PaaS

Oracle’s Cloud Journey… Accelerated

It is quite clear Oracle has set out to be the undisputed leader in cloud computing. Chairman and CTO Larry Ellison publicly stated his goal of Oracle becoming the first company to reach $10 billion in cloud revenue. The acquisition of NetSuite late last year certainly gave Oracle a big boost in meeting that goal.

In fact, in welcoming attendees to SuiteWorld 2017, CEO Mark Hurd declared Oracle to be in a class alone – the only IT company capable of co-existing on-premise or in the cloud. I have to admit this statement confused me a bit, since there are lots of software solution providers that have taken their on-premise solutions to the cloud, priding themselves in offering choice in deployment models. But I with other, more pressing questions to ask, I never got clarity on this statement while I was at SuiteWorld.

However, the week after SuiteWorld, I had the opportunity to visit Oracle’s Redwood City campus and attend an Oracle Media Day. The theme of the day was cloud and I think I “get” it now.

In the context of NetSuite and SuiteWorld, we’re talking about software as a service (SaaS), and more specifically, enterprise application software. That’s the world I live in and where my mind immediately goes when I think of cloud and “as a service.” I suspect I am not alone here. But that is obviously not all Oracle does. Oracle also provides infrastructure (database and middleware) and a development platform. And more recently it has ventured into the world of data as a service, recognizing data is an important key to unlocking better business outcomes.

Other vendors might offer one or two of these categories…

  • Many of its ERP competitors might offer enterprise applications on-premise or as SaaS solutions.
  • Salesforce offers enterprise applications, along with a development platform (PaaS). But Salesforce is exclusively SaaS and PaaS and doesn’t offer anything on-premise.
  • Amazon is focused exclusively on infrastructure (IaaS).

Oracle is the only company to offer all three (infrastructure, platform and enterprise application software) both on-premise and as a service.

Why is this significant? To quote Mr. Hurd, “We will lead a decade long transition to cloud. The hybrid world will last a long time.” I would agree that this hybrid world will last a long time. While preferences for software deployments have shifted dramatically, there is still a lot of software installed on premise today and my research indicates it will take longer than a decade to replace it. This shift of software to the cloud can’t happen without supporting infrastructure and platforms.

Preferences Have Shifted to SaaS

While years ago ERP could have been called the last bastion of resistance to SaaS, this resistance has been dissipating quite rapidly over the past several years. We have been asking the following question for years now: If you were to consider a new solution today, which deployment options would you consider? Participants are allowed to select as many as they wish. A summary of aggregated answers is shown in Figure 1. We start in 2011 and skip every other year just to fit it on the chart. SaaS is currently the option most likely to be considered and the willingness to consider traditional on-premise solutions dropped off dramatically between 2011 and 2013.

Figure 1: Deployment Options that would be Considered Today

Source: Mint Jutras Enterprise Solution Studies

*Option added in 2015

This year we added a follow-on question, displaying back the deployment models the participant selected and asking which was the first choice. Over half (51%) of all respondents selected SaaS. Furthermore, out of the 325 that would consider SaaS, 225 (~70%) selected it as their top choice.

But even with this level of interest, the actual shift to the cloud can’t happen overnight. We asked our 2017 Mint Jutras Enterprise Solution Study participants to estimate the percentage of all business application software they have running in the cloud today and we also asked them to project that into the future. Even 10 years out (and beyond) we still see over 30% of business software will not have transitioned to SaaS (Figure 2).

Figure 2: Percentage of Business Software Deployed as SaaS

Source: Mint Jutras 2017 Enterprise Solution Study

Yet with 40% of business software deployed as SaaS today, the shift has definitely begun. So this begs the question: How will they get there? What path will companies take? Our 2015 and 2016 studies asked this question (Figure 3). The results validate Mr. Hurd’s conclusion that the hybrid world will last a long time.

Figure 3: What Best Describes Your Cloud Strategy?

