle’s long term legal posturing, Oracle’s legal statements are unreliable, that is they frequently make legal arguments that are not supported in law.

Oracle’s Public Posturing Against Rimini Street

Oracle publishes articles which misrepresent the conclusions of the courts on their unending litigation against Rimini Street.

If we take the first example, Oracle makes claims in their license agreements and makes statements to customers that are not supported by law. Oracle places things that it prefers to be true in its licensing agreements, but that does not make it necessarily legal. The Oracle database license contains a clause that prevents the publication of benchmarking results. However, there is no reason why this would be legal. There seems no logical support for why a third party cannot support the software of any vendor.

The upshot of the lawsuit(s) against Rimini Street is that Oracle has accomplished the following:

Oracle's Legal Accomplishments Against Rimini Street

 Oracle's AccomplishmentAccomplishment Description
1Rimini Street's Cost of Doing BusinessOracle has increased Rimini Street's cost of doing business.
2Rimini Street's AttentionOracle has diverted attention and effort from Rimini Street.
3Rimini Street's ReputationOracle has successfully muddied Rimini Street's name, making it sound as if Rimini Street has been involved in something nefarious rather than what it has actually done.
A "Cooling Effect" on Other third party support companies.Oracle has likely given other third-party support companies pause in offering Oracle support services. Interestingly third-party support companies ranging from Spinnaker Support to Support Revolution do not receive lawsuits from Oracle.

What Oracle Was Not Able to Do

However, what Oracle has not done, is undermine Rimini Street’s business model or make it declared illegal, which was Oracle’s long term objective. Rimini Street did make false statements about how it conducted practices, and they did have to pay out damages to Oracle. However, Oracle has tried to falsely commingle some of Rimini Street’s practices with the entirety of third party support being based upon an illegal model.

The Future of Oracle Third Party Support

And we predict that Rimini Street will enlarge their support business at Oracle’s expense and that more entrants will see the result of the Oracle v. Rimini Street lawsuit as a bellwether to offer support and offer it more publicly.

Furthermore, Rimini Street has done things to reduce their liability to future lawsuits. This is not to say that Oracle will not continue to bring lawsuits, but that it is increasingly unlikely that Oracle will have success in winning future damages against Rimini Street.

Category: Oracle

Load More

 

Oracle’s Cloud Issues

Oracle has reasonably successfully confused analysts on its actual progress on the Oracle Cloud. The reality of the Oracle Cloud has absolutely nothing to do with what is generally communicated by Oracle about the cloud. Furthermore, the Oracle Cloud is a serious soft spot of Oracle, and interacting with Oracle resources on the reality of the Oracle Cloud leads to be being shut out of further discussions.

The following is a very common type of quotes around the cloud from Oracle.

“Some of the biggest stars are Oracle’s Autonomous Database, its Fusion ERP and human capital management cloud applications, and its NetSuite cloud application suite. Shrinking businesses include some on-premise hardware products.

You have these very modern businesses…growing very rapidly, taking share, clear #1s in the overall marketplace,” Ellison said. “And you have these other businesses that are melting away, and we just don’t care.

For example, for its 2019 fiscal year ended May 31, Oracle’s Fusion ERP and HCM cloud applications revenues grew 32%, and its NetSuite revenue grew 32%.” – Forbes

Very little of this quotation is true.

We already addressed the Autonomous Database in the database section. Let us address the other areas discussed in the quote.

Is Netsuite Driving Oracle Growth?

Oracle has reported fast growth with NetSuite, and this may be true, but NetSuite is less than 1/40th of Oracle’s overall revenue, and it is a lower priced item and has a far lower margin than Oracle’s other products. That is, its growth is not particularly impactful on Oracle’s income statement. Vendors often tout their cloud business, but what is as frequently left out is that the cloud business tends to be low margin.

Is Fusion ERP and HCM Cloud Driving Oracle Growth?

The statement around Fusion ERP and HCM Cloud growth is quite false.

