Oracle's trio of leaders had a difficult mission following the company's fourth quarter earnings miss: Crow about the cloud, gloss over a new software license decline and convince analysts that all is well with a transition from money up front for software to subscriptions.
It's unclear whether analysts will buy the cloud needle Oracle is trying to thread, but it's worth going through the key points and call BS where appropriate.
Oracle digs the transition to the cloud and doesn't sweat the decline in new licenses. New license revenue was down 17 percent in the fourth quarter and 10 percent in constant currency. CEO Safra Catz said:
We're going to be selling cloud. And we would much rather have a cloud booking for, as I said, for $1 million, than we would for a licensed deal, which I book all the way, right upfront, to the bottom line, we would much rather have a cloud booking for $1 million than a new license dollar.
Verdict: Color me skeptical. Oracle is transitioning to the cloud because it has to. The license and support model worked for years. Why would Oracle ditch the gravy train unless it was coming to an end?
Oracle's cloud profit margins can shine because the company can use its own technology to build its services. CTO Larry Ellison noted that Salesforce and even SAP buy Oracle databases to run their clouds.
Salesforce paid us a lot of money for their platform.
They buy. They buy the Oracle database. They paid a lot of money for the Oracle database. By the way, we just signed an Oracle database deal, so SAP could run concurrent. We signed an Oracle database deal -- this is all in the last 12 months -- so SAP can run Ariba. We signed an Oracle database deal so SAP could run SuccessFactors. Our expense profile is very, very different.
Verdict: Oracle could have a point here since its database for now powers a bevy of software as a service providers. It's unclear whether Oracle can fend off open source technology forever though.
Oracle on-premise customers are going all-in on the company's cloud. Catz added that she'll take the tradeoff between new license declines and cloud growth.
New software licensed revenue worth $3.1 billion reflecting the accelerated migration to cloud. The shift to cloud was very pronounced in Europe, where new software license sales were most impacted. But Europe was also our fastest growing region for both cloud revenue and bookings, as you would expect from the substitution.
Verdict: I doubt the on-premise to cloud shift is a 1:1 relationship. Some of those customers will be shifting to other clouds from different vendors.
Support is just swell. Catz said renewal rates for support are high and many customers aren't canceling even as they move to the cloud. "Many of our customers are not necessarily canceling support and moving everything to the cloud overnight. They are adding cloud capabilities," said Catz.
Verdict: Support revenue was flat due to currency fluctuation and up 8 percent in constant currency. Support is the cash cow for Oracle, but a move to the cloud will end the fun.
Oracle's addressable market is much larger today because of the cloud. CTO Larry Ellison and CEO Mark Hurd said Oracle can move down market easier now. Ellison said:
We can go much further down market, get to customers we could never get to before because the SaaS service is much easier to consume for a mid-sized company than buying a computer, opening a data center, hiring a bunch of people and running licensed software. We think the available market is dramatically larger.
Verdict: Oracle could have a larger market via the cloud, but it's unclear whether the company can truly understand the mid-sized enterprise. Software---cloud or otherwise---that moves downstream is often a retrofit that doesn't fly.