"A decade into its cloud-computing shift, Oracle has a message for those who know it primarily as a database heavyweight with hardball sales tactics: We're cheaper than the competition.
Racing to catch up with today's cloud leaders, the company in recent years has invested in building out smaller data centers, betting that its lighter hardware footprint and cloud engineering translate into cost savings and scalability -- and that lower prices will attract customers who are scrutinizing their IT spending in today's uncertain economic environment.
"Because of the way we built our cloud, it's so much cheaper," Oracle Chief Executive Safra Catz said in an interview. Catz also said Oracle's cloud is faster and more secure.
The pitch is the 46-year-old Austin-based company's latest attempt at reinvention to keep pace with today's pay-as-you-go, multicloud technology landscape. It has aimed to adopt a more open ethos, and distance itself from a reputation for hard-nosed sales. This includes partnering with rivals like Microsoft and chip makers like Nvidia, and ferrying customers' data into cloud infrastructure, the lower-level platform that powers software and applications. And according to Oracle, doing it for cheap.
"We are so compellingly cheap, but our cost of goods sold are so stunningly optimized, that they are profitable," Catz said. "We've been in just the start of this, and luckily, the market, it continues to expand."
"Oracle's strategy is very explicit in that they intend to capture share at the infrastructure layer by being very competitive on price performance," said Deutsche Bank analyst Brad Zelnick. "They are pricing raw infrastructure at a discount to the market leaders, full stop."
Oracle said that based on data from 2020, it is 61% cheaper than Amazon Web Services for core computing services, and 38% cheaper than Google Cloud for the same services. Based on one customer's recent projections over a five-year period, Oracle claims that customer would pay more than double for similar services on AWS, Microsoft Azure and Google Cloud.
Cost is a contentious subject for cloud competitors: Each asserts that its services are cheaper than the next, and offers steep discounts for marquee customers.
"Oracle is again making misleading claims about AWS based on flawed and outdated information," an AWS representative said, and cited its innovation in custom processors that provide up to 40% savings compared with similar technologies.
A Microsoft representative said the company believes its cloud "continues to be priced very competitively," and Google said its customers have chosen its cloud and database products for its open ecosystem and support for many data types. Both companies declined to comment on more specific pricing comparisons.
Catz, the two-decade company veteran named sole chief executive four years ago, said Oracle's critics who say it hasn't moved quickly enough to shed old ways of doing business thought the same of Microsoft when it was pivoting its business to the cloud.
"There was a period when people thought Microsoft would be gone, and they repositioned themselves entirely," she said. "People did not quite realize that it was possible for us to do the exact same thing."
Oracle's cloud infrastructure revenue rose 66% in the most recent quarter, slowing from 76% in the previous quarter. It reported total cloud infrastructurere venue of about $1.5 billion last week, but its stock tumbled as investors soured on slower cloud sales growth.
Amazon and Microsoft also experienced slower cloud growth rates in recent years. The two companies plus Alphabet's Google Cloud and China's Alibaba are the top players in what market research and consulting firm Gartner estimated was a $120.3 billion global market in 2022.
Analysts peg Oracle's cloud business at about 2% of total cloud revenue.
TikTok, one of its highest-profile cloud customers, chose Oracle partly because it was most cost-effective, Catz said. The video app is owned by China-based company ByteDance, which said last year that all of its U.S. user data is routed through Oracle's cloud as it negotiates with regulators over security concerns. Catz declined to comment on ByteDance's relationship with the U.S. government. Oracle has been part of talks to help ByteDance avoid a U.S. ban by acting as a security reviewer.
Kamran Zargahi, Uber's senior director of technology strategy, said in February that the ride-sharing company chose Oracle and Google after an 11-month review of providers based on price and technical capability. "Competition between hyperscalers has really benefited [customers] with better price performance," he said.
Oracle credits the design of the current version of its cloud, launched in 2018 and built by engineers hired from cloud rivals and others, for being faster and cheaper. Analysts say it was engineered for faster networking speeds by eliminating processing overhead, and customizable hardware options allow customers to reduce their unused capacity.
But Oracle's technical strengths aren't necessarily sustainable. Companies with established competitive advantages have a strong brand, a large base of existing customers, and an ecosystem of partners -- those will define Oracle, Deutsche Bank's Zelnick said.
Oracle last week announced a deepening of its four-year-old partnership with Microsoft, making it easier for customers to use its databases in Microsoft data centers. For customers like Jake Fritz, chief information officer of St. Louis-based industrial-technology company Emerson Electric, which uses both Oracle and Microsoft's clouds, the expectation is that the two companies will "keep each other honest," he said.
Meanwhile, Oracle is shoring up its computing horsepower with smaller data centers in many more locations, Catz said. The company has spent big to keep its data center advantage, with capital expenditures hitting a record $2.4 billion in last November's quarter.
Analysts predict the next wave of demand for computing will come from training and powering generative AI models -- presenting a lucrative opportunity for cloud providers.
Oracle's cloud and flagship database software, considered "up-the-stack" because they sit on top of a cloud platform, also face tough competition from younger database upstarts and software vendors." [1]
1. Oracle Pitches Cloud as Alternative --- Company races to catch up in the sector with claims that rivals dispute. Lin, Belle.
Wall Street Journal, Eastern edition; New York, N.Y.. 26 Sep 2023: B.6.
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