For years now Oracle has played an accounting trick by selling customers both the on-premises applications and then the duplicate cloud-based application. However while the customer implements the on-premises version, the sales rep is compensated on the basis of the cloud license, and the cloud license sale is reported to Wall Street as a cloud sale. This information comes from multiple Oracle sales rep and is a well known “secret” within the company. Because of this, it is highly unlikely and unknowable (from the outside) how much Fusion ERP or HCM Cloud grew. It cannot be discerned from reviewing Oracle’s financial statement. As has been the case since Oracle semi-duplicated its on-premises applications to SaaS version (the Fusion project), Oracle customers have not migrated to these SaaS versions. This is explained by a Rimini Street survey.

“This makes sense in light of the fact that migration to Oracle SaaS requires a full “rip and replace” for the modules impacted, essentially making it a reimplementation. In addition, Oracle has stated that its own Soar cloud migration ERP program does not apply to 93% of their installed base. Cost issues also factor into customer decisions, with 30% finding Oracle’s offering too expensive. Even Oracle CEO Mark Hurd has stated in investor calls that customers who move to Oracle’s SaaS will typically pay three times more than they pay before doing so. “

Oracle as On Premises First

Oracle continues to be predominantly an on-premises software vendor. The vast majority of its database and application business continues to be delivered on premises. Oracle is posing as a cloud company because this is the storyline that Wall Street has told Oracle they want to hear, allowing them to obtain the maximum valuation.

Although we are straightforward in observing that Oracle is misleading Wall Street, this section was not written to critique Oracle or to say that because Oracle is predominantly not cloud that this reduces their prospects. The most profitable software vendors continue to be on premises, not cloud vendors.

Fake It Until You Make It (to the Cloud)?

Oracle is not a cloud vendor, and it does not have a pathway to becoming a cloud vendor. Oracle is a cloud vendor to Wall Street and on-premises vendor to its customers.

Category: Oracle

Load More

Oracle is continually trying to connect up items that are not related to the cloud to the cloud. The following are prominent examples of Oracle’s messaging.

Oracle's Cloud Information

 
Information Communicated by Oracle
Description
1Oracle is Driven by Cloud Revenues?Oracle tries to connect its revenues to the cloud, which are not related to the cloud.
2Oracle's Applications are Increasingly Delivered by the CloudOracle has been pitching the migration from on premises applications to cloud for over a decade and still, very few of the Fusion based applications are in use.
3Oracle's Autonomous Database is Inherently Related to the Cloud?Oracle tries to connect the Autonomous Database to the cloud, which while necessary to be from the cloud, (because it is not actually autonomous), but it is not actually otherwise related to the cloud. 

Oracle figured out what Wall Street wanted to hear, and manufactured that story. Oracle’s strategy has been to do as little internal adjustment as possible while posing as cloud to the outside world. The following comment is consistent with the position that Oracle takes.

Oracle Cloud is Growing?

“Catz then brought up the company’s recent cloud partnership with Microsoft—a blockbuster agreement that I analyzed recently in Microsoft-Oracle Shocker: Customers Win as #1 and #6 Vendors Pair Up—and predicted it would become another growth engine for not only the new self-driving database but also the Oracle Cloud overall.

“In addition, the recent interconnect agreement with Microsoft will only help accelerate the transition from on premise database to the Autonomous Database service,” Catz said.”

The Oracle Cloud is not growing in usage. In fact, its usage is so low that it is normally not measured by those entities that measure usage. This is because it is below 1% of the overall market for cloud services. The numbers some IT media entities report that is higher than this are self-reported by Oracle. This seems to have no bearing on the reporting of the overall cloud services market.

Oracle has been making claims around the growth of Oracle Cloud for years now. If the growth story is occurring, why has the Oracle Cloud not passed 1% of the total cloud services market? Continual rapid growth, without being, is not a logical possibility. Over the past 10 years, if you had cancer in your body that was growing at the rate of the Oracle Cloud, you would be fine. 

