Cloud Movements (2nd part): Oracle’s fight against itself (and the OpenStack role)

In a last week post (I use, or try, to do one per week, but last week there were a couple, thanks to OpenStack Grizzly delivery) I analyzed last Cloud movements of traditional IT giants; specifically we speak about HP and IBM: both of them just embraced OpenStack (in short, “HP Cloud” was built on OpenStack and IBM announced that all of its cloud offerings would be built around OpenStack). And I promise to speak in a coming post (this one) about the complex and eclectic Oracle’s position about Cloud, that ranges from disdaining Cloud Computing (e.g. Larry Ellison called cloud computing “nonsense” in 2009), to the recent Nimbula acquisition (Nimbula is a company that makes private cloud technology).

My thesis about Oracle position is, I announced in the  previous post, that Oracle is fighting against itself: I mean, its traditional and profitable business model is challenged by the Cloud model, and it has been delaying its adoption as much as possible (may be too much?), as IBM did when its mainframes ran mission-critical applications on legacy databases, and a new (by then) generation of infrastructure vendors (DEC, HP, Sun, Microsoft and Oracle) challenged it and disrupted the old IBM model: it was conflicted about selling the lower-priced, lower-margin servers needed to run them. (Note: since this a continuation of a previous post, let me to follow the numeration of that analysis, and start at point three)

3) Oracle and its CEO Larry Ellison used to disdain Cloud Computing (e.g. he called cloud computing “nonsense” in 2009) and there was a god reason to don’t permit Amazon-style metered pricing for Oracle’s mainstream database and middleware: for example, according to prices of spring 2012, a traditional 11g database license then would cost $2.8 million, it would cost less than $9 per hour using Oracle’s mySQL on Amazon. However,  in spite of that, its unclear strategy have evolving over time: 

1. Ellison founded NetSuite, one of the earliest SaaS players,
2. last fall Oracle announced a new an Infrastructure as a Service cloud computing offering to,
3. and a few days ago Oracle said that it has bought Nimbula that in 2012 joined OpenStack; therefore Oracle, that so far has not been a member of the OpenStack community, will eventually have an interaction with open-source OpenStack project. Nimbula is a provider of private cloud infrastructure management software. It’s also interesting that Nimbula was founded by Chris Pinkham, one of the people who created Amazon’s cloud and managed the development of Amazon’s Elastic Compute Cloud (EC2). Besides, Nimbula’s main product is “Nimbula Director”, which allows enterprises and service providers to build large-scale, fully functional infrastructure services from bare metal in a matter of hours, and isolates customers from the operational and hardware complexities associated with deploying a private, hybrid or public cloud. So, at least, by proxy Oracle will have a place set for it at the OpenStack table. They’ll look across at other enterprise giants, such as VMware, which also by proxy joined OpenStack when it acquired Nicira (or IBM, HP, Dell as already analyzed in the previous post). According to oracle “Nimbula’s product is complementary to Oracle, and is expected to be integrated with Oracle’s cloud offerings”.
4. According to Oracle, much of this efforts around cloud computing have been in providing hardware and software to run private clouds, through engineered systems such as Exalogic, and by customizing its databases, applications and middleware to run in cloud configurations (you can see its offer here).
5. However, in my opinion, contrary to Oracle’s claims, neither its Exadata database machine nor its database appliance is a cloud strategy, because both strategies base their pricing on peak capacity, not on elastic metering (and a typical application runs most of the time at only 40 percent of its peak capacity.
6. The reason for that is that, although Oracle clearly has the technical wherewithal to compete with the new databases that are powering cloud-based applications (Web 2.0, big data applications and so on), however so far they’re conflicted about how to handle metered pricing in these environments: i.e. changing the resources, processes and values that underpin its business model in order to support metered pricing is immensely challenging because the transition to metered pricing would dramatically erode Oracle’s revenue and 45 percent of its operating profit margins (see George Gilbert’s post titled in Oracle has a cloud computing secret  from where I take most of my information and ideas about). That is why Oracle is resisting metered pricing that implies the Cloud model.

 

In conclusion, the traditional technology giants are under pressure from investors to maintain revenues, and so far license and maintenance revenue have been the main, while cloud revenue services has historically been seen as a depreciation of these revenues. However, according to Gartner, the fastest-growing segment within the IT market is cloud compute services, which is part of the cloud-based infrastructure as a service (IaaS) segment: cloud compute services were expected to grow 48.7 percent in 2012 to $5.0 billion, up from $3.4 billion in 2011. Therefore the big traditional IT players are realizing that cloud is the way of the future (and the present) and the only way to keep their revenues, as Amazon is continuously showing us.

 

Consequently, at the last, the traditional technology giants are finally moving away from legacy practices (namely, license and maintenance fees) to the Cloud. So, as derivate consequence, there’s been, and will continue to be, consolidation occurring in the market since this big companies will continue to pick up important cloud pieces out there to build out full and impressive cloud portfolio and offers.