Oracle Wants Cloud Cake And Hardware Wins

Oracle hopes infrastructure-as-a-service (IaaS) plan will help the company have its cake and eat it, too -- boosting Oracle hardware use and increasing cloud subscription revenue.
An infrastructure-as-a-service (IaaS) plan detailed by Oracle on Monday may enable the company to have its cake and eat it, too, boosting use of the company's hardware while also bolstering cloud subscription numbers.

Oracle president Mark Hurd and executive VP Thomas Kurian highlighted several cloud developments during a conference call with the press on Monday. But the IaaS plan, which was originally announced January 15, was the newest news during a half-hour session dominated by rehashes of past announcements.

Oracle IaaS may be a win-win for customers, too, so long as their idea of infrastructure-as-a-service is building out private-cloud infrastructure in their own data centers. In the case of Amazon Web Services, IaaS is compute, storage and other forms of capacity delivered as a service from the vendor's public cloud.

Oracle IaaS lets you deploy Exadata, Exalogic, Exalytics or Sparc SuperCluster servers on premises while paying for use of the hardware through monthly subscription fees rather than upfront capital expenditures. There's a semi-elastic capacity-on-demand option where you can pay for about 75% of the hardware's CPU capacity with the option of tapping into the other 25% by paying additional monthly fees as needed.

[ Want more on Oracle's hardware challenges? Read Oracle Q2 Results: Ellison Spins On Sun. ]

The "as a service" element of the plan is the free inclusion of Oracle PlatinumPlus services that promise ongoing systems monitoring by the vendor to identify system performance and reliability problems, security and compliance issues, and deviations from Oracle best practices and recommended configurations. The vendor says customers are advised on corrective actions on all of the above as well as on problems related to Oracle Database, Oracle Fusion Middleware, Oracle Solaris and Oracle Linux.

It remains to be seen how Oracle will account for IaaS-related transactions in its financial statements. Will these deals somehow count as both hardware shipments and cloud subscriptions? There was little time for questions during the call, but Hurd acknowledged "there will be a blurring of some of these [licensing and subscription terms] as we focus on the customer." The goal, he said, is to let customers consume Oracle intellectual property under any terms they choose.

The IaaS plan does have a few caveats. For starters it's a three-year deal and the hardware is owned by Oracle (even at the end of the term). In the capacity-on-demand plan, customers pay 80% of the list price of the hardware plus three years of maintenance fees prorated over 36 months. Monthly charges for capacity on demand are an additional 25% to 33% of the standard monthly charge (with the percentage varying by system and configuration). Customers can extend the subscription past three years, paying 70% of the original monthly fee. These charges do not include software license fees for operating systems, databases, middleware or applications.

In a brief update on Oracle's public cloud, Kurian said that all Oracle's software-as-a-service (SaaS) offerings, including ERP, sales and marketing, human capital management, talent management, and customer service, had seen new releases since October's Oracle Open World event. In addition, Oracle platform-as-a-service (PaaS) database and Java offerings have been released. Several new PaaS offerings, including storage, messaging, virtual-compute and developer services, are now in beta, Kurian said, and they will be released in the first half of the year.

Oracle has more than 10,000 customers and 25 million users in the cloud, Hurd and Kurian both claimed during the call. The customer count seems reasonable, given Oracle's many cloud acquisitions, but the user count seems astronomical., widely acknowledged to be the cloud computing market-share leader, reported roughly 104,000 customers and 2.1 million subscribers as of mid-2011. Hurd noted that nine of the top 10 SaaS vendors use Oracle database, so perhaps he's including customers of those OEMs in the count? Oracle did not respond to a request for details on these stats in time for publication.

Responding to a question from a reporter, Hurd said Oracle's $7.5 billion 2009 acquisition of Sun Microsystems had already paid for itself. "The cash flow has far exceeded the purchase price," he said, citing revenue streams related to Java, software support and hardware.

Oracle-Sun hardware sales have steadily declined since the acquisition, yet Oracle has consistently said that decline is part of a planned shift away from low-margin commodity hardware and toward higher-margin sales of Exa-series and Sparc engineered systems -- the very products featured in the new IaaS plan.

Oracle has promised a hardware rebound, but it has taken longer than expected. Oracle CEO Larry Ellison said during the company's second-quarter earnings call in December that hardware sales are now on track to level off in the third quarter and turn positive in the fourth quarter. The IaaS plan seems tailor made to help keep the company's hardware factories humming.