Source: Mint Jutras 2015 and 2016 Enterprise Solution Studies

No single strategy dominated, but less than one in four operate predominantly in the cloud today. Few (8% in 2015 and 11% in 2016) are taking specific action to move directly to the cloud, and many more prefer instead to supplement existing solutions with cloud applications and perhaps replace on-premise solutions over time.

We didn’t see all that much change in cloud strategies from 2015 to 2016, so we moved on to other questions in 2017. But we will likely revisit this question in 2018 or 2019. We anticipate that even those not anxious to make any move today might be influenced by the cloud momentum, as well as the growing number and variety of options available.

Oracle Building Cloud Momentum

In the meantime, Oracle is building its own cloud momentum. In its latest quarter, cloud bookings of annual recurring revenue (ARR) were up 73%. Current run rate of cloud revenue puts it at $5 billion (annualized), which means Mr. Ellison is at least halfway to his goal. This includes 1,125 new SaaS customers and 908 SaaS expansions. With the NetSuite acquisition, the number of SaaS customers grew from 13,103 to over 25,000.

Yet interestingly enough, while you might think the differentiation of Oracle as the only IT company capable of supporting on-premise and cloud throughout the full stack might be most appealing to its existing customers, Oracle says most cloud customers are net new. This bodes well for Oracle being able to grab more cloud market share. But it will be even more interesting to watch and see if this cloud momentum starts to permeate through its own installed base. This would serve to further accelerate cloud revenue growth.

And Oracle’s current capacity, with 21 data centers, supported by a flat, wide network with fast storage and huge bandwidth, seems like it should be quite appealing to its own customers, comparatively speaking. In fact Oracle presented one comparison between Oracle and Amazon Web Services (AWS) done by one of its customers, showing Oracle was three to seven times faster, at half the cost. And the workload portability to an Oracle data center should be simpler and easier because Oracle can offer a choice of deployment with the same software, the same APIs, and the same commercial terms.

Oracle has outlined six different “journeys” to the cloud, five of which start with existing (legacy) on-premise solutions. This might involve optimizing on-premise before shifting to either a public cloud or a cloud at the customer’s site. It might involve lifting and shifting workloads to a public cloud, creating a new solution with PaaS or modernizing functions by moving to a new SaaS solution. The final journey is one of a new company (or division or business unit), born in the cloud.

Trek Bicycles is an example of one customer that created a new cloud solution to address a specific pain point: processing claims (repairs). Service is a huge part of Trek’s business, and dealers were spending 6-7 minutes in submitting claims, and the average retailer submits about 2,000 claims per year. Retailers renting bikes in the mountains of Europe were rising early and getting in long before the shop opened simply to enter claims. They needed a better way. So Trek created a cloud-based mobile app. Now, whether partners are in their shops or at a trade show or event, they login to TREK claim entry, send a photo, registration of the bike, and easily enter a claim in under two minutes.

Trek is one example of this hybrid world. In the back office, it is running JD Edwards on premises.

One More Stop on the Cloud Journey: The Data Cloud

There is one more piece of the cloud puzzle, or rather one more step along the cloud journey. This one involves data – not the kind of data stored in and managed by Oracle enterprise applications, but the kind of data that lets you truly understand your industry and your customers. Oracle posed a good question during the Media Day: Would you rather spend money working on ERP or getting to know your customers better?

This is a no-brainer for most companies. They would much rather invest (time, effort and money) directly in growing the business, rather than in back-office solutions that offer more indirect benefits. By putting your ERP in the cloud you are relieved of much of the burden of managing the ERP installation. By tapping into the Oracle Data Cloud you take advantage of the investments Oracle has made, investments in companies like Moat, Blue Kai and Datalogix to make big data available to fuel marketing campaigns and strategic business decisions.

Summing Up

Oracle has made very significant progress in attacking its goal of cloud domination through both organic development and acquisitions. It is the only company on the planet today that can claim to have a “full stack” including IaaS, PaaS and SaaS, while also maintaining the same categories on-premise. And it adds DaaS as frosting on the cake.

