Will NetSuite Acquisition Propel Oracle to Cloud Nine?

Oracle’s software might is indisputable. But with ‘On Premise (OnPrem)’ IT at the evenings of its life has cast a big shadow on the growth of OnPrem revenues for traditional players like Oracle as we move forward. No wonder then, players like Oracle are leveraging their traditional strengths and trying to transition their apps to be delivered on a Cloud model. But with the likes of AWS and Salesforce and the other pure-play cloud vendors, creating a dual strategy of keeping OnPrem and tapping on to Cloud is like handling a double-edged sword, – you need to retain your core strengths at the same time up your ante on the Cloud. This is what Oracle has been doing the last few years while Cloud as a market underwent a transition and became more defined across IaaS, SaaS and PaaS and manifested on Private, Public and Hybrid Cloud models.

Why NetSuite?

The rationale of Oracle’s $9.3 bn acquisition of NetSuite is based on the potential dividends Oracle will see out of NetSuite’s Cloud offerings. For instance, NetSuite, incepted in 1998 pioneered the Cloud Computing revolution, establishing the world’s first company dedicated to delivering business applications over the Internet. Today, NetSuite provides a suite of cloud-based financials, ERP and omnichannel commerce software that runs the business of more than 30,000 companies, organizations, and subsidiaries in more than 100 countries. “NetSuite has been working for 18 years to develop a single system for running a business in the cloud,” says Evan Goldberg, Founder, CTO and Chairman, NetSuite.

Oracle hence believes that the addition of NetSuite will enable it to expand its ability to support customers of any size in more industries and more countries.

Mark Hurd, CEO, Oracle says, “ Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever. We intend to invest heavily in both products—engineering and distribution.”

“NetSuite will benefit from Oracle’s global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries,” adds Zach Nelson, CEO, NetSuite.

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Clearly, Oracle is bent on growing its Cloud revenues and wants to challenge the competition on a more level playing field. If we look at Oracle’s Fiscal 2016 financials, total revenues stood at $37.0 billion. Cloud plus On-Premise Software Revenues were $29.0 billion. When one compares the Cloud revenues with the overall topline , which sums up to just about $2.9 bn ( Iaas, PaaS, and SaaS). So the writing is clear on the wall, and the company needs a massive Cloud ramp up.

But the good news is Oracle on its own is significantly growing its Cloud revenues in the last few quarters. If we look at Oracle’s Q4 of FY 16, total Cloud revenues, including infrastructure as a service (IaaS), were $859 million, up 49% in US dollars terms.

Now with NetSuite in its kitty, Oracle is better positioned to compete with pure-play cloud vendors and can more confidently provide multiple options to the clients.

Oracle’s Founder Larry Ellison has indicated recently that the company will surpass Salesforce and scale up its Cloud revenues to $10 bn. While no timeline for this ambitious goal is revealed, but NetSuite’s acquisition is one springboard that will take Oracle one step closer to its $10 bn Cloud goal. But this alone is not enough, Oracle needs to judiciously integrate its home grown and existing Cloud assets with inorganic assets and create a seamless cloud ecosystem.

Nevertheless, Oracle is at the threshold of a major transition and will increasingly morph into a Cloud company as we move forward.

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