Expanding Section: How Oracle Presents its Cloud Revenues

The following is a very common type of quotes around the cloud from Oracle. "Some of the biggest stars are <a href="https://www.oracle.com/database/autonomous-database.html?source=:ex:nc:::RC_WWMK180119P00044:AutonomousEarnings&SC=:ex:nc:::RC_WWMK180119P00044:AutonomousEarnings&pcode=WWMK180119P00044" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.oracle.com/database/autonomous-database.html?source=:ex:nc:::RC_WWMK180119P00044:AutonomousEarnings&SC=:ex:nc:::RC_WWMK180119P00044:AutonomousEarnings&pcode=WWMK180119P00044">Oracle’s Autonomous Database , its <a href="https://www.oracle.com/applications/erp/?source=:ex:nc:::RC_WWMK180119P00044:ERPEarnings&SC=:ex:nc:::RC_WWMK180119P00044:ERPEarnings&pcode=WWMK180119P00044" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.oracle.com/applications/erp/?source=:ex:nc:::RC_WWMK180119P00044:ERPEarnings&SC=:ex:nc:::RC_WWMK180119P00044:ERPEarnings&pcode=WWMK180119P00044">Fusion ERP and <a href="https://www.oracle.com/applications/human-capital-management/?source=:ex:nc:::RC_WWMK180119P00044:HCMEarnings&SC=:ex:nc:::RC_WWMK180119P00044:HCMEarnings&pcode=WWMK180119P00044" target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.oracle.com/applications/human-capital-management/?source=:ex:nc:::RC_WWMK180119P00044:HCMEarnings&SC=:ex:nc:::RC_WWMK180119P00044:HCMEarnings&pcode=WWMK180119P00044">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.

Expanding Section: Understanding Oracle's Support Based Model

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.

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SAP HANA & S4HANA Media and Analyst Coverage

IDC Takes Money to Publish SAP Provided Sample on S/4HANA
ByPrimary Researcher June 30, 2019May 4, 2021

… from on-premise to cloud as 72% of respondents are moving to the cloud; of this total, 36.3% are moving to SAP S/4HANA Cloud and 36% are moving to SAP partner cloud providers. As part of the move to SAP S/4HANA, 43% of customers are consolidating several ERP instances to one SAP S/4HANA instance.
The 300 participants were IT and LOB executives from the C-level to the manager level. The participants spanned 10 countries covering three regions, from organizations with 1,000-25,000 employees across a multitude of industries and were either planning to …

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Brightwork Study

Brightwork Research Study: The 2019 Oracle Database Usage
ByPrimary Researcher June 27, 2019October 25, 2021

… 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 …

Read More Brightwork Research Study: The 2019 Oracle Database Usage
Expanding Section: How Oracle Presents its Cloud Revenues
ByPrimary Researcher June 26, 2019

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 …

Read More Expanding Section: How Oracle Presents its Cloud Revenues
Expanding Section: Understanding Oracle’s Support Based Model
ByPrimary Researcher June 25, 2019

A Expanding Section: Understanding Oracle’s Support Based Model Posted by * on June 25, 2019 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…

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SAP S/4HANA False Claims

Why SAP Will Charge a Premium for 2025 ECC Support
ByPrimary Researcher June 21, 2019May 24, 2021

Executive Summary SAP previously stated that it would not support ECC beyond 2025. SAP is telling its customers that support beyond 2025 can be obtained by paying a support premium. We analyze what SAP is doing and what it means for customers. Video Introduction: Why SAP Will Charge a Premium for 2025 ECC Support Text…

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SAP - Outside Advice on HANA and S/4HANA

Should You Listen to NTT Data on S/4HANA?
ByPrimary Researcher June 14, 2019May 4, 2021

Executive Summary NTT Data wrote an article designed to sell NTT Data consulting services that give out information on S/4HANA. How accurate was this article? Video Introduction: Should You Listen to NTT Data on S/4HANA? Text Introduction (Skip if You Watched the Video) The falsehoods published on the websites of SAP consulting firms never cease…

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SAP Deception

Are Brightwork’s Statements Too General Versus SAP?
ByPrimary Researcher June 8, 2019March 14, 2021

Executive Summary SAP resources often critique Brightwork. We review the statements by one SAP consultant regarding Brightwork’s specificity of critiques against SAP and check its validity. Introduction We sometimes have surreal interactions on LinkedIn, where various pro-vendor individuals make unsupported claims. Our References for This Article If you want to see our references for this…

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SAP HANA False Claims

How to Evaluate the Proposed Benefits of SAP HANA
ByPrimary Researcher June 5, 2019April 19, 2023

Executive Summary Those who promote HANA usually discuss HANA, and objectivity is entirely lacking. Why it is essential to separate the generalized statements from the specific improvements. Video Introduction: How to Evaluate the Proposed Benefits of SAP HANA Text Introduction (Skip if You Watched the Video) As anyone in SAP knows, HANA has been the…

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SAP Litigation 2

How National Grid’s SAP Implementation Damaged Their Company
ByPrimary Researcher June 4, 2019January 15, 2024

Executive Summary In the complaint brought by National Grid against Wipro, there were essential details included regarding the SAP implementation’s negative impact on their business. Text Introduction When National Grid sued Wipro for failure around a $1 billion set of SAP implementations, National Grid made some curious accusations around Wipro’s consultant quality. These accusations are…

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SAP Litigation 2

What Was the Real Story with the Revlon S/4HANA Failure?
ByPrimary Researcher June 3, 2019January 31, 2024

Executive Summary Revlon failed at a S/4HANA implementation back in Feb of 2017, and this failure came to light in a quarterly call in March of 2019. We cover this failed S/4HANA case study. Introduction (Skip if You Watched the Video) We have been warning people about S/4HANA’s implementation problems since early 2017. We covered this…

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