However, in order to meet its goal of being the first to reach $10 billion in cloud revenue, it will have to continue its momentum of adding new customers, but will likely need a good portion of that revenue to come from transitioning its own on-premise installed base to the cloud. Before that happens, those customers will need to see the value of the move and be confident that Oracle is the best choice to get them there.

Many companies today, including many Oracle customers, have invested a lot of blood, sweat and tears (not to mention dollars) in their current on-premise implementations. They may be loath to make any changes, particularly if they are heavily customized.

Many still view enterprise applications, like ERP, as they would brain surgery: You don’t do it unless the patient is dying. Mint Jutras has long been trying to change that way of thinking, preferring to treat it more like joint replacement. When do you replace a knee or a hip? When it becomes too painful or when it prevents you from doing what you need (or want) to do. But joint replacement is still major surgery and there is some downtime and a recovery period involved. Nobody volunteers for it without the promise of significant improvements. Oracle’s challenge will be twofold. First it must convince customers that the journey is worth the effort. And secondly, it must prove that transitioning to the Oracle cloud is less invasive surgery, with a quicker recovery period. Of course if a company just wants to lift and shift its current implementation to the cloud, its current solution provider will be its first and best choice. But this is more akin to a hosted environment. While there will be some value in doing this, it will leave many of the benefits of a true SaaS solution on the table. Of course not all of Oracle’s ERP solutions are available as SaaS today and NetSuite is the only multi-tenant SaaS ERP solution in its portfolio. But the breadth and diversity of Oracle offerings provides many different paths that might be taken. The task at hand will be to pick the right path, the one that brings the most value to the customer.

If Oracle can accomplish this, it is certainly well positioned to accelerate its own cloud journey and be the first to reach its goal.

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What does fishing have to do with Salesforce? #DF15

A Quick Take on News from Dreamforce 2015

Last week I set aside some time to watch some of the big keynotes from Dreamforce, Salesforce’s annual extravaganza. Like Dennis Howlett, reporting for Diginomica, I watched from what Den calls “the cheap seats.” While thousands of attendees swarmed San Francisco, I was part of the virtual audience watching the live stream. As a result I was thankful to be insulated from the chaos and gridlock of a city pushed to its limits, but also missed what appeared to be a truly electric and energizing atmosphere.

There was no shortage of announcements surrounding products and partnerships, and I am certain I missed a lot. For more thorough coverage I might recommend Diginomica’s site. They not only had Den watching from the cheap seats, but a whole team covering it onsite. But from my vantage point, what struck me were the two very different faces of Salesforce – the application side and the platform side. Anyone who follows me knows that I research and write for business leaders about enterprise applications. So you would think I would primarily be interested in the applications, right? Not this time.

The category of applications Salesforce delivers is on the periphery of what I cover. As an analyst I describe my coverage area as “enterprise applications with ERP at the core.” Here is not the time or place to debate what ERP is, or is not. Suffice to say it is a convenient label for the applications that run the business, creating a fiscal and operational system of record. While Salesforce’s (or anyone else’s) CRM solution doesn’t fit that definition, it is still important for me to watch because the footprints of ERP solutions have expanded and oftentimes include CRM. Even if they don’t (e.g. the customer uses Salesforce), the intersection of ERP and CRM is important because it is often where the back office meets the front office where competitive advantage can be gained.

So watching from the sidelines has always seemed appropriate. Lately, however, I seem to be getting dragged from the sidelines to more center stage – but not because of its CRM solution. Instead it is its Platform as a Service that is calling me.

Platform as a Service (PaaS) is a category of cloud computing services that provides developers with a platform to create software without the complexity of building and maintaining the infrastructure typically associated with developing an enterprise application. Clearly developers benefit from using the services delivered with a platform, speeding the development process. Since I don’t write for developers, but for the businessperson, how does this translate to benefits to the business? The obvious answer is in delivering more features, functions and innovation in ways that help companies keep up with the accelerating pace of change.

