It may take 10 years, the CEO acknowledges, noting that Oracle is currently only "a little bit" involved in cloud computing.

Mary Hayes Weier, Contributor

June 24, 2009

5 Min Read

Oracle's goal is to one day become the No. 1 supplier of on-demand software, CEO Larry Ellison said in a quarterly conference call with analysts Tuesday.

Still, Ellison acknowledged that Oracle isn't a big player in cloud computing, and quarterly earnings show the company still highly reliant on the fees it collects from software Oracle customers purchase and install on their own premises.

In terms of software-delivery models, Ellison strived to position Oracle as a provider of whatever customers want: On-premises software managed by customers, on-demand software hosted and managed by Oracle, and on-premises software managed by Oracle.

When Morgan Stanley analyst Kash Rangan said that sounded like Oracle was getting into cloud computing, Ellison answered, "A little bit."

While Oracle has beefed up data center capacity in the past few years, it's always offered both hosted and on-premises software. The question is how its approach to cloud computing and/or software as a service will change with Fusion, a next-generation suite that Oracle said represents the best of all its software acquisitions.

"We are code-complete on Fusion applications," Ellison said. "We'll be announcing them later this year. Customers are trying them out, and we'll start delivering next year."

Ellison added that "all of our Fusion applications are on-demand ready ... so we see all of our application software, not just sales-force automation, but all of our application software going forward being sold in two ways."

Ellison did not specify how Fusion applications will be "on-demand ready." Some of that could be related to the applications' architecture.

Fusion applications were built along a model-view-controller architecture, which separates data from business logic and user presentation. In addition, Oracle is using Service Data Objects, a simplified approach to architecting Java objects for use as services.

The result will be "less monolithic" applications that are easier to change and customize, Oracle senior VP Thomas Kurian said in an InformationWeek interview earlier this year.

Still, sales-force automation continues to be a strong spot for Oracle in the SaaS world. "We think with virtually every time we compete with [] on large deals with large customers we win, and in some cases we even replace them," Ellison said. "We think we can be the No. 1 supplier of on-demand software in that particular space."

Ultimately, Oracle's goal is to be the "No. 1 applications company, the No. 1 on-premises application company, and the No. 1 on-demand application company," Ellison said. This will require a "very gradual shift over a period of a decade," but Oracle expects its on-demand business to grow faster than its on-premises business, Ellison said. Oracle's on-premises software continues to be its cash cow, however, and that's primarily because of maintenance fees. For its fourth fiscal quarter ended May 31, Oracle reported that new software sales fell 13% from last year's fourth quarter, to $2.7 billion, while the company's software maintenance business rose 8% to $3.05 billion.

In the call, Oracle co-president Safra Catz said that new software application license revenue for the current quarter is expected be anywhere from flat to down 10% over last year's first fiscal quarter.

Catz noted that "we delivered the highest Q4 operating margin in our history, crossing the 50% mark for the first time." She later remarked that "the margin story really has to do with the fact that we have an enormous installed base of customers that renew their agreements with us every year, and the bigger that number becomes ... that's really the main issue."

In addition to on-demand software, Ellison focused much of his discussion on a data warehouse appliance product co-developed with Hewlett-Packard, called Exadata, that Oracle released last fall.

Ellison views Exadata as an example of the good things Oracle can do when it mixes hardware and software, a product trend it plans to continue with its planned acquisition of Sun Microsystems. "Exadata is really our first experiment in that area, and it's going very well," Ellison said.

Customers for Exadata include Research In Motion and a "well-known California smartphone and computer manufacturer," he said. Oracle sees Teradata as its biggest competitor for Exadata.

Meanwhile, in terms of software sales, middleware has been the "star all year long" for Oracle, said co-president Charles Phillips. Next week, Oracle is rolling out a new version, Fusion Middleware 11G, at an event in Washington, D.C.

Meanwhile, some customers of BEA Systems, which Oracle acquired in 2008, have started to invest in other parts of the Fusion Middleware suite, including Costco, Comcast, and Erickson, Phillips said.

Business intelligence is proving to be a popular application during the recession, and Phillips said Oracle has had some good wins against IBM Cognos and SAP Business Objects, including American Express, Southwest Airlines, and Capital One. Wal-Mart and Kroger have signed on for the company's enterprise performance-management software, Hyperion.

When financial analysts asked about IT spending for the remainder of the year, Philips didn't offer any guarantees.

"I talked to a group of CIOs on this just last week; it's difficult to say," Philips said. "They didn't spend as aggressively in the first half, because they were kind of in a wait-and-see mode. ... So most of them sounded like they wanted to start moving ahead the second half of the year, but we'll see what they do."

InformationWeek has published an in-depth report on cloud storage. Download the report here (registration required).

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