ORCL Oracle Corp

By Angus Loten 

The massive applications that have long defined enterprise information technology are changing, and the process is gaining momentum as more firms shift spending away from data centers, servers and other hardware and into cloud-based software as a service, says Oracle Chief Executive Mark Hurd.

That migration can be a challenge for software companies and customers alike. But it also gives companies like Oracle the opportunity to make changes that take advantage of certain qualities of the cloud.

"At some point, I expect all customers will make the transition to cloud, it's just too compelling not to," Mr. Hurd recently told CIO Journal.

It's also an opportunity for Oracle to build more business around the cloud. Despite its focus on cloud, Oracle continues to rank well behind cloud-market front-runners Amazon.com Inc. and Microsoft Corp., according to Gartner Inc. and other IT industry analysts -- rankings Mr. Hurd says focus too narrowly on infrastructure rather than applications software.

Software as a service, or SaaS, is the largest segment of the global cloud market, forecast to grow 22.2% to $73.6 billion by the end of the year, Gartner says. It expects the broader global public cloud market to grow 21.4% this year to a total of $186.4 billion, with infrastructure as the fastest-growing segment projected to hit $40.8 billion, up 35.9%.

During its latest quarter ended Aug. 31, Oracle reported overall revenue growth of 1% to $9.19 billion, including $6.61 billion in revenue from a new segment called cloud services and license support that combines cloud and licensing sales.

Looking for growth, Oracle is focusing on cloud-based software for sales, marketing, services, human resources and other business functions "that work together as a suite of applications," Mr. Hurd said.

That strategy marks a shift in recent years for the Redwood City, Calif., tech giant, which largely built its business on developing database software that companies used within their own data centers: "It's very different from the old world," said Mr. Hurd, a former chairman and chief executive of Hewlett-Packard Co. who shares the title of Oracle's CEO with Safra Catz.

Mr. Hurd said businesses moving to the cloud are effectively shifting costs in their IT budgets for data centers, servers, middleware and other tech components into a growing software market, and saving money in the process. Oracle's goal, he said, is to capture those savings by offering cloud services that essentially combine software, hardware and labor spending into SaaS.

He sees a number of benefits for enterprise customers running software in the cloud. For one, cloud applications can be updated with new features much faster and more often -- four times a year on average, compared with once every three or four years, Oracle said.

And since cloud applications are purchased with a renewable subscription, rather than a one-time perpetual license fee, Oracle says cloud app vendors are incentivized to continuously add new or improved capabilities to retain customers.

More broadly, Oracle says cloud-delivered software allows a company's IT resources to become more strategic, with staff focusing on higher-value initiatives.

With SaaS, CIOs who have had to spend upward of 80% of their budgets running and maintaining existing IT and only 20% on business innovation can start to flip that ratio. Eliminating legacy-style implementations and customizations gives them the scope to ramp up innovation, Oracle says.

By bundling its cloud-delivered software into suites, it says, enterprise users are able to move data seamlessly from application to application -- since they are built on the same platform, using the same programming language, and are designed to work together.

In an on-premise setup, by contrast, CIOs have to deal with added costs -- and headaches -- for customizations built by systems integrators, on top of the expense of purchasing the applications, Oracle says.

Mr. Hurd says in the cloud "their applications run faster and at a lower cost, and they are always current on the most recent innovations."

But he adds that cloud isn't a winner-take-all market. Many customers are increasingly running workloads using a hybrid cloud model, where some parts use on-premise technology and other parts are in the cloud.

More CIOs also are relying on several competing cloud providers for different tools and services.

"The fact that you've now got multiple applications providers, you might have a Microsoft cloud and a Oracle cloud, or programs running on someone else's infrastructure, all of that is materially simpler than managing the environment that many of these customers developed," Mr. Hurd said.

"This is an irresistible force," he added.

Write to Angus Loten at angus.loten@wsj.com

(END) Dow Jones Newswires

December 03, 2018 11:59 ET (16:59 GMT)

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