So, Why is Everyone Afraid of Oracle’s Cloud Play?

The question you pose, “why is everyone afraid of Oracle’s cloud play,” has many contexts, including vendor and user.

In a vendor context, I believe that almost every vendor fears the cloud; yet they voice support for and label their products “cloud”. This is a classic definition of schizophrenia. The fear is not unfounded. A move to “public” cloud services, be they infrastructure, platform or application (software) is a change to the distribution channel. Analysts suggest that 11% of infrastructure will move into the cloud and that 20% of companies will move to the public cloud by the end of 2012. While that may be aggressive, using the 2009-Q3 stats, we can calculate that 209,000 servers, 293 PB of storage and perhaps 80,000 FC cards will disappears from user channels. Ellison makes the valid point that the industry does not die because of the change. These technologies underpin the change, and the provider will still need hardware and software.

Changing to service based, utility infrastructure, packaged as a cloud (this year), creates economies of scale that are difficult to achieve otherwise. I propose that a fully virtualized infrastructure, managed as a cloud, reduces the demand curve. Is it possible that only 30,000 servers rather than 209,000 servers per quarter could meet the need, with power to spare? (Note: many factors not stated.) We know that mass providers can negotiate best price, have no fear of being white box based, will choose open source, including open source virtualization, use iSCSI storage, effectively manage to a five year depreciation schedule and be self maintainers. This is a big change to vendor economics. There is some light in this grim picture; users carry brand preference into the service provider – a few more hard months will break that habit.

There is a positive for the vendor community, and that is when they recognize cloud is a low cost distribution channel as a “rental model”. Ellison made a point of separating cloud into a technology model and a business model. He notes that as a technology model, cloud is just a new name on a computer attached to a network. As a business model, he says that it “is also very interesting, the notion of rental”. We know that if a user can click to rent a database engine, delivered in moment, locked from potential damage, and automatically maintained – what is not to love. For the vendor, it is a very low cost sale, with low support cost, and you know they like you if they keep paying rent.

I want to spend a moment on user and staff contexts, but that is for another time.

The extent, to which competitive fear finds focus in Oracle, is recognition that the asset portfolio assembled can meet the needs of a high availability “cloud” community. In addition, Ellison’s plan to bundle products washes out a tool of their competitors. How they use the portfolio to create new value is the key. In the cloud space, these assets have composite value. For example, it is one thing to say that an infrastructure is elastic; it is another to make an application elastic. Consider Oracle’s acquisition of BEA, which gave them the Tuxedo code. That code is essential to the scalability labeled as “elastic”. More obvious is MySQL coming out of Sun – even people who use open source are willing to pay for support.

So, perhaps Ellison does not need to be “in hot pursuit of cloud”. Rather, his team just needs persistence and focus to continue the vision of the Internet, now labeled cloud. The most respected application, Salesforce, (we are told) lives in Sun and runs on Oracle and was started by a guy who worked at Oracle. Ellison’s words in other places suggest a consistent vision for a high value market segment. Segmentation, Vision, Focus and Persistence are enviable qualities that should strike fear into the hearts of competitors. As a business strategist, he may have already won.