How to Respond to Oracle's Argument on Whether Oracle Can Complete with AWS and Google Cloud With Far Fewer Data Centers?

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Executive Summary

Does Oracle make a curious argument that Oracle can compete with AWS and Google Cloud with far fewer data centers?
How valid is this argument against the cloud from Oracle?

Video Introduction: How to Respond to Oracle’s Argument on Whether Oracle Can Complete with AWS and Google Cloud With Far Fewer Data Centers?

Text Introduction (Skip if You Watched the Video)

Oracle has needed to cover up for the inconsistency of their statements around their dedication to the cloud versus their relatively small investment in data centers. For context, while the aggregate spending of AWS, Google Cloud, and Azure were $31 billion in 2016, Oracle’s was only $1.7 billion. Oracle has been paying IT media and using its enormous marketing spend to pretend that it offers a competitive cloud. You will learn about the reality of the Oracle Cloud from an objective source.

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Lack of Financial Bias Notice: The vast majority of content available on the Internet about Oracle is marketing fiddle-faddle published by Oracle, Oracle partners, or media entities paid by Oracle to run their marketing on the media website. Each one of these entities tries to hide its financial bias from readers. The article below is very different.

This is published by a research entity, not some dishonest entity that is part of the Oracle ecosystem.
Second, no one paid for this article to be written, and it is not pretending to inform you while being rigged to sell you software or consulting services. Unlike nearly every other article you will find from Google on this topic, it has had no input from any company's marketing or sales department. As you are reading this article, consider how rare this is. The vast majority of information on the Internet on Oracle is provided by Oracle, which is filled with false claims and sleazy consulting companies and SAP consultants who will tell any lie for personal benefit. Furthermore, Oracle pays off all IT analysts -- who have the same concern for accuracy as Oracle. Not one of these entities will disclose their pro-Oracle financial bias to their readers.

Mark Hurd Addresses the Issue

Mark Hurd, CEO of Oracle, addressed this issue in the following quotation.

“We try not to get into this capital expenditure discussion. It’s an interesting thesis that whoever has the most capex wins,” Hurd said in response to a question from Fortune at a Boston event on Tuesday. “If I have two-times faster computers, I don’t need as many data centers. If I can speed up the database, maybe I need one fourth as may data centers. I can go on and on about how tech drives this.

Oracle has said it runs its data centers on Oracle Exadata servers, which are turbocharged machines that differ fundamentally from the bare-bones servers that other public cloud providers deploy by the hundreds of thousands in what is called a scale-out model. The idea is that when a server or two among the thousands fail—as they will—the jobs get routed to still-working machines. It’s about designing applications that are easily redeployed.”

Mark Hurd on the Missing Oracle CAPEX

Mark Hurd is not interested in getting in any discussion where the facts are obviously against his position. And why are discussions around CAPEX, or Oracle’s measured investment off limits?

Is there some taboo about discussing questions of investment?

One has to wonder about the honesty of a person who when confronted with a very reasonable question which goes directly to the storyline being proposed by Oracle (that they are competing on their data center investments), states they are “not interested in getting in a discussion” around that topic.

The underinvestment on the part of Oracle contrasts with AWS, which places three locations or data centers into any region it enters. This is to allow for redundancy in the region. Using Exadata servers at one location does not resolve that issue. As per Oracle’s explanation of its cloud posted as of October 19, 2018, Oracle only has 4 regions worldwide. These are Phoenix, Ashburn, London, and Frankfurt. That small number of regions naturally increases the distance to consumers of the services and is far behind AWS and Google Cloud. That means more network latency, and it is not something that will be addressed by Mark Hurd’s statements about Exadata, even if it were true.

The truth is that Oracle isn’t investing much into the cloud. Oracle has leased data centers that rely on the Internet instead of dedicated fiber to communicate.

Oracle has followed monopolistic practices through continual acquisition. However, there is a problem with Oracle extending this strategy to the cloud.
The acquisition approach doesn’t work in the cloud. Thus, Oracle’s approach has been to play defense and delay cloud adoption in its install base as much as possible. This is for instance, by raising database license costs for running on AWS/Azure, pushing hard for on-premise deployments of its own hardware, limiting choice by refusing to license the database for Google and IBM.

Hiding Cloud Revenue

Hiding their cloud revenue in June of 2018 and changing how they reported cloud revenue was a striking indicator for a company that had to cover for previous cloud projections that have not come true. It also triggered many analysts to question what Oracle was hiding. Last year, Google, Microsoft, and Amazon each spent more than 10 billion dollars on data centers each. How did Oracle spend its money? On $12 billion buying back its own shares. A better translation for Mark Hurd’s comments is that he does not need as much investment into data centers when he can use that same money to buy back stock. Curiously, when discussing CAPEX, Mark Hurd left out how much stock Oracle repurchased that year. This highlights just one example of how Oracle is managed fits top executives’ short-term financial benefits. Much like SAP, Oracle prefers not to make investments that they need to make to match the claims made by their marketing department.

Furthermore, this statement was made by Mark Hurd in April of 2017. But notice Mark Hurd’s statement in February 2018?

“The Redwood City, Calif., company said in February it planned to quadruple the number of giant data-center complexes over the next two years, taking on the market’s biggest spenders: Amazon.com Inc., Microsoft Corp. and Alphabet Inc.’s Google.”

Switching Direction

Why would Oracle need to do this? Remember, according to Mark Hurd, Oracle’s faster servers and databases should allow it to compete with AWS, Google Cloud, and AWS with a far smaller investment. Wasn’t that the story in April of 2017? Alternatively, perhaps does using Exadata servers with the Oracle database not help overcome Oracle’s lack of cloud investment?

But even if Oracle’s investments were where they needed to be, there is no evidence that they would be able to do what AWS and Google Cloud can do with their investments. That is, every dollar that Oracle spends on cloud infrastructure would not be as effective as a dollar spend on AWS or Google Cloud infrastructure. Therefore, the argument is the exact opposite of the one proposed by Mark Hurd regarding comparative CAPEX. To match AWS or Google Cloud, Oracle would need to significantly exceed AWS or Google Cloud’s CAPEX.

This is explained in the following quotation.

“The exact number of servers in Google’s arsenal is “irrelevant,” Garfinkel says. “Anybody can buy a lot of servers. The real point is that they have developed software and management techniques for managing large numbers of commodity systems, as opposed to the fundamentally different route Microsoft and Yahoo went.

Of particular interest to CIOs is one widely cited estimate that Google enjoys a 3-to-1 price-performance advantage over its competitors—that is, that its competitors spend $3 for every $1 Google spends to deliver a comparable amount of computing power. This comes from a paper Google engineers published in 2003, comparing the cost of an eight-processor server with that of a rack of 176 two-processor servers that delivers 22 times more processor power and three times as much memory for a third of the cost.

But although Google executives often claim to enjoy a price-performance advantage over their competitors, the company doesn’t necessarily claim that it’s a 3-to-1 difference. The numbers in the 2003 paper were based on a hypothetical comparison, not actual benchmarks versus competitors, according to Google. Microsoft and Yahoo have also had a few years to react with their own cost-cutting moves.”

Scale Economies in the Cloud

AWS and Google Cloud can get scale economies with their investment that is difficult for other IT companies, even giants like SAP, Oracle, and Microsoft to match. That is scale economies running server farms specifically. Again, SAP and Oracle began their lives as vendors, selling software, not running software. This gives them a huge advantage over vendors like SAP and Oracle that are in business to sell software and outsource implementation to someone else.