Secondly, if Oracle Cloud is growing, why is Oracle partnering with Microsoft and their Azure cloud service offering? The reason is that Oracle is not investing much in its cloud data centers. Oracle prefers to redirect funds that could go to data center investment to stock buybacks. Oracle’s investment in its cloud data centers has been extremely small. Investment in infrastructure has too long of payback horizon for Oracle.

Oracle’s Cloud Pitch Versus Customer Buy-In

Rimini Street observes the following around what Oracle tells customers versus the plans customers have to move to the Oracle Cloud.

“The main strategy presented by Oracle today is to move to the Oracle Cloud, particularly Oracle Cloud SaaS applications. The vendor claims it will reduce costs and simplify ongoing maintenance and support. However, the majority of respondents plan have not or do not plan to migrate to Oracle Cloud SaaS applications (see chart in Takeaway #4), but 26% of respondents have already chosen to lift and shift their Oracle applications to a cloud-hosted environment.”

The graphic above is from Rimini Street. It shows exactly what we see on Oracle accounts, a very different story than presented by Oracle on customer plans to move to Oracle Cloud. 

Category: Oracle

Load More

 

The Issues With Oracle’s “Stuffed Accounts”

Oracle’s growth outside of acquisitions has been tepid for several years.

A limiting factor on future Oracle growth is the Oracle software position of customers after years of some of the most aggressive sales quotas set in the enterprise software space and the implication on the applications and databases that are already sold into the Oracle account base. The following table is just a few examples of techniques used by Oracle to meet previous quarters.

Previous Oracle Sales Tactics

 
Oracle Sales Tactic
Description
1Aggressive AuditsOf all of the software vendors we track, Oracle brings the most aggressive audits against its customers. Most Oracle customers will be audited at least once and often twice in a five year period.
2Breach of NoticeThis gives the customer a legal letter which stipulates they either stop using Oracle software in 30 days or come to the table to negotiate more purchases. A breach of notice means that Oracle will be negotiating with this customer particularly aggressively.
3Forced PurchasesThrough various pressure tactics (including audits and breach of notices) Oracle frequently forces customers into purchasing items that both Oracle and the customer know that the customer will not use. These items are normally cloud related and are driven by Oracle's need to show cloud "growth" to Wall Street.

Unreturned Calls from Oracle Sales Reps?

This has caused many contacts within Oracle customers to “hide” from Oracle account reps. This has led some Oracle sales reps to declare to customers that they have been found to have been possibly in “non-compliance,” flagged for an audit, even when the customer has not, in order to get their customers to respond to them.

Symptoms of Oracle Being Oversold Into Accounts

 
Symptom
Description
1Information from Oracle SalesReports from many Oracle sales reps is that their accounts are oversold.
2Sales GoalsOracle sales leadership is pushing Oracle Cloud, Oracle cloud versions of on-premises applications. 
3Dealing With Previous Oracle InvestmentsLong term Oracle customers are still confused about unlocking existing Oracle investments.
4The Growing Separation Between Oracle and their CustomersOracle's sales goals and their customers are far apart. 

Oracle Reps Pitching the Comprehensive Cloud Stack Story

Oracle sales reps have to approach these frustrated customers with so-called comprehensive cloud stack story. Oracle offers every cloud need that a customer would ever have. This is not considered a sellable story (see our section on Oracle Cloud).

We have tested Oracle Cloud and would never use Oracle Cloud nor recommend Oracle Cloud regardless of the free trials Oracle offers or the cloud credits that Oracle offers.

The Future Sales Opportunities at Oracle Accounts

Overall, Oracle sales reps face an uphill battle in meeting their sales quotas, which explains the aggressive behind the scenes pressure tactics to make targets.