And that is exactly what a growing number of Salesforce partners find appealing, including ERP and accounting solution providers who fall squarely in my line of sight. It has been those partners that have lured me from the periphery to better understand how Salesforce, as a platform company, can help them deliver more value. I also think that it will be the platform, not the applications, that has the highest likelihood to propel Salesforce on the growth trajectory on which Marc Benioff has his sights.

It’s sort of like the old proverb that goes something like this – give a man a fish and he eats for a day; teach him how to fish and he eats for a lifetime. Well, maybe not exactly like that. The platform itself might be appealing to large enterprises with teams of developers on staff looking to modify or even develop their own applications (i.e. learn to fish). But for every large enterprise there are dozens, maybe even hundreds or thousands of small to midsize businesses that are just looking for a fish. Of course, they don’t buy one fish and walk away – they sign up for the “fish a day” program (a subscription). So, sure Salesforce can sell a lot of fish, but that won’t get it to the $10 billion mark – not even close.

But the platform is a “Force” multiplier (pun intended). There are also those partner solution providers who are looking to not only fish, but fish with the latest and greatest fishing tackle and equipment on the market. Using Salesforce’s platform they have proven they can not only fill their nets, but also get to the dock and the fish markets that much faster. Or maybe they don’t go after fish at all because Salesforce CRM satisfies that nutritional requirement. They might be working on the meat and potatoes, the vegetables or the dessert. Together they will have all the other dishes that go with fish in order to make a whole meal and satisfy anyone’s appetite.

The better the development platform, the more likely it will attract more developers. The more developers attracted to the platform, the more applications get developed, which ultimately can be shared. Features, functions and extensions have the potential to start to grow, if not exponentially, at least much faster than the typical linear sequence of development. This is sort of a Catch-22, but in reverse. The strong keep getting stronger, while the weak (those that attract only a few developers) will struggle to compete.

In fact today the Salesforce AppExchange is the largest online marketplace of its kind, offering products built on the platform – all 220,000 of them. All products offered on the AppExchange are 100% native to the platform and share an integrated, secure data and identity management model. All go through a rigorous security review and all are equally easy to customize using developer tools available from Salesforce.

Several vendors I follow closely have based their offerings on the Salesforce Platform.

  • Kenandy used it to develop a modern, new ERP for manufacturing from scratch in a fraction of the time it would have taken with traditional development tools. Sandy Kurtzig, Chairman of Kenandy and also the founder of ASK Computer Systems, is an inspiring entrepreneur. My favorite Sandy quote from back in the ASK days (circa 1984): when asked if she was worried about competitors springing up, she said, “No. We’re in the software business. They have to match me line for line in code. Writing software is like having a baby. You can’t put nine women on it and do it in a month.” Yet that is exactly what Sandy set out to do when she started up Kenandy and saw the Salesforce platform as the means by which she could do it.
  • Rootstock, also ERP for manufacturing, switched from NetSuite’s platform to Salesforce.
  • FinancialForce, owned jointly by Unit4 and Salesforce natively developed its accounting solution on the platform and is now expanding more into the realm of ERP.
  • Conversely, Sage has recently abandoned the ERP moniker (but supposedly not its ERP customers) and simultaneously developed Sage Live, a brand new “real time accounting solution” built on the Salesforce platform and brought to market in months, not years.

The new “Thunder and Lightning” hyped on stage at Dreamforce will only serve to make the platform more appealing to developers of all shapes and sizes. But just as in real life, while thunder and lightening add dramatic effects to a storm, it is the rain that makes the garden grow. It will be up to the software developers to capitalize on the drama from Dreamforce and make the rain (software) that makes our businesses grow.

Something tells me next year I might just have to brave the crowds at Dreamforce in San Francisco. My days of watching from the cheap seats may be numbered.

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