  • This places a strong limiting cap on Oracles growth potential, particularly considering that Oracle, once the marketing hyperbole is stripped away, Oracle not offering very much new to its customer base.
  • In this way, it faces similar sales limitations to SAP. That is, these are two vendors that have already “stuffed” their accounts, and that has already sold into most of the accounts that they are able to sell into. However, this is not the story Oracle is obviously telling the outside world. Oracle is pitching itself as a future growth story. A company with a better cloud than AWS. A company with a database that is gaining, not losing market share.
Category: Oracle

Load More

 

Conclusion

Oracle’s public presentation bears little correspondence to how Oracle functions in reality. Oracle has taken to promoting itself entirely based upon what the investment community wants to hear.

Oracle Synopsis

 
Oracle Postion
Description
1Pressure on Oracle's MarginMost of Oracle's margin is in its support which will increasingly see pressure as Oracle's database is increasingly understood as less differentiated. Oracle has reached the end of its ability to differentiate its database by adding more functionality or further growing the scope of the Oracle database. The fact that such a small percentage of Oracle customers are on recent versions of the Oracle database is clear evidence that Oracle customers do not see the new functionality of the Oracle database as worth either the expense or the extra software bloat.
2Oracle Database Marketshare ErosionOpen source databases and less expensive commercial databases like Microsoft SQL Server will continue to reduce the market share of the Oracle database.
3Oracle and Database HostingOracle will continue to lose on-premises database hosting to AWS.

When this occurs, the account control at the migrating customer declines, and there is the likelihood of Oracle resources being shed from the customers. The Oracle resources are the main "lobby group" within companies to continue to invest in Oracle.
4Oracle SupportWe are not the first to refer to Oracle's support revenue as the Golden Goose. Oracle has optimized its support not to support customers but to attain an extremely high margin. Oracle will continue to lose support revenue to third-party support providers at an increasing rate. Oracle's lawsuits against third-party support providers like Rimini Street have essentially failed, and Oracle is vulnerable to losing more support business in the future and its margin.
5The Reality Around the Oracle CloudOracle will move to copy SAP's strategy of not investing in cloud but using its account control to markup the cloud services of other cloud service providers. This is what the Oracle/Microsoft Azure partnership is about. However, given the fact that a public cloud is price published and therefore transparent, it is unlikely that Oracle will be allowed to continually markup Azure to customers.

Oracle makes many aggressive proposals around its growth story. However, none of these stories are legitimate. On the contrary, Oracle is more likely to see its revenues decline (in lieu of more acquisitions, and therefore more financial leverage).

The Problem with Oracle’s Broader Value Proposition

This is another graphic from Rimini Street’s poll of customers. 

Oracle’s substantial lock-in is preventing their revenues from eroding more than they ordinarily would. For example, I was recently advising a company that spent $4 million per year on support but was scared away from using a third party support alternative, even though they barely used Oracle support because they had roughly 10% of their Oracle databases that that to be supported by Oracle. This meant the other 90% of their databases could not be removed from Oracle support (in the client’s mind). They did not like the value they were getting support, and they did not like Oracle, but they renewed their support because they felt they had to. This scenario is repeated over and over with customers paying Oracle not because they want to, but because of the lock-in that Oracle has.

These lock in strategies are keeping Oracle’s revenues afloat. However, this is not a situation that can be considered a growth scenario.

References

https://seekingalpha.com/article/3965635-oracle-might-eating-porridge

https://www.crn.com/news/cloud/oracle-sales-stagnant-in-q3-but-fusion-and-netsuite-business-application-suites-booming

https://trends.google.com/trends/explore?date=all&geo=US&q=aws,oracle

https://www.forbes.com/sites/oracle/2019/06/24/larry-ellison-oracle-is-focused-on-our-star-products/

https://www.riministreet.com/Documents/Collateral/Rimini-Street-Research-Report-Enterprises-Rethinking-Oracle-Relationship-Cloud-Strategy.pdf

https://www.theregister.co.uk/2017/01/26/oracle_sues_employee_undo_arbitration_loss/

https://db-engines.com/